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Validity of estate rentcharges 'does not depend on reasonableness'

5 March 2012

The validity of an estate rentcharge does not depend “on the reasonableness of the amount calculated from time to time” for service charges, Lord Justice Mummery has said.

Giving the leading judgment in the second ever Court of Appeal case on the interpretation of the Rentcharges Act 1977, Mummery LJ said a rentcharge created for a legitimate purpose was “valid at the outset once and for all”.

However, he said that if the payment required from the landowner was not reasonable, the rentcharge could not be relied on.

“In those circumstances the registered estate rentcharge does not automatically cease to be an estate rentcharge or cease to be valid. It simply becomes unavailable to the rent owner as a means of recovering a particular contribution to costs that are not reasonable in relation to the performance of the covenant.”

Delivering judgment in Smith Brothers Farms v Canwell Estate Company [2012] EWCA Civ 237, Mummery LJ said the dispute was about unpaid contributions to the upkeep of all the roads on the estate.

He said the arrears, which totalled just under £15,000 for the last seven years, seemed “modest in comparison with the cost of the complicated proceedings for their recovery”.

However, Mummery LJ said the “size of the sums does not tell the whole story”, and, while a perpetual rentcharge on the defendant’s land might affect the value, the outcome of the case could also affect Canwell’s method of recovering contributions from around 40 landowners.

He rejected the complaint made by Smith Brothers that Canwell sought to make it liable for 18 per cent of the charge relating to roads which it had no right to use, and 90 per cent of the charge for the only road it had a shared right to use.

Mummery LJ said that Canwell’s rentcharge was validly created under section 2 of the 1977 Act, and for the performance of a covenant for a permitted beneficial purpose, having regard to the other land on the estate.

He ruled that Judge Simon Barker at Birmingham County Court was not wrong in rejecting the defendant’s construction of the 1977 Act and giving judgment for Canwell (see solicitorsjournal.com, 9 May 2011).

He dismissed the defendant’s appeal. Lord Justices Toulson and Kitchin agreed.

John de Waal, a barrister specialising in property litigation at Hardwicke Chambers, acted for Canwell.

He said the ruling meant that the estate company could enforce rentcharges and collect contributions for the maintenance of the roads in the estate.

“Even though Smith does have not a right of way over all the roads, everyone must make contributions for the roads across the whole estate.”

De Waal said that it would have been a “disaster” if the Court of Appeal had ruled against his client.

He said Canwell would have had to provide services for the whole estate, without getting a contribution from one of the landowners. De Waal said all the landowners owned a share in the estate company.

“It operates as a collective,” he said. “If one person finds a legal way not to pay their contribution, everyone suffers.

“The ruling explains clearly that an estate rentcharge will only be enforceable if it is reasonable.”

De Waal added that rentcharges were an important way of collecting service charges, since positive covenants do not pass with the land and are more common on small industrial and residential estates than agricultural land.

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Landlord & Tenant