The validity of modern rentcharges (UK)

In Smith Brothers Farms Limited v The Canwell Estate Company Limited ([2012] EWCA Civ 237, CA (Eng)) a rentcharge had been created in the 1990 transfer of freehold farm land that was part of a larger estate. The rentcharge required the transferee and its successors in title to pay a contribution to the cost of the upkeep of (inter alia) the estate roads.

The Rentcharges Act 1977 sought to prevent the creation of new ‘pure income profit’ rentcharges. It allowed the creation of new ‘estate rentcharges’. These are defined to include rentcharges which cover the cost of the charge owner’s covenant to provide services for the land affected (or for the benefit of that land and other land) (Rentcharges Act 1977, s.2(4)). The Act contains a further, anti-avoidance, provision in section 2(5) to the effect that a rentcharge will only be an estate rentcharge if the charge is reasonable in relation to the owner’s performance of the covenant in question.

The successor in title of the land affected argued that the rentcharge was invalid. First, it argued that it did not satisfy section 2(4) since the rentcharge required it to pay for the upkeep of estate roads that it could not use and that did not serve the land affected. This argument failed; it looked at the question from too narrow a perspective. It was enough that the whole estate benefited from the services and that it benefited the affected land together with other land ([55] – [57]).

Further, the effect of a rentcharge failing the reasonableness test in section 2(5) was that the excess amount was irrecoverable (the rentcharge remained a valid rentcharge if it satisfied section 2(4)) ([60]).

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