Certain dispositions are expressly required to be registered at Land Registry in accordance with the Land Registration Act 2002 (the Act). These include applications out of unregistered titles which trigger first registration and dispositions out of registered titles such as transfers, leases for more than seven years (including reversionary leases), easements, rent charges and legal charges. Dispositions which require registration must be lodged at Land Registry and the period between the date of the disposition and the date of actual registration is known as the ‘registration gap’.
So why is the registration gap, or a failure to register altogether, of particular concern? The consequences affect both the disponor and disponee and can have a significant impact on their respective legal and equitable interests. The consequences of a failure to register differ depending on whether the title out of which your disposition stems is registered or unregistered.
In the case of a disposition out of unregistered land, both the legal and equitable estates pass to the disponee on the date of the disposition. The Act requires registration within two months of completion and, if this is not achieved, the disposition becomes void, with the consequence that in the case of a transfer or assignment, the legal estate reverts to the disponor (who would hold this as bare trustee for the disponee); or in the case of the grant of a new lease for more than seven years, the lease takes effect as an agreement for lease only.
It is worth noting that the two month registration deadline is often well exceeded by delays at the Land Registry, but an application lodged, if not completed, within the timeframe will give you adequate protection. In practice, an application lodged out of time is also unlikely to face rejection - the Registrar rarely takes issue with late applications and does have a discretion to complete an application out of time, effectively perfecting the error.
For dispositions out of registered land, whilst there is no specific time period in which you must apply for registration, the estate created by the disposition exists only in equity until registered. In practice, this means that the legal estate remains vested with the disponor indefinitely, until registration is completed. Interestingly, a lease will only ever exist in equity (and not at law) until it is registered at Land Registry, even if the lease is granted out of a registered title.
In those rare instances where a transaction is not compulsorily registerable, both the legal and equitable estates pass on the date of the disposition and, as such, a registration gap is impossible.
In practice, there are many reasons why registration does not take place within the requisite time or, indeed, at all. It might be that the disponee is an unrepresented party and therefore doesn’t have the requisite knowledge to undertake the registration process, is not aware of the requirement, or is unwilling for financial reasons to do so.
Whilst it is rare for freehold dispositions to remain unregistered, it is more common for registerable leases to slip through the net and the consequences for a landlord and tenant of the failure to register can be dramatic.
Depending on the circumstances, it is possible that the lease will amount to only a personal contract between the original landlord and tenant. This would have the result that, on an assignment of either the landlord’s or the tenant’s interests, neither the new landlord nor the new tenant would be bound by the covenants in the lease as these were personal between the original parties. This could impact both the value of the freehold reversion, for example, on a sale which expected to take the benefit of the rental income, and also the value to the tenant of having a transferable or chargeable business asset.
Similar problems could arise in relation to funding considerations, if a landlord intends to utilise the benefit of the rental income for the purposes of a reversionary charge. If the lease amounts to only a personal contract between the original parties, only the landlord can personally benefit from the rental income and a lender is therefore unlikely to accept this as security.
It is possible that a new lease granted out of a registered title will amount to an equitable lease, rather than simply a personal contract. An equitable lease is assignable, and therefore has some benefit over a personal contract. However, the absence of a registered legal title is still likely to be a significant drawback to any proposed lender or purchaser, and an application to Land Registry should be pursued in order to perfect the title and secure the maximum possible benefit from the lease.
The importance of registration should not be overlooked and landlords should consider carefully the implications of accepting a tenant who is unable, or unwilling, to appoint a solicitor to deal with post-completion requirements. Whilst most leases will include an express covenant on a tenant to deal with registration in a timely fashion, this still imposes an active obligation on the landlord to enforce the breach if a tenant fails to comply. If the landlord is unwilling to expend the time and cost in enforcing this covenant, they must accept the consequences of a lease which will likely impact on the value and saleability of their freehold reversion.
For further information or advice about registration issues, please contact Hannah Harbottle or another member of the Commercial Property Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2020.