RENTCHARGE ABOLITION (Hansard, 16 December 1970)

§ Mr. Michael Cocks

I beg to move, That leave be given to bring in a Bill to prohibit the creation of rentcharges on freehold land; and to extinguish existing rent-charges equitably. The Bill seeks to remedy a land tenure anomaly which, at the moment, is limited to the areas around Bristol and Manchester, whereby residential properties are freehold but subject to rentcharge. This is commonly known as a ground rent in the Bristol area, and a chief rent in the Manchester area. It is not, however, a true ground rent, but a rentcharge on freehold property. I imagine that most hon. Members are accustomed to thinking 1379 of residential property as being either completely freehold or leasehold at a ground rent, but here we have people who own the house, own the land on which it stands, and yet pay a rentcharge on it.

I should at this stage declare my interest, because for 15 years I lived in a pre-war house which carried an annual rent-charge of £6, and since September I have lived in a 70-year old house which carries an annual rentcharge of £4 15s. I hope, however, that the House will accept that this is not the prime motivation for my pursuing the Bill today.

The search for a house in my younger days brought me into contact with the system which I thought then was anomalous, and I shared the resentment which many others had against it, and recently I was pleased to find that the Law Commission had published a working paper, No. 24, on the question of rentcharges, in which it said in paragraph 30 on page 19: Accordingly, we consider that a prima facie case for prohibition of the creation of rentcharges in the future and the extinction of existing rentcharges is established. In July I appealed to the general public to send me information on this subject, and I had a substantial response. I also wrote to a number of estate agents, and had replies from them, and on the basis of these replies, together with my own experience, I compiled a submission to the Law Commission.

There is an historical justification for these charges. Economically, large landowners used to release land to small builders. They received no capital in return, but accepted a perpetual rent-charge on it, and this exceeded the agricultural return on the land.

There are also covenants associated with these rentcharges. One estate agent said that the covenants were instrumental in preserving Bath's great Georgian terraces, but he went on to say that the function of the covenants had been superseded by the Town and Country Planning Acts.

The economic justification is no longer valid, and the Law Commission seems to feel that, rather than lower the capital cost of a house, which is what the developers claim, it is more of a bonus for developers, and about three-quarters of 1380 the 60 estate agents who replied to me take the same view as the Law Commission does.

Perhaps I may quote what was said by one local surveyor, auctioneer and estate agent: Perpetual yearly rentcharge is applicable only to freehold properties and is frankly iniquitous—it is often named in the profession as the Builders' Pension Fund … and in our opinion is a dubious method of inflating the purchase price, particularly of new property beyond the current market price. Other agents confirmed this, using expressions such as "confidence trick", the "Bristol twist" and similar descriptions.

From the general public I received only one letter in favour of this system; the remainder were very strongly against it. Some people wrote on behalf of their neighbours in a cul-de-sac, or a road, and on behalf of colleagues at work. Some offered to collect signatures. Some included lists of people who were opposed to this practice, and the word most commonly used about it was "iniquitous".

Perhaps I may weary the House with one quotation: I heartily agree that it is high time this iniquitous practice was legally stopped. No one has ever satisfactorily explained why I should have to pay a rentcharge on freehold land for which I have paid the full price in a lump sum. Others stressed that this was an anachronism, and that they received no benefit for their payments. Particularly virulent were the letters from people in other parts of the country, where this system is unknown and incomprehensible to them.

It may be said that people have a choice whether they buy their property freehold and free, or freehold with a rentcharge, but how genuine is this choice? The Law Commission's working paper estimates that about 80 per cent. of the property in the Bath, Bristol and Weston-super-Mare areas is freehold subject to rentcharge, and this is borne out by my experience and confirmed by estate agents.

In some of the newly developing areas around Bristol the situation is even worse, and one solicitor in North Somerset said that on new houses there the imposition of rentcharges was practically universal. This area is destined to grow by the year 2,000 to a town the size of Taunton and, as things are going, each one of these houses will carry a rentcharge. There 1381 is little choice for a young couple of limited means. I quote one example explaining this: My first experience … that is, of the rentcharge system— … was when I removed to this area four years ago, and I found there was no alternative to my acceptance of this iniquitous charge. I had to have a house in order to live near my employment. I was forced into a distasteful situation. It is also suggested that if rentcharges are prohibited then leasehold will replace them. The people who suggest this in the Bristol area envisage that the ground rent on the leasehold will be the same as the rentcharge. I find this argument extremely difficult to follow. If this is so, it means that as the price of land rises, in order to get a fair return on the capital if only a small ground rent is imposed, then the purchaser would have to pay a very substantial part of the cost of the plot, and in this way he will be paying towards the acquisition of land which he is not then entitled to own.

I have had letters from people who have bought rentcharges as an investment who have been concerned about the raising of this issue, but they have been reassured by the proposals that these charges will be extinguished equitably and that their investment will thus be safeguarded.

Some estate agents maintain that rentcharges result in a reduction of purchase price. This is not generally held, but those who believe that such is the case stress that it is possible to redeem rentcharges under Section 191 of the Law of Property Act, 1925. Even if this right is widely known, is it worth while? There is is no guarantee that the redemption of the rentcharge will enhance the market value of the property. In addition, the working paper states that residential property in urban areas changes hands once every eight years on average, thus one may well redeem and simply pass on the benefit to the next purchaser. In spite of this, some people still redeem as a matter of principle because they find the system so objectionable. As one person said: It is a poisonous tag on any man's private property. 1382 If the situation were static, I should not press it on the House with such urgency. But the letters which I have received show that the system is spreading like a disease through the West Country. I have had reports of the rentcharge system being imposed, for example, in Minehead, Burnham on Sea, Shepton Mallett, Calne and on the Cotswolds, and it is absolutely rife in South Gloucestershire and North Somerset, the area around Bristol.

We carried out a sample survey of two polling districts in the rapidly developing area of Winterbourne, with 7,000 people on the register. We estimated an income of 22,618 guineas of rentcharge in that area alone. I have already said that my own charge is £4 15s. Many new rentcharges are in the region of 12, 15, 20 and even 30 guineas.

I ask the House to support the Bill, first, to simplify the land law of this country; secondly, to remove from the law the blame which it is at present receiving for allowing the system and giving it legal sanction; thirdly, to stop the spread which I have mentioned going any further; and, above all, to remove the sense of injustice. People who are struggling to buy their own homes want to own their homes and own them root and branch. If they buy freehold they want freehold. When they make rates and mortgage payments, they know that there is something to show for them. They can see nothing for rentcharges. I ask the House to support them and to remove what may once have been justified but has now become a gross local anomaly.