Estate Rentcharge Indemnity Insurance (Lender Only)

Background

The Rent Charge Act 1977 prohibited the creation of certain rentcharges and meant that all existing rentcharges on properties will be extinguished by 2037.

However, there was an exception in this Act for the creation of “estate rentcharges”. These rentcharges are usually collected by a management company and paid by the owners of the freehold properties on the estate.

The money which is collected subsequently pays for the maintenance and service of the common areas which are enjoyed by all. Some nominal fees which are collected by way of estate rentcharges also allow the rentcharge owner to enforce positive covenants on the property owner.

In what circumstances is cover required?

Estate rentcharges will always need to be paid up to date by the property owner. If the charge remains overdue for 40 days, the rentcharge owner is able to exercise rights under Section 121 of the Law of Property Act 1925. This means that the rentcharge owner can;

1. Register a statutory lease on the property
2. Exercise rights of re-entry to the property

Similar issues can occur following non-payment of estate service charges.

Product features:

Cover in this instance is provided for the mortgage lender, should the property owner fail to maintain rentcharge/service charge payments and there is subsequent action taken from the rentcharge owner exercising powers under Section 121 of the Law of Property Act 1925.
Specific coverage:
1. Shortfall in the outstanding debt under the mortgage or charge as a direct consequence of the registered lease and/or re-entry reducing the market value of the property
2. The expense of complying with an injunction
3. Compensation/damages awarded against the insured
4. Legal fees