The Land Registry will refuse an application to register a second or subsequent charge if a previous lender has registered a restriction that prohibits it from doing so without the lender’s consent. In such circumstances, the new lender must produce the relevant consent to perfect its charge, or find another method of securing priority for its loan.
One solution is to register a notice to protect the lender’s position. This is because the forms of restriction accepted by the Land Registry regulate or prohibit the registration of dispositions. Consequently, nothing prevents the registration of an agreed or unilateral notice, which, although not a perfect solution, will protect the lender’s priority against subsequent disponees.
The issue that arose in Swift 1st Ltd v Colin [2011] EWHC 2410 (Ch) was whether a lender had validly exercised its power of sale over a property in such circumstances. A previous lender had registered a restriction to protect its position and did not consent timeously to the registration of the subsequent charge – even though its own charge had been redeemed. Consequently, the charge in favour of the subsequent lender was noted on the register, as opposed to being perfected by registration.
The new lender subsequently exercised its power of sale and transferred the property to new owners. Their appl/ication for registration was refused because the charge in favour of the seller had not been substantively registered at the Land Registry.
The Land Registry argued that the charge constituted an equitable mortgage and that the power of sale had not arisen. The judge disagreed. He ruled that a lender’s power of sale derives from section 101 of the Law of Property Act 1925, which confers a power of sale where mortgages are made by deed, and not from the niceties of land registration legislation. Consequently, the transfer had been effective to vest the legal estate in the new owners because the mortgage had been made by deed.
The judgment is important because the lender has another 1,733 cases in its portfolio where it has been unable to register legal charges and has registered notices instead. It will be relieved to hear that it will not be deprived of its powers of sale in such cases.
The decision will also assist anyone dealing with the effect of the Land Registry’s “early completion” policy. The policy ensures that sales and charges are registered as quickly as possible despite the presence of existing charges that should have been removed from the register.
The policy is beneficial in some cases, but has serious consequences in others. This is because applications by buyers and lenders will be rejected or cancelled where restrictions preventing the registration of further dispositions remain registered because previous lenders are slow to deal with the “paperwork” following repayment of a loan.
The Building Societies Association requires solicitors who cannot register mortgages within the usual priority period to deal with this by registering a notice to protect the lender’s position. Consequently, there may be many more such cases in other portfolios and the property industry will welcome the decision.
Allyson Colby is a property law consultant