Back to Basics: Restrictions and notices

Sophie Crompton highlights the key differences between HM Land Registry restrictions and notices. Restrictions and notices are made available by HM Land Registry to protect third-party interests that affect registered land.  Pursuant to the powers granted to it, governed by the Land Registration Act 2002, HMLR has the ability to note restrictions and/or notices as and when directed to do so on a title register of land.  For the avoidance of doubt, notices and/or restrictions cannot be used to protect third-party interests in relation to unregistered land. Instead, in the case of unregistered land, third-party interests will be protected by way of land charge – these fall outside the scope of this article. Restrictions A successfully registered restriction would be shown in section B, the “property register” of a registered title.  A restriction can be applied for if: the applicant is the registered proprietor or is entitled to be; the registered proprietor consents to the restriction; or the applicant has a sufficient interest. A registered proprietor of registered land has control over the relevant legal title. The registered proprietor can dispose of the land without question, except when there is a restriction (that prevents disposition) present on the legal title.  A disposition of land is defined as the transfer of an interest in property taking effect (more particularly, sale, transfer, grant of security, grant of a lease and grant of a legal interest).  Where there is one or more registered proprietor(s), each registered proprietor would need to consent to the disposition, ie all registered proprietors would be required to execute form TR1 in respect of a sale of land. Not all dispositions will be caught by a restriction; it depends on the type of restriction and its wording. For example, if the wording of the restriction states “no transfer or lease”, the grant of security in the form of a legal charge would be permitted. It is extremely important to consider the wording used when applying for a restriction to protect a third-party interest. You have to ensure the restriction satisfies the intended purpose.  The method by which restrictions are removed/cancelled/withdrawn depends on the type of restriction in question. Anyone can apply to cancel a restriction; however, applications must be supported by evidence. This makes it harder for them to be removed. Applications to withdraw generally have to be accompanied by a certificate signed by a conveyancer, putting the onus on a conveyancer for the withdrawal to be accurate. Restrictions that specify an end date should fall away from the register if updated or if there is a disposition following the expiry. Furthermore, a restriction relating to a charge will become obsolete when the charge is redeemed.  There are currently 43 standard form restrictions – the following are a few examples: Sole proprietor restriction  There may be a sole proprietor registered as owner of legal title to registered land and the following restriction may be registered: “No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.” This Form A restriction tells us that someone else has an equitable interest in the land but said interest is not registered at law. The sole proprietor is therefore a trustee of the land. An interest under a trust of land can only be protected by way of restriction.  The purpose of this restriction is to ensure that section 27(2) of the Law of Property Act 1925 is complied with. This legislation states that a buyer or third party does not need to be concerned with the trust by which the land is held and that any capital money that may arise from the disposition cannot be paid to a sole trustee.  In these circumstances, the sole proprietor is unable to effect a disposition without “overreaching”. To deal with this, new trustee(s) will need to be appointed. In the case of the sale of land, the registered sole proprietor and an appointed trustee will both need to sign the transfer.  Consent of proprietor of specified charge or certificate required When a lender grants a mortgage to a proprietor, they will take security over the land. This will be registered as a legal charge. To accompany the charge, most lenders will require the following restriction to be registered on the legal title:  “No disposition of the registered estate [(other than a charge)] by the proprietor of the registered estate [, or by the proprietor of any registered charge, not being a charge registered before the entry of this restriction,] is to be registered without a written consent signed by the proprietor… of the charge dated {date} in favour of {chargee}… or without a certificate signed by a conveyancer or the applicant for registration or their conveyancer that the provisions of… have been complied with [or that they do not apply to the disposition].” This is a standard Form P restriction which will automatically be registered by HMLR on registration of the legal charge.  The optional wording “other than a charge” remains when the lender wishes to carve out having to provide consent to further registrable charge(s). In practice, a registered proprietor (under the terms of their existing mortgage) will have to notify their existing lender of any new security they wish to grant to a third party.  The additional wording “or without a certificate signed by a conveyancer” should remain when the relevant chargee requires a certificate to be provided.  Certain lenders may specify an alternative restriction that they require, if not a standard form restriction; this will have to be applied for specifically.  Restriction as to evidence of execution A standard Form LL restriction is commonly used to prevent fraudulent land transactions:  “No disposition of the [registered estate by the proprietor of the registered estate] [OR] [registered charge dated {date} referred to above by the proprietor of that registered charge] is to be registered without a certificate signed by a conveyancer that that conveyancer is satisfied that the person who executed the document submitted for registration as disponor is the same person as the proprietor.” When this restriction is present, conveyancers/solicitors are required to provide HMLR with a certificate that confirms the identity of the proprietor has been checked. With the rise of property fraud, HMLR introduced this restriction as a way of forcing conveyancers/solicitors to be extra-diligent and puts the onus on them. HMLR will not register a disposition without the certificate. This protects the registered proprietor and any third-party interest.  Notices A notice is usually noted in section C (“charges register”) of a registered legal title, with the exception of certain notices (such as bankruptcy notices) being noted in section B (“property register”). Notices offer minimal protection and have limited effect. Although the purpose of a notice is to protect a burden of an interest, it does not guarantee that the interest is protected or valid. A notice will only protect the priority of an interest from subsequent registrable dispositions. For example, an agreement for lease could be protected by way of notice if there is a long interval between exchange and completion. A notice takes either one of two forms: (1) an agreed notice; or (2) a unilateral notice. There is no difference in regard to priority between an agreed notice and a unilateral notice.  Agreed notices An agreed notice can only be applied for by the proprietor of the relevant land or by an applicant who has obtained the consent of the proprietor (or someone who is entitled to be a registered proprietor). The applicant has to satisfy the registrar and provide supporting evidence to validate their claim.  If the application is based on evidence alone, and not with the proprietor’s cooperation, the registrar will only notify the proprietor once the application is complete. An agreed notice must give details of the interest. For example, if protecting an agreement for lease, a certified copy must be lodged with the application and be open for public inspection giving no degree of privacy.  Certain interests (such as a home rights notice) have to be protected by an agreed notice, as opposed to a unilateral notice. Cancellation of an agreed notice is only possible where the registrar is satisfied that the protected interest is either no longer in existence or is invalid. Supporting evidence must also be supplied on application.  Unilateral notices A unilateral notice can be registered without the consent of the proprietor. Unlike an agreed notice, there is no need to satisfy the registrar as to the validity of the claim.  Furthermore, the relevant proprietor will only be notified of the unilateral notice once the application has been completed, so they will not have the opportunity to object to it. In comparison to an agreed notice, a unilateral notice may contain less detail and may provide a limited amount of confidentiality.  A unilateral notice can either be removed (by the beneficiary) or cancelled. The downfall to a unilateral notice (from the beneficiary’s point of view) is that they are vulnerable to cancellation by the proprietor. On application to cancel, the beneficiary will be notified, and they will then have 15 working days in which to respond. It could be argued that an agreed notice offers more stability to a claimant than a unilateral notice. However, they are more difficult to register as the proprietor’s consent is required.  In Godfrey v Torpey and others [2006] EWHC 1423, the High Court deemed it appropriate to protect a third-party interest by way of notice. The claimant registered a unilateral notice in respect of an unsecured debt. The defendant applied to have the notice removed on the basis that it did not relate to a pending land transaction, as required by the Land Registration Act 2002. The High Court disagreed and permitted the claimant to lodge the notice.  In summary Notices and restrictions have different functions. A restriction is used to either prevent a disposition or to provide a third party with a degree of control in relation to a disposition which would affect their interest. A restriction on title either limits the powers of the registered proprietor(s) or imposes a condition on the proprietor which must be satisfied prior to a successful registrable disposition.  On the other hand, a notice is entered to protect the burden of an interest and allows for the priority of the interest to be documented. A restriction does not document the priority of an interest.  Where a third party has an interest in a registered estate, careful considerations need to be made. In order to accurately protect a third-party interest, the type of interest needs to be clearly established before deciding whether the function of a restriction or a notice is more appropriate.  Sophie Crompton is a solicitor at Brabners Photo by Marcel Strauß/Unsplash