The registration gap is widening

Expected processing times for pending applications at the Land Registry are frequently updated and current waiting times are publicised as up to 20 months for completion of complex applications. Applicants are requested to wait patiently unless delays “might cause problems or put… any kind of transaction at risk”. The “registration gap” is the period between completion of a property transaction and its registration at the Land Registry. Until registered, transactions take effect in equity only as legal title passes to a purchaser on completion of registration. This can have practical implications for the parties involved. Land Registry delays and the registration gap are not new topics. However, growing delays are having an increased impact on commercial property transactions in a number of respects. Overseas entities Since the Register of Overseas Entities was launched in 2022, overseas entities that bought (or seek to buy) land in England and Wales on or after 1 January 1999 must be registered at Companies House. Companies House publicly records the beneficial owners of OEs to increase transparency in UK land ownership. Restrictions have been entered on the title register of each UK property owned by an OE to prevent transfers by OEs being registered unless the OE has complied with the legislation. For as long as OEs are registered at Companies House, they are required to update Companies House annually regarding their beneficial owners, ownership structure and relevant land interests. If they do not comply, they cannot deal with their property and may attract criminal sanctions. OEs cannot apply to be removed from this register until they cease to be the registered owner of any land in the UK. Land Registry delays in registering disposals can result in continuing reporting obligations on OEs under this regime, long after they have disposed of all relevant property. As the information required by Companies House becomes increasingly onerous, OE sellers may require progress updates on purchasers’ applications to register relevant disposals more than they previously would. After all, only once the OE seller is no longer a registered owner of land in the UK can it apply to be removed from the register at Companies House and then stop complying with the relevant duties. Further, purchasers of land from OE sellers will need to be aware that they will not be registered as legal owner of purchased property unless and until the Land Registry has satisfied itself that the OE seller complied with the relevant legislation up to the date of the disposition. Due to Land Registry delays, any issues with such applications may not be raised until long after the date of completion of the transaction and may result in further delays to buyers’ registrations when purchasing from OEs. This makes it even more important for buyers to check as part of their due diligence process that OE sellers are compliant. Property management Given that outgoing landlords will retain legal title to property until disposals are registered, various practical issues may arise during the registration gap. These are not new issues and will be familiar to many, including: Service of notices This issue affects incoming and outgoing landlords and tenants. Usually, it is required that notices are served by or on legal owners of property, ie the outgoing landlord in the sale of a reversionary interest. Purchasers need to ensure that sale contracts provide for them to act as the sellers’ agents during the registration gap so that they can effectively manage the property from completion, including serving notices. This may become relevant where incoming landlords wish to serve break notices or notices under the Landlord and Tenant Act 1954 on existing tenants. For tenants wishing to serve notices on their landlord where the landlord’s reversionary interest has been sold, the safest option is always to serve notices on the outgoing landlord (legal owner) with a copy being sent to the incoming landlord (beneficial owner). Forfeiture If a registered lease has been assigned but the assignment has not yet been registered, the assignee will only hold equitable title to the leasehold interest. Therefore, landlords wishing to forfeit any assigned leases during this registration gap should consider serving the relevant notices on both the outgoing tenant and incoming assignee, as well as joining both in any forfeiture proceedings. Seller dissolution Lengthy periods between completion of land transactions and their registration make it important to consider potential implications of a seller’s insolvency or voluntary winding up during the registration gap. This may be of particular relevance if the seller entity was a special purpose vehicle which existed solely to hold the property assets in question and is subsequently dissolved. If the seller entity ceases to exist before the relevant transfer has been registered, the purchaser will be the beneficial owner of the property, but the seller will have retained legal title up until the point of its closure. Following closure of the seller company, it would no longer exist for the purposes of serving or receiving legal notices as described above, leaving a potential vacuum in circumstances where such notices may be required prior to the buyer’s registration. Further, the seller’s legal title would vest in the Crown per the insolvency rules. It seems unlikely that the Crown would readily engage in such issues and, in any event, it may not be bound by any contractual provisions requiring the seller’s assistance during the registration gap. A more practical issue is if a seller ceases to exist during the registration gap it may become impossible to deal with any subsequent Land Registry requisitions relating to the application. For example, if the seller had not correctly executed the relevant document prior to the disposition, it might not be possible to rectify this in such circumstances, which could lead to the application being rejected altogether. Subsequent dealings A key concern for purchasers who are not yet registered as the owners of acquired property is the potential limitation on their ability to deal with the asset during the registration gap. If a recent purchaser (A) wishes to sell soon after it acquires a property, it will need to consider the risks that this presents to an onward purchaser (B) and any lender (C). Neither B nor C would be well advised to proceed in relation to such a transaction without drafting in the sale contract to ensure that: A has made or will make its application to register the transfer at the Land Registry with all relevant documentation having been lodged; A will promptly respond to any requisitions from the Land Registry; and A will keep B up to date and provide the updated title register to B once A has been registered as legal owner. Even then, some onward purchasers or lenders may not be content to proceed on this basis given that their relevant interests will not be registered until A’s prior applications are dealt with. Unregistered purchasers will need to consider the additional risks posed to new tenants if leases are granted or varied with the unregistered purchaser as the landlord. Should there be any issues with the unregistered purchasers’ application, this would, in turn, cause delays to subsequent applications made by tenants relating to the registration or variation of leases. If issues were raised and the unregistered purchasers’ application were later rejected, this would cause issues in processing applications relating to any subsequent dealings as the unregistered purchaser would not have acquired legal title to the property. This demonstrates how the delays in processing one transaction can have a knock-on effect where there are dealings with the property during the registration gap. In certain cases, these issues may reduce the willingness of parties to deal with an unregistered purchaser given the risks posed in doing so. Mitigating risk The difficulties posed by continued and growing delays in processing applications at the Land Registry are unsatisfactory to say the least. Considered drafting and cooperation between parties may mitigate the risks, however it is easy to see how things could go wrong in the event of an application being rejected many months after it was lodged or if the parties’ circumstances change during the long wait. While few would envy or criticise the Land Registry caseworkers who are dealing with large volumes of applications on a daily basis, the risks posed to applicants and those that deal with them by these continued delays are obvious and need to be carefully managed and reduced wherever possible. Ella Ovenden is a solicitor in the property division of Irwin Mitchell LLP Photo © Henry & Co/Unsplash