The Registration Gap – a warning

The Registration Gap – a warning

The transfer of ownership in registered freehold or leasehold land or the grant of a registerable lease does not take effect until registered at the Land Registry.  This means that from the date of the transfer/lease until the date of registration such rights are said to exist in ‘equity’ only and the legal estate does not vest in the new owner/tenant until registration is complete.

The gap between the date of the transfer/lease and the date the legal estate vests in the new owner/tenant is often referred to as the ‘registration gap’.

In January 2020 the Land Registry published its updated ‘Average Completion Times’ which show that certain lease applications or transfers of part in respect of a developing estate can take up to 113 working days to complete.  While admittedly these response times do relate to the more complex transfers/leases it is not uncommon for seemingly straightforward registrations to take weeks or even months.

As the registration gap continues to grow, what are the implications of this and what can be done to mitigate the risks?

Why is the registration gap a problem?

Essentially having parted with your cash, collected keys and taken occupation of a property you may find yourself in a position where you may not have the ‘legal’ rights to implement your proposed plans because you are stuck in the ‘registration gap’.

This is particularly problematic where your plans require the service of a notice, this is because, generally a notice will need to be served by or on a ‘legal owner’. During the registration gap a new owner will only have a ‘beneficial interest’ and will not become the ‘legal owner’ until registration is complete.  The issues and commercial implications of this are explored in the examples below:

In the case of Stodday Land Ltd v Pye [2016] EWHC 2454 (Ch), it was held that a ‘Notice to Quit’ served by someone who was not yet the registered proprietor was held to be invalid.  This means that if a property developer were to purchase a property subject to occupational leases, they would not be able to implement their plans to develop the property (e.g. by serving notice to quit) until the completion of the registration of their purchase.  This can of course lead to considerable delays and potentially costs in respect of the proposed development.

Lessons can also be learnt from the case of Sackville UK Property Select II (GP) No.1 Ltd v Robertson Taylor Insurance Brokers Ltd [2018] EWHC 122 (Ch).  In this case a lease was assigned (with the Landlord’s consent) following which the assignee sought to exercise its option to break the lease.  The break notice was served in the registration gap and it was found that this this was insufficient to trigger the break, as the assignee was not registered as the proprietor of the leasehold title at the Land Registry, and it could not demonstrate that it had served the break notice as agent for the original tenant.  The consequence of this was that the lease remained in force until the end of the contractual term, being a further five years after the intended break date.

Issues may also arise in respect of notice served under the Landlord and Tenant Act 1954 (LTA 1954) as references to “landlord” and “tenant” are generally to the person in whom the relevant legal estate is vested. Similarly, potential problems have been identified in respect of a landlord’s ability to forfeit a lease during the registration gap.

What can be done to mitigate the risk?

It is vitally important that when you purchase a property or take a lease that you make your future plans in respect of the development or management of the property known to us.  The examples above highlight that it is not enough to have simply ‘completed’ the transaction for you to be able to implement your plans for the property.  Armed with this knowledge, we can then take the following steps to help mitigate the risks of the registration gap:

• The first and perhaps simplest thing that can be done to reduce the registration gap is to make sure that applications to the Land Registry are submitted promptly following completion. Where registration requirements fall to the tenant our drafting will include a reasonable and practical timeframe to submit applications.
• It is also important to ensure that all documents and additional information needed to fulfil the Land Registry’s requirements are available prior to completion and that applications are submitted in accordance with Land Registry guidance to avoid unnecessary delays. Once submitted we will monitor the progress of the application.
• In a sale contract, it may be wise to add an additional clause, which appoints the buyer of the property as the seller’s agent during the registration gap. This will allow the buyer to serve notices, commence proceedings and take any other action in relation to occupational leases and the management of the property during the registration gap until the buyer is formally registered at the Land Registry as the new owner. Such a clause would be subject to an indemnity clause providing that the buyer will indemnify the seller against all matters arising from any such action taken during the registration gap period.
• Finally, it is important that during the registration gap that the buyer has priority over any subsequent transactions by the seller and as such an Official Search (priority search – OS1/OS2) will be put in place and renewed accordingly.

Hopefully in the future the introduction of e-conveyancing will speed up the registration process and will help to alleviate and reduce the Registration Gap, until then, please get in contact if we can be of further assistance.