Gap analysis

The Land Registry is the gatekeeper of legal ownership of land in England and Wales. A prompt and successful application for registration is an essential step at the end of most property transactions.

In this article we will look at why registration of property transactions is important and the consequences of delays in the process. We will highlight common difficulties and barriers to registration and provide practical advice to overcome them.

Land registration – why it matters

A sale of land must be registered at the Land Registry to transfer legal title to the buyer. Until the application is completed, legal title remains with the seller. The same principle applies to leases of more than 7 years, legal charges, and easements involving registered land. The new interest will only be a legal interest in the land when registration is completed.

We refer to the gap between the completion date of a transaction, and the date on which registration of the transactional documents is completed at the Land Registry as the “registration gap”. In many cases, the registration gap does not create issues for the buyer. But there are certain things that can be done only by the legal owner of the property and here the registration gap becomes problematic.

The registration gap can last for weeks or even months, depending on the complexity of the Land Registry application, earlier pending transactions, and any delays in providing additional information or documentation to the Land Registry.

In July 2021, the Land Registry estimated that changes to existing registers of title are being processed in approximately 8 weeks and the creation of new titles on a sale or lease of part and on first registration are taking 9-12 months (in each case assuming there are no queries or ‘requisitions’ raised by the Land Registry on the application).

There is a significant backlog of applications to clear, caused in part by the COVID-19 pandemic and a buoyant residential conveyancing market following lifting of restrictions.

Requisitions and cancellations

Land Registry practice is complex and it is documented in eighty-one practice guides. However, even this number of practice guides cannot address all the practical scenarios that arise or answer all of the questions that follow from them. Where Land Registry requirements for an application are not met, a requisition will be raised.

The Land Registry’s current practice is to allow 60 working days for a requisition to be dealt with. This is a longer period than pre-pandemic, but the Land Registry has tightened up its practice of allowing extensions of time. It will not, now, grant an extension of time without evidence of what has been done to address the issues outstanding.

Where a requisition is not dealt with an application may be cancelled. Indeed, one of the Land Registry’s strategies for dealing with its registration backlog is to cancel applications where there is no genuine prospect of a requisition being satisfied within a reasonable time.

Practical implications of the registration gap

In a fast-moving commercial real estate market, there are often multiple dealings with land that are complicated by the registration gap.

When a buyer acquires property, it expects to be able to manage that property as it wishes. Without legal title (because registration has not completed), its powers to do so will be limited.

Dealings with land are not paralysed by the registration gap. There are statutory owners’ powers that allow a buyer to make dispositions of the property before an application to register its transfer is completed. The buyer can sell the property or grant legal charges, easements or leases before it is registered as the legal owner.

However, as legal ownership depends on registration and registration takes time, purchasers, lenders and tenants are, rightly, wary of pending applications; knowing that the Land Registry may cancel an application for registration if any requisitions go unanswered.

A cancelled application loses priority over other dealings involving the land and goes to the back of the queue for registration. This may mean later transactions move forward in the queue and take priority. This can cause unforeseen time and costs to resolve, and even legal disputes.

For practitioners, this possibility underlines the importance of ensuring that the priority of any interest in land is protected on the Land Register as soon as that becomes possible – usually at the point of exchange of agreements.

Facilitating further transactions

To minimise risk where there is a pending Land Registry application and a further transaction involving the land is being entered into, the prospective buyer, tenant or lender should ask appropriate questions to assess the chances of that pending application being successfully completed. For example, what is the status of that pending application? On what date was it submitted? Has the Land Registry raised any requisitions? If so, what is the deadline for compliance with them?

The buyer, tenant or lender should ask for an undertaking from the conveyancers dealing with the pending application to notify them of further requisitions raised and to take reasonable steps, promptly, to answer them.

It is also possible to apply to the Land Registry to expedite the completion of an application where there are dependent transactions. If this is successful, the Land Registry will aim to complete the application within 10 working days.

Investment properties

The registration gap poses particular challenges for investment properties. Although a buyer has statutory powers to deal with the property during the registration gap, those powers are limited. There are certain things that can be done only by the legal owner of the property (which is the seller during the registration gap). For example, only a legal owner of property can serve a break notice or statutory notices under the Landlord and Tenant Act 1954. A buyer’s statutory powers do not assist.

It is prudent, therefore, for the buyer to ensure that the sale contract contains detailed provisions to facilitate the buyer’s management of the property until its application for registration is completed and to govern how the seller should act as legal owner until that happens. This is particularly important where a buyer needs to take immediate steps to serve notices or deal with outstanding rent reviews or Landlord and Tenant Act 1954 proceedings, where legal title is needed.

Often, it is agreed that the buyer can serve notices as agent for the seller, or that the buyer can direct the seller to serve notices. So long as the buyer agrees to pay the seller's costs and indemnify the seller against any liability incurred by the seller, the seller should not object to the contract containing this form of protection.

Making successful Land Registry applications

The risks of the registration gap can be minimised by ensuring the successful completion of a Land Registry application as soon as possible after the end of a transaction. As requisitions slow the registration process and risk cancellation of an application, they should be avoided wherever possible.

Many of the most common requisitions are of a repeated nature and deal with simple points of practicality and inconsistency. By taking some straightforward, anticipatory action these can be avoided:

• Any discrepancies between the parties to the document and the name of the registered proprietor must be addressed, and the relevant evidence compiled, for example, changes of company name, or the appointment of an insolvency practitioner.
• Plans should be carefully checked to ensure that all colouring required has been added to them and that the plans have been signed by the parties to the transaction.
• Early agreement between the parties over the manner of execution of documents, and evidence to support the validity of the execution is essential. Electronic execution of Land Registry documents is now permitted – but only if the Land Registry strict requirements are met, and a conveyancer can provide a certificate of compliance. All parties must be represented, and a conveyancer must set up and oversee the signing and completion process.
• There are often restrictions on dealings with land that require third party consents to transactions, including management company consents and bank consents. All of these can be put in hand well before completion to avoid delays.
• Even where consents are obtained, they must be checked to ensure that they are adequate for the Land Registry’s purposes. The Land Registry recently launched form RXC, a standard form of consent or certificate of compliance. In particular, the consent must usually be to the registration of the dealing, and not just the dealing itself. Although form RXC is voluntary, its use will help to minimise issues in this area.
• If a party will use an attorney to execute a document, the power of attorney must be provided, or a conveyancer’s certificate given that it is valid and authorised the transaction in question. Although powers of attorney can be electronically signed, if they will support a Land Registry document, the power itself must have been executed in accordance with the Land Registry’s requirements.
• Attorneys are also classed as a party to the transition for the Land Registry’s ID requirements. Often, they are not legally represented and so either a conveyancer must be satisfied as to their identity, or an independent verification of identity must take place.

Help is also at hand at the Land Registry. Where there will be complex or dependent commercial transactions involving a piece of land, it is possible to apply to the Land Registry’s new application management service. This will result in a single Land Registry team dealing with all applications relating to the land. The team will provide advice from the preliminary stages of the transactions to completion of all registration.

This article was first published in EG magazine on 13 November 2021.