Difficulties can arise at the interface between property and land registration laws
In Brown & Root Technology Ltd v Sun Alliance & London Assurance Co Ltd [1997] 18 EG 123, an original lessee under a 25-year lease assigned its leasehold interest. However, the assignment was not registered at the Land Registry.
Nine months later, the original lessee served notice to determine the lease, pursuant to an option to that effect allowing such notice to be given by “the lessee”. The lessor did not accept the notice on the ground that the original lessee had assigned its interest and was therefore no longer “the lessee” for the purposes of the break clause. Proceedings were issued and determined by the Court of Appeal in favour of the lessee.
The reason for the decision was that since the assignment had not been registered, the legal title to the lease had not been transferred to the assignee: see section 22(1) of the Land Registration Act 1925.
This decision startled many practitioners, especially those who have their feet firmly on the ground and who know a lessee when they see one: see Majorstake Ltd v Curtis [2008] UKHL 10. However, it illustrates the difficulties that can arise at the interface between property law and land registration law.
Deed of variation
Another such difficulty concerns the effect of a deed of variation of a lease. Take the example of a landlord agreeing to relax a user restriction in return for an increase in the rent. The agreement is properly documented by a deed of variation but is not registered. Will the tenant’s successor in title be able to use the premises for the extended purpose and will the landlord’s successor in title be able to recover the increased rent?
The first stage in any problem of this natureis to consider the nature of the variation. In the above example, the variations in question do not effect the proprietary interests as such, namelythe leasehold interest and reversion they merely affect the performance of the covenants that attach to those interests. To put this into the language of the Landlord and Tenant (Covenants) Act 1995, the altered covenants are collateral covenants, taking effect as “landlord and tenant covenants of a tenancy”. For pre-1995 Act leases, the altered covenants “have reference to the subject-matter of the lease”: sections 141 and 142 of the Law of Property Act 1925. Such covenants, under both statutory regimes, are said to be “incident” to the parties’ respective estates.
Registration
This is where the registration system under the Land Registration Act 2002 ties in. Under section 29 of that Act, a registrable disposition of the registered estate for valuable consideration, in other words a sale by a landlord or a tenant of its interest in a registered lease, will result in the loss of any unregistered “interest”. However, that rule does not apply “in the case of a disposition of a leasehold estate, if the burden of the interest is incident to the estate”: section 29(2)(b).
So, provided that the alteration effected by the deed of variation is purely concerned with the landlord and tenant covenants of the tenancy,the fact that the deed has not been registered should not be a problem. The position will be different, however, where the deed of variation: (i) affects property other than the premises, such as other property belonging to the landlord, as in Oceanic Village Ltd v United Attractions Ltd [2000] 1 EGLR 148 (ii) creates a further interest, for example where the landlord grants the tenant an alternative right of way or (iii) affects the current leasehold interest qua estate, for example by adding or subtracting land to it.
In such circumstances, the deed must be registered if it is to be protected. If not, then, in the dreaded words of section 3(6) of the 1995 Act: “Nothing in this section shall operate (b) to make a covenant enforceable against a person if, apart from this section, it would not be enforceable against him by reason of its not having been registered under the Land Registration Act 2002 or the Land Charges Act 1972.”
The ability to register deeds of variation is expressly allowed for by r 78 of the Land Registration Rules 2003. So, the safe course in case of any doubt will be to make an application in compliance with that rule.
Guy Fetherstonhaugh QC is a barristerat Falcon Chambers
