Can a legal charge and facility agreement be interpreted together if the charge is registered at the Land Registry and does not specifically incorporate the terms of the facility agreement? The courts have considered this question for the first time in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736. The registered proprietor of land entered into a legal charge in Land Registry form CH1. The lender purported to exercise its power of sale and sold the property at auction. The registered proprietor lodged an objection to the buyer’s application to be registered with title to the land. It claimed that the lender was not entitled to sell the property when it did. It relied on the fact that the registered charge was incomplete because it made no reference to provisions in the facility agreement stating that the power of sale arose on execution of the charge and was exercisable immediately. The buyer tried to persuade the court that it could read the documents together and correct the mistake in the registered charge by interpreting it to include the missing provisions. The lender and borrower were both parties to the facility agreement and no one would be prejudiced if the court were to use it as an aid to interpretation, even though the charge was registered at the Land Registry. Corrective interpretation is available where something has gone wrong with the language in a document Ð and this was the case here because one of the panels in the Land Registry form, which should have been used to record details of the amount borrowed and the repayment date, was left blank. Arden LJ would have upheld the buyer’s claim to be registered with title to the property, but the majority of the Court of Appeal found in favour of the registered proprietor. The register was intended to be conclusive and s120(2)(b) of the Land Registration Act 2002 provides that, as between the parties to a disposition, the documents kept by the registrar are to be taken to be correct. Nothing had gone wrong with the language of the charge. It made perfect sense as it stood. Parties have a choice about what they put into the public domain and what they keep private. However, matters that are kept off the register should not influence the aspects of the bargain that parties choose to make public. No one inspecting the register would have discovered the missing clause because the facility letter was not available for inspection and, if the clause were to be inserted by interpretation, the “interpreted” charge would rank in priority from the date of its original registration Ð which would bypass the carefully calibrated rules of priority in the 2002 Act. However, the charge might be susceptible to rectification – which is subject to the same rules of priority as other property rights. Some may be concerned about the implications for other documents that require registration at the Land Registry. However, the immediate impact will be felt by lenders. They would be well-advised to check their legal charges before exercising a power of sale to ensure that they can convey a good title to their buyer – and to review what they register, going forwards. Allyson Colby is a property law consultant
Can a legal charge and facility agreement be interpreted together if the charge is registered at the Land Registry and does not specifically incorporate the terms of the facility agreement? The courts have considered this question for the first time in Cherry Tree Investments Ltd v Landmain Ltd [2012] EWCA Civ 736.
The registered proprietor of land entered into a legal charge in Land Registry form CH1. The lender purported to exercise its power of sale and sold the property at auction. The registered proprietor lodged an objection to the buyer’s application to be registered with title to the land. It claimed that the lender was not entitled to sell the property when it did. It relied on the fact that the registered charge was incomplete because it made no reference to provisions in the facility agreement stating that the power of sale arose on execution of the charge and was exercisable immediately.
The buyer tried to persuade the court that it could read the documents together and correct the mistake in the registered charge by interpreting it to include the missing provisions. The lender and borrower were both parties to the facility agreement and no one would be prejudiced if the court were to use it as an aid to interpretation, even though the charge was registered at the Land Registry. Corrective interpretation is available where something has gone wrong with the language in a document Ð and this was the case here because one of the panels in the Land Registry form, which should have been used to record details of the amount borrowed and the repayment date, was left blank.
Arden LJ would have upheld the buyer’s claim to be registered with title to the property, but the majority of the Court of Appeal found in favour of the registered proprietor. The register was intended to be conclusive and s120(2)(b) of the Land Registration Act 2002 provides that, as between the parties to a disposition, the documents kept by the registrar are to be taken to be correct.
Nothing had gone wrong with the language of the charge. It made perfect sense as it stood. Parties have a choice about what they put into the public domain and what they keep private. However, matters that are kept off the register should not influence the aspects of the bargain that parties choose to make public. No one inspecting the register would have discovered the missing clause because the facility letter was not available for inspection and, if the clause were to be inserted by interpretation, the “interpreted” charge would rank in priority from the date of its original registration Ð which would bypass the carefully calibrated rules of priority in the 2002 Act. However, the charge might be susceptible to rectification – which is subject to the same rules of priority as other property rights.
Some may be concerned about the implications for other documents that require registration at the Land Registry. However, the immediate impact will be felt by lenders. They would be well-advised to check their legal charges before exercising a power of sale to ensure that they can convey a good title to their buyer – and to review what they register, going forwards.
Allyson Colby is a property law consultant