Please mind the registration gap!
Parties to property deals involving registered interests need to be aware of the risks that can arise during the period between completion of the transaction and title ownership being updated at the Land Registry. We consider the practical implications of this, particularly where there are Land Registry delays in updating the title register.
On the transfer of freehold or leasehold interest in land, legal ownership passes from the previous owner (transferor) to the new owner (transferee) only when the transferee is registered as owner at the Land Registry. The period between the date of the transfer and completion of registration at the Land Registry is known as the "registration gap". There has been a considerable backlog with registration applications at the Land Registry in recent months, so this is something which landlords and tenants need to be aware of as it can result in a number of issues.
Examples of practical difficulties
Landlord and Tenant Act 1954: Statutory notices
A section 25 notice to terminate a business tenancy must be served by the "competent landlord", who is the person with the legal estate, otherwise it will be invalid. A transferee wishing to serve such a notice must therefore either wait until registration has been completed at the Land Registry before serving a valid notice or require the transferor to serve the notice on the tenant prior to completion of the transfer. This is something that should be included in the sale and purchase contract.
Similarly, notices under this Act must be served on the landlord/tenant in whom the legal estate is vested. In cases where a transfer of a lease has taken place recently, the safest course of action would be to serve the notice on both the transferor and transferee.
The principle established in the case Brown & Root Technology v Sun Alliance & London Assurance Co  1EGLR 39 is that in pre-1996 leases, a valid notice can only be served by the registered parties. In this case, the lease included a break clause which was expressed to end following an assignment of the lease by the tenant to another company within its own group. The assignment was not registered at the Land Registry. The original tenant later tried to exercise the break right but the landlord argued the lease had been assigned and therefore the break right had fallen away. The Court of Appeal held that as the assignment was not registered at the Land Registry, the original tenant was still entitled to exercise the break right in the lease. Both landlords and tenants need to be wary of this, in order to avoid a costly mistake.
For leases granted post-1996 the position is different because the covenants pass automatically on assignment, which means that a break notice served by or on landlords or tenants who are waiting for their interest to be registered at the Land Registry will still be valid.
In general, if a landlord wishes to forfeit a lease it must serve a notice on the tenant. However, difficulties may arise where there is a registered lease which has recently been transferred and the new tenant has not yet been registered at the Land Registry. In such circumstances, it would be advisable to serve the notice on both the old and new tenant.
The registration gap is widening due to a backlog of applications at the Land Registry and so buyers, sellers, landlords and tenants must carefully identify the correct parties on whom notices should be served. However, we are aware of instances where the Land Registry has confirmed in results of a priority search that the buyer will take the land subject to transfers which have not yet been registered. Arguably, the Land Registry is aware of the registration gap issue but an application to register must be submitted as soon as possible after completion to minimise that gap. One practical approach to avoid complications or disputes during the registration gap is to include a clause in the sale contract which sets out clearly how the property is to be managed during that period.
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