Mind the 'registration gap' - mitigating the risks

The registration gap is not a new phenomenon, but it continues to cause practical issues across all aspects of commercial property practice. If anything, these issues are becoming more frequent as Land Registry processing times continue to increase.

 

What is the registration gap?

Essentially, it is the period between completion of a property transaction and registration at the Land Registry.

The Land Registration Act 2002 states that legal title does not pass to a buyer (or tenant) until they are registered at the Land Registry as the registered proprietor.

The registration gap affects all property transactions, from leases to acquisitions. To use a freehold property purchase as an example, from the date of completion – when the funds are transferred and the Transfer Deed is dated – the purchase takes effect in equity only (such that the legal interest remains with the seller, who holds the property on trust for the buyer) until the buyer is registered as the proprietor at the Land Registry.

 

Issues from the registration gap

The Land Registry have been dealing with some hefty backlogs for several years now, and these have only been made worse following COVID-19. (Some of our applications for registration have taken over 2 years to complete!).

Practically speaking, continuing with the example of the freehold purchase, from completion the buyer is entitled to the benefit of the property (including the right to receive rents) but is not able to deal with the property in a landlord capacity in the same way as the person with the legal interest to it.

The registration gap can cause issues for parties looking to forfeit leases or enforce covenants. It also crucially can impact upon the service of notices, namely break notices and notices under the Landlord & Tenant Act 1954. Generally speaking, notices must be served by or upon a legal owner. This means, for example, that a buyer of an investment property intending to serve a break notice on an occupational tenant cannot do so lawfully until the buyer is registered at the Land Registry. Furthermore, tenants looking to serve their break notice must be aware of the requirement to serve the break notice upon the legal owner (i.e. registered proprietor), even in circumstances where they have been informed of a landlord change of ownership and are paying rent to the ‘new’ landlord.

The registration gap also causes practical headaches for landlords (and us lawyers) looking to re-let premises where the title is either not yet registered in the buyer’s name or there are entries on the title relating to historic leases (which cause issues with re-letting).

 

Ways to mitigate the risks

There are ways to mitigate the problem of the registration gap, even at an early stage in the transaction. Buyers should ensure that their solicitor is aware of any management steps that need to be taken shortly after completion of their transaction (such as service of a break notice).

Given the backlogs at the Land Registry, as a rule, solicitors should include contractual provisions in the purchase agreement requiring the seller to manage the property and serve any notices required by the buyer during the registration gap in accordance with the buyer’s instructions.

As an example from Boyes Turner, on one of our transactions, we recently had to require the seller (via the seller’s solicitor) to serve a landlord’s break notice in relation to a property we acquired for our client back in August 2023. Our drafting and negotiation of the purchase agreement required the seller to assist in this regard however, had we not properly negotiated these provisions, the seller could in theory have refused to assist thus disbarring our client the ability to exercise the landlord’s break.

Solicitors should also ensure that applications to register property transfers are submitted to the Land Registry quickly following completion and all relevant documentation in addition to the Transfer Deed, such as the SDLT receipt, lender consent or power of attorney, for example, accompany the application to register. This will reduce the chance of any requisitions being raised and further delays. In some circumstances, applications to the Land Registry can be ‘expedited’ so this is also something to consider.

Another practical example from Boyes Turner, we recently ‘saved’ a lease transaction by successfully and speedily expediting a freehold registration where the prospective tenant’s solicitor advised their client not to proceed due to a lack of registration. (Often in this situation parties and their legal representatives will take a commercial and pragmatic view, but some lawyers will advise their clients not to transact until such time as the seller/landlord is registered.)

 

Conclusion

In summary, whilst not the most riveting of topics, we are experiencing frequent issues surrounding the registration gap, whether in relation to the service of notices or simply in relation to subsequent dealings with properties that are not yet registered. At best, the registration gap is a mere annoyance but at worst, it can prove hugely detrimental for parties dealing with property they have acquired months (and sometimes years) before.

Our team of commercial property experts assist landlords and tenants, investors, funders, buyers and sellers on the widest spectrum of commercial property matters, with experience navigating the registration gap. If you require legal advice, get in touch with our team today on [email protected].