Warren Gordon, Sarah Moore, Nic Taggart and Russell Hewitson unveil sample drafting for sale contracts that can help alleviate the problems of delays at the Land Registry.
The property industry continues to encounter frequent delays in the processing of registration applications by HM Land Registry for England and Wales.
While, according to the Land Registry’s own data, most straightforward applications, such as registration of a transfer of the whole of a property, are completed in about four months, in some instances they are taking about nine months to complete. And for more complex applications, such as a transfer of part or a grant of a new lease, where no preparatory work has been done, half are completed in about 14 months and almost all in about 17 months, with a minority taking even longer.
The Land Registry has sought to address this by increasing its caseworker resource by more than 500 people in the past two years and by having dedicated teams focused on the oldest complex cases. They also believe that automation is key to reducing the backlog, with 29% of applications to change the register being automated.
Where a delay would cause significant issues, an applicant can speed up the processing of their registration application by using the Land Registry’s expedite process, and this is a helpful service. However, a problem arises where, because of the widespread delays, many customers try to use this process, as this is likely to undermine its benefit.
A key point is that the buyer will not obtain legal title to the property until the Land Registry has completed the registration application, even though the purchase price was paid and the purchase was completed months, if not years, before.
Registration gap – what can and cannot be done by the owner?
The “registration gap” is the period between when the relevant transactional document, such as a lease or transfer, is dated and when the Land Registry completes the registration process.
There are certain transactions that can be effected by a party before it is registered as the new legal owner, such as selling, letting or mortgaging the property (see section 24 of the Land Registration Act 2002). However, there are other matters that arise during the registration gap that require the involvement of the existing legal owner, especially relating to leases. So a buyer of a property who is in the course of being registered as proprietor by the Land Registry may require the assistance of the party who sold the property to them.
The outgoing seller’s assistance would be needed for such matters as:
- the service of notices pursuant to the Landlord and Tenant Act 1954;
- the service of a contractual break notice; and
- the issuing or conduct of certain proceedings.
This is because of the provisions of relevant legislation or court decisions (such as in the case of break notices: Brown & Root Technology and another v Sun Alliance and London Assurance Co Ltd [1997] 1 EGLR 39). If the legal owner, for example, does not serve such notices (statutory or contractual), then the notices are likely to be invalid.
A transactional solution
With the ongoing Land Registry delays, the best solution is usually for the seller and buyer to agree in the sale contract arrangements for the seller to help the buyer with certain matters during the registration gap period. However, not all forms of contract include drafting for such arrangements, and negotiations can often be quite contentious. Sellers may be disinclined to assist, since it does not necessarily benefit them, and they may be concerned about exposure to consequential liabilities.
A working group was convened to produce some example drafting that may assist parties with registration gap issues. The group includes representatives from the Law Society’s Conveyancing and Land Law Committee, the City of London Law Society’s Land Law Committee, the Property Litigation Association and the Property Bar Association. The intention is for the drafting and accompanying guidance notes to be hosted on some, if not all, of those stakeholders’ websites.
The drafting comprises examples of two alternative approaches to deal with the registration gap issue in a sale contract. Both examples are reasonably balanced between the seller and the buyer. Example one covers the position where the seller is prepared to appoint the buyer as its agent for certain specified matters. Example two is a shorter, simpler clause which covers the position where the seller is not prepared to appoint the buyer as its agent, but instead agrees to act in co-operation with the buyer. The latter alternative carries greater risk for the buyer, since in various circumstances the buyer is relying on the seller to respond promptly to its request, which may be time-critical.
In both examples, some protection is given to the seller through an indemnity from the buyer for liability and costs that the seller incurs through entry into the provisions.
The examples and drafting notes are intended to be thought-provoking, rather than necessarily a reflection of market practice among all law firms. The examples are likely to require amendment for the particular circumstances of the transaction and the contract in which they are used.
The working group hopes that the example clauses prove helpful in highlighting alternative approaches to address the registration gap issue. While there continue to be lengthy Land Registry delays, drafting of this type will prove important for buyers, who may otherwise be unable to deal with critical management matters at their properties.
The drafting will be available to view here
Warren Gordon is a senior professional support lawyer in the real estate transactional team and Sarah Moore is a professional support lawyer in the real estate disputes team at CMS LLP; Nic Taggart is a barrister at Landmark Chambers; and Russell Hewitson is an associate professor of law at Northumbria University
