We have conducted a comprehensive review of the Land Registration Act 2002 (the 2002 Act), but we have not sought to alter the fundamental principles underlying it. In this article we highlight a few of our most significant recommendations, write Nick Hopkins, Elizabeth Welch and Christopher Pulman
Preventing fraud
Registered title fraud – usually involving identity fraud – is a serious concern. It has a profound effect on its victims. Conveyancers can be uncertain about what they are required to do to help prevent it. In addition, the status of the Land Registry as an insurer of first resort for mistakes on the register means that it often has to bear the costs of fraud. These are then passed on to all users of the land registration system through application fees. In the past 10 years the Land Registry has paid around £58m in indemnity payments specifically in relation to fraud (including related costs).
The Land Registry has some rights of recourse to attempt to recover these costs from those at fault. However, fraudsters often disappear. Moreover, the Land Registry is not generally able to recover from the conveyancer acting for the fraudster, even in the minority of cases where the conveyancer has been negligent. A conveyancer does not owe a general duty of care to the Land Registry and it may not be able to establish that the conveyancer has assumed a specific duty of care toward it (in negligent misstatement, for example): see Chief Land Registrar v Caffrey & Co [2016] EWHC 161 (Ch) and P&P Property Ltd v Owen White & Catlin LLP and another; Dreamvar (UK) Ltd v Mishcon de Reya (a firm) and another [2018] EWCA Civ 1082; [2018] EGLR 27.
We recommend the introduction of a statutory duty of care on conveyancers regarding identity checks. The Land Registry will be empowered to issue directions that outline reasonable steps which conveyancers must undertake to verify the identity of their clients. These steps will be aimed at ensuring that the identity checks are fit for the specific purpose of reducing registered title fraud. The Land Registry will be required to consult with stakeholders before issuing directions.
If a conveyancer fails to comply with the prescribed steps and, as a result, a fraud is registered, the Land Registry will have a right of recourse against the conveyancer to recover its losses. Importantly, however, if conveyancers comply with the directions, they will have the reassurance of knowing that they will not be liable if identity fraud nevertheless takes place.
The purpose of our recommendation is to combat title fraud by stopping it from happening in the first place. Our recommendation will also give conveyancers certainty about the scope of their obligations to confirm their client’s identity, which is absent under the current law. We believe these reforms will be beneficial to everyone, including the Land Registry and conveyancers.
Making alteration fairer and more certain
One of the tools employed by the 2002 Act to ensure that the register is reliable is the title guarantee in section 58. Section 58 ensures that when a person becomes the registered proprietor of an estate, he or she becomes the owner of that estate.
However, the title guarantee is subject to the power of the court and the registrar under schedule 4 to the 2002 Act to alter the register. Where an alteration corrects a mistake and prejudicially affects the title of a registered proprietor, it counts as “rectification”.
We aim to ensure that the right balance is achieved between the title guarantee in section 58 and the provisions for rectification in schedule 4. Our recommended reforms would result in more comprehensive provisions than currently exist in schedule 4. We believe that many of the difficulties in the interpretation of this schedule (which have resulted in extensive litigation) stem from the fact that the legislation does not address key issues. In particular:
■ Schedule 4 imposes no time limit for the rectification of mistakes, meaning that rectification claims can arise decades after the mistake was made.
■ In what is often described as an “ABC case” – where B is registered by mistake as the proprietor of A’s property, and B then transfers the property on to C – schedule 4 provides no guidance about whether the registration of C is a mistake and whether the property can be restored to A.
Our recommendations will address these issues while also clarifying the scheme in schedule 4 for determining who should be the owner of the land and who should be indemnified:
■ We clarify that the ability to seek rectification is not a property right, so cannot be overriding or lost on a registrable disposition engaging section 29.
■ Our scheme is weighted in favour of protecting those in possession of land. It extends the protection currently given to registered proprietors in possession to persons in possession who, due to a mistake, are no longer the registered proprietor.
■ Subject to the protection for those in possession, our scheme favours returning the land to a registered proprietor who is removed from the register by mistake.
■ We introduce a “longstop” so that, after 10 years, rectification of the register generally ceases to be available, but (importantly) indemnity will continue to be available.
■ Our scheme ensures that rectification remains available even if a mistakenly registered property has been transferred to a third party.
Our reforms should ensure that schedule 4 delivers increased certainty, while retaining sufficient flexibility for the courts to make fact-sensitive decisions.
Facilitating electronic conveyancing
A major aim of the 2002 Act was to facilitate the introduction of electronic conveyancing. The model for electronic conveyancing set out in the 2002 Act is ambitious. It envisages that all aspects of a conveyancing transaction would occur electronically and that, ultimately, the creation and registration of interests would take place simultaneously.
Although significant steps towards electronic conveyancing have been taken, the system envisaged in the 2002 Act has not been implemented. The requirements regarding simultaneous completion and registration are too stringent and insufficiently flexible.
To enable electronic conveyancing to develop, we recommend the creation of a new power to introduce mandatory electronic conveyancing which does not require simultaneity. Although simultaneous completion and registration will remain the goal, our recommendation will ensure that electronic conveyancing can be made mandatory before that stage of development is reached.
See also: Reforming land registration
We also recommend the 2002 Act should be amended to facilitate the incremental implementation of mandatory electronic conveyancing. Currently, to make electronic conveyancing mandatory for any given type of disposition, a new rule needs to be made by the secretary of state, which needs to pass through parliament; we have been told that this process can last more than a year. The power to make electronic conveyancing compulsory should remain with the secretary of state subject to parliamentary scrutiny. However, we recommend that, once the secretary of state makes a blanket rule applying to all types of disposition, the Land Registry should be given a timetabling power to issue notices (following consultation) making electronic conveyancing mandatory for particular types of disposition.
Making the system for unilateral notices fairer and more efficient
Stakeholders and consultees raised significant concerns about the use of unilateral notices. Currently, an applicant for a unilateral notice is not required to produce evidence to establish the right that he or she claims, either before the notice is entered or when the registered proprietor applies to cancel the notice. Evidence of the right needs to be produced only if a dispute about the notice is referred to the First-tier Tribunal (FTT). The current scheme hampers negotiation between the parties. It can result in registered proprietors finding themselves embroiled in proceedings before the FTT to challenge the entry of a notice before any evidence has been produced of the right being claimed.
The current procedure does not fairly balance the competing interests of registered proprietors and of beneficiaries of property rights. To rebalance these interests, we recommend reform to require beneficiaries to provide evidence at an earlier stage. Under our reforms, it will still be possible to apply without evidence for the immediate entry of a unilateral notice. But if the registered proprietor applies to cancel the notice, the beneficiary will be obliged to provide evidence that shows, on its face, that the interest exists.
Achieving the 2002 Act’s goals
Despite the technical nature of our recommendations, our reforms ensure that the 2002 Act continues to achieve its goal of making conveyancing faster, easier and cheaper.
Our impact assessment estimates that our recommendations will provide a benefit to the economy of around £40m. While our full report is likely to be read primarily by specialist lawyers, the recommendations that it contains will benefit all those who use the land registration system, including homeowners, landlords, tenants and businesses.
Background to the project
Land registration in England and Wales is governed by the Land Registration Act 2002 (the 2002 Act). The 2002 Act was a major reform of the law, and the product of joint work by the Law Commission and the Land Registry. The Act replaced its predecessor, the Land Registration Act 1925, and accomplished a great deal of modernisation.
Time has shown that some aspects of the 2002 Act are unclear, or inefficient, or have unintended outcomes. The Law Commission has sought to update the 2002 Act in the light of the experience of its operation.
On 24 July 2018, the Law Commission published its report, Updating the Land Registration Act 2002 (Law Com No 380, 2018), along with a draft bill.
The Law Commission makes more than 50 recommendations to bring the 2002 Act up to date and to ensure that it works effectively for all who use it. The recommendations cover a broad range of discrete issues, from compulsory first registration to sub-charges. The commission’s aim has not been to reformulate the 2002 Act, but to improve specific aspects of its operation while leaving its general framework intact.
Professor Nick Hopkins is the law commissioner for property, family and trust law, and Elizabeth Welch and Christopher Pulman are lawyers at the Law Commission
A version of this article appeared in the 28 July 2018 edition of EG with the headline “Reforming land registration”
