Title restrictions: will they help or hinder?
Is it possible for a title restriction to be removed from a registered title when the obligation it is intended to protect has not been complied with?
This scenario was presented in the recent case of Carlton Vale Limited v Gapper  UKUT 141 (LC) where the Upper Tribunal (Lands Chamber) decided that the title restriction in question should be removed.
In this case, the lease of a pub was surrendered and, as part of the consideration for such surrender, the landlord and tenant purportedly entered into an overage agreement which was protected by a restriction registered against the title to the property. The terms of the overage agreement provided that the restriction could be removed upon the earlier of the payment of any overage due, or the expiry of five years from the date of the agreement.
Although this article focuses on the parts of the judgment relating to the title restriction, the appeal considered various points, including whether the agreement had been validly executed and whether a party could be allowed to profit from its own wrong. As to whether the overage agreement was binding, it was decided that it was binding and that the overage had been triggered, meaning that the landlord was obligated to pay the tenant. Despite this, and the fact that the landlord did not intend to pay the tenant, the Upper Tribunal found that the restriction protecting the overage could be removed from the title on the basis that five years had elapsed from the date of the overage agreement. It was held that the parties had "unequivocally" agreed distinct parameters for the release of the restriction which were not tied to compliance with the terms of the agreement around payment of the overage. The judgment clearly distinguished the contractual right to receive an overage payment from the agreement of the parties for the removal of the title restriction.
What does this mean in practice? Here, the Upper Tribunal was willing to uphold the agreement between the parties in relation to the restriction. This serves as a good reminder to think carefully when imposing a restriction about the protection it is intended to afford and how it should operate. These considerations may differ depending on whether a party will benefit from the restriction or be subject to it, but as a general rule, we recommend looking at the following as a starting point:
- Does the restriction relate to the whole of the registered title or only part of it? Should there be a limit on how long the restriction will remain registered on the title? It is usually worth agreeing this upfront so that the restriction does not end up staying on the title for longer than is intended.
- When drafting the restriction, we would recommend using HM Land Registry's standard form restrictions in the majority of cases (as opposed to non-standard wording) to avoid requisitions upon registration. We also suggest following the Land Registry's guidance relating to certificates of compliance and consents to ensure that their requirements have been complied with.
- Should the obligation protected by the restriction be caveated in certain circumstances? In the context of a development site, it is fairly standard for sales of individual dwellings, creation of security and dealings with statutory undertakers to be carved out from the terms of the restriction. A certificate may still need to be submitted to comply with the restriction but it should not have to certify compliance with the underlying obligation being protected.
- Will a certificate or consent be required to comply with the restriction and who can provide this? Consider whether it should be limited to the beneficiary of the restriction or, for example, a conveyancer. If it is anticipated that multiple certificates or consents are required, the latter option can relieve the administrative burden on a specified party or provide more control to a party subject to the restriction if their solicitor is able to produce the necessary certificates or consents.
- Under what circumstances can an application be made for its removal? Is the release subject to the relevant obligation being satisfied; for example, the beneficiary of the restriction having received all monies due? If so, we would recommend incorporating a mechanism to resolve disputes in the event that there is a difference of opinion in this regard.
- From a timing perspective, it is usually sensible to factor in any delays or difficulties in obtaining a written consent or certificate, particularly if this is being provided by a specified party (especially if you have had no prior contact with them), to try to mitigate any unexpected hold-ups to the transaction. Where delays seem likely, it may be worth requiring co-operation of the appropriate parties in any contractual arrangements or obtaining a solicitor's undertaking.
The factors above are just a few of the things that should be taken into account when considering a restriction and, depending on the transaction, there can be many more. Agreeing the wording of a restriction, any parameters around when it can be removed and compliance with its terms can become quite complex. As shown by the decision in Carlton Vale Limited v Gapper, these factors should not be overlooked. Please do not hesitate to contact Trowers & Hamlins if you require any advice in this area.