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Commercial Question

Chancel repair liability and its impact on landowners

updated on 15 July 2014

Question

How is such a historical, esoteric point of law impacting on homeowners and on the delivery of housing developments?

Answer

We all know what it feels like when an unexpected bill lands on our doormat and thousands of homeowners in the United Kingdom could see themselves facing the most unexpected bill of their lives. Those living in parishes with churches built before 1536 could be liable for the costs of repairing part of the church, through what is known as chancel repair liability (CRL). Many people are unaware that the land that they own carries this liability, nonetheless, they are still liable for the repair costs that could amount to hundreds of thousands of pounds.

This article will look at what CRL is and the recent changes in the law that have made this a pressing issue to so many people. It will also highlight how such an apparently esoteric point of law is affecting residential home owners, developers and lawyers alike.

CRL

CRL is a liability attached to land in parts of England and Wales which requires landowners to contribute toward the repair of the chancel of a specific church. CRL attaches to land formerly owned by the monarchy which was sold by Henry VIII at the time of the Reformation. It relates to approximately 5,200 pre-Reformation churches. The owners of this land are deemed to be 'lay rectors' and have an obligation to contribute to repair of the chancel. If the land to which the CRL attached can be identified, the burden to fund the chancel repair can be enforced by the church against the owner or owners (if the land has subsequently been split into different ownerships). CRL runs with the land and therefore binds the freeholder.

Recent changes in the law

Up until 12 October 2013, CRL had status as an overriding interest, which meant it bound any buyer of the land even if they did not and could not know about it. The law relating to CRL changed as of 13 October 2013. It lost its status as an overriding interest under the Land Registration Act 2002. This now means that if after 13 October 2013, a purchaser buys land against which CRL is not registered, the purchaser will be free of the liability; the parochial church council (PCC) will have lost the legal right to recover the cost of the chancel repair. However, there remains a gap in the law for people who acquired their land before 13 October 2013.

Any PCC which can prove it is entitled to demand a contribution to CRL from land owners can still register an interest on the property, which would bind the owner and its successors in title. Such registration can take place at any time (after 12 October 2013) up until the next time the land is sold. As one may predict, the recent changes in the law have caused PCCs to review their positions in respect of whether their interests are registered on the relevant titles. The effect of this sudden impetus to register their interests has permeated through domestic, business and legal markets.

As PCCs take steps to register their interests, homeowners up and down the country are receiving official letters from HM Land Registry notifying them of this - causing consternation and worry in many cases.

Effect of CRL on landowners and developers

A law which is said to be based on case law and parliament from as far back as the 10th Century would not, one would think, affect the business world of today. Yet it has and it looks set to continue to do so. Homeowners are suddenly being notified that their land is subject to CRL, not only causing them worry about whether they are going to receive a large repair bill, but also meaning that selling their houses becomes much more difficult. Those that are still able to sell their house are finding that the CRL is significantly devaluing it. This is therefore affecting the housing market in certain regions where CRL is prevalent.

It is not only home owners who are suffering under the archaic bind of CRL. Developers are also finding that this law is affecting their business. The issue is that CRL is not usually found on the title deeds to a piece of land (this will now not be the case since the changes to the law on 13 October 2013). Developers have therefore found themselves in a position where they have bought land on which to develop and have then been served with notification that they are liable for CRL. As noted above, land subject to CRL is extremely difficult to sell and is significantly devalued. Many developers are finding themselves with houses, commercial buildings or land that they cannot sell, and  have lost money on development projects in certain areas of the country. As one would imagine, developers are becoming more cautious about where they intend to develop land. Some are now even avoiding developing in certain locations to avoid the risk of being stung by CRL.

How it is affecting the legal market

CRL is not just affecting homeowners, commercial landowners and developers; the issues and ramifications that CRL brings with it are also permeating the legal market, in two significant ways.  First, developers are less inclined to develop land and commence projects in certain regions, which in turn means that solicitors are being instructed less. Second, when solicitors are instructed by developers, they must ensure that they factor CRL considerations into their advice.

As many PCCs are reviewing who they can seek a contribution from, this has meant that over the past year developers have been receiving correspondence from PCCs, either notifying them that they are going to register their interest on the title register, or alternatively suggesting a one-off premium to "pay off" their liability. Solicitors are having to advise their clients on the advantages and disadvantages of the deals that PCCs are proposing. In many cases, where there are several landowners of one parcel of land (which is subject to CRL), solicitors are having to make clients aware that while they may buy themselves out of their liability to the PCC, as CRL is joint and several, they remain liable to the other land owners for a contribution should the PCC seek a contribution from the other landowners. In essence, unless every single party with a possible CRL is identified and "does a deal" with their PCC, it is impossible to be certain that all risk is alleviated.

Conclusion

While there are mechanisms in place to protect landowners from unexpected chancel repair bills - chancel liability insurance being one example - this is not likely to be available once the landowner has received any communication from authorities, bodies or persons connected with a church relating to their chancel repair liability. Therefore in many cases, chancel liability insurance is not available.

The hope therefore lies in churches being dissuaded, by the risk of adverse publicity, from seeking unfair and disproportionate contributions from landowners. Churches have been encouraged by local MPs to do far more to facilitate sensible deals. MPs are also offering their services to mediate the two parties and assist their constituents with the negotiations.

Despite this archaic law currently permeating through several business sectors, and affecting the dynamics of those markets, it is hoped that over the next couple of years as developers, homeowners and solicitors alike become alive to the pit falls of CRL, it will no longer obstruct the growth of the property market.

Rachael Norris is a second-seat trainee in the real estate department at Irwin Mitchell.