During the registration gap period the buyer of the property is an owner in equity until the registration is completed. However, once registration is completed the legal estate vests in the buyer from the date of the application for registration.
The Land Registry recently published application service standard information (updated 8 January 2020) which reported on the current (average) completion timeframes for creating new registered titles as being:
- first registrations: 35 working days
- developing estate new leases: 34 working days
- non-developing estate new leases: 113 working days
- developing estate transfers of part: 29 working days
- non-developing estate transfers of part: 105 working days
You can see that there is the potential for a registration gap of 113 working days, and these are only average figures (and can therefore be higher or lower).
To put this problem into context - a commercial landlord has just completed a large acquisition of a multi-let unit (for example the purchase of a large retail park subject to a number of occupational tenancies). A tenant on the site entered into a new lease for one of the units with the landlord's predecessor. A copy of the completed lease was provided by the seller landlord to the new landlord during the course of the acquisition process so they are aware of the tenant and the tenant’s lease, but the lease is still pending registration at the Land Registry. On applying to register the new landlord’s interest in the property the landlord’s application will be delayed behind this pre-existing application, and this will therefore cause delays with the landlord becoming the registered legal owner as this new application cannot be completed until the tenant's application is completed.
Why does this matter?
If you are buying the property as an investment with a view to leasing the property this could be a problem to you as a commercial landlord. The difficulty to the purchaser landlord is the inability to serve notices (i.e. a notice to quit or a break notice) on the tenants while their registration is pending and they are not yet a legal owner (being an owner in equity). This is going to inhibit the landlord and their dealings with the site during the registration gap period.
This was seen in the case of Sackville UK Property Select II (GP) No 1 Ltd and another v Robertson Taylor Insurance Brokers Ltd and another  EWHC 122 (Ch), in which the High Court ruled that a break notice signed by the assignee of a Lease was invalid because the transfer of its interest had not been registered at the Land Registry.
What can we do to try and mitigate this problem?
Applications for registration should of course be submitted promptly after completion, and a prudent lawyer will make sure during the course of the transaction that they will have all documents required on completion to attend to the registration in an efficient manner.
In addition an Official Search (priority search – OS1/OS2) should be carried out before completion to provide the buyer’s application for registration with priority over any subsequent pending registration. If there is a delay with submitting the application for registration then the priority search should be renewed (it is valid for 30 days) to continue the protection. The importance of this was seen in the case of Baker v Craggs  EWCA Civ 1126, in which a failure to ensure the priority search was renewed gave rise to a dispute over whether the property should be subsequently registered subject to a right of way in favour of a neighbouring property owner. Although the Court of Appeal eventually found that Mr and Mrs Craggs' property took free from the right of way, this case stresses the importance of the rules of priority and ensuring priority checks are kept up-to-date.
However, these actions are not always enough to mitigate the problems of the registration gap, particularly when buying property subject to occupational leases. For example in Stodday Land Ltd v Pye  EWHC 2454 (Ch), a notice to quit served by the disponee, who was not yet the registered proprietor, was held to be invalid as it was not served by the legal owner. For notices under the Landlord and Tenant Act 1954 (LTA 1954) references to the ‘landlord’ and the ‘tenant’ are generally reference to the person in whom the legal estate is vested.
One way of getting round this problem is to draft additional clauses into the sale contract to appoint the buyer of the property as the seller’s agent during the registration gap. This allows the buyer, during the registration gap, to serve notices, commence proceedings and take any other action in relation to the occupational leases on their site and the management of the property, until they are formally registered at the Land Registry as the registered proprietor. Such a clause would normally include an indemnity in favour of the seller, providing that the buyer will indemnify the seller against all matters arising from any such action taken during the registration gap period. It goes without saying that careful drafting is required to provide these rights to protect both parties.
If you require any advice on commercial property acquisitions please contact Catherine Halton-Farrow or any member of Birketts’ Real Estate Investment 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 January 2020.