Land Registry registration delays - how it can impact on acquisition and funding due diligence
It seems hard to believe that unregistered property conveyancing skills might be relevant in 2023 but these skills are having a resurgence. This is because properties are being charged before they are registered and all relevant interests and obligations must be identified. Landlords need to be very careful to ensure that their lawyers have the depth of knowledge and skills to assist in this area.
What is the impact of delays with Land Registry?
A twist of fortunes, not least Covid's long shadow, added to market pressures, means we are in this position, more and more frequently. It is happening with newly built units or newly created leases as these are not pre-existing registered interests. It has always taken some time for the Land Registry to establish new title for such interests. In recent years, we have all become used to an efficient and reliable Land Registry and the relative simplicity of relying on registered title documents. However, current Land Registry delays mean that a developer/purchaser may have to wait some months (or possibly even years) before the new title for a property they may have built or bought is created and registered. Add this to the need to use such units as security for funding and we find ourselves in an unregistered property landscape.
This means having to track through the history, and all the documents, to be able to create a picture of what the title will look like when it is ultimately registered. It also means, crucially, when charging, having the ability to identify which of those matters will be of relevance to a funder. It is important to identify the issues, rights, reservations and restrictions which will ultimately be shown on the register and discard that which is not relevant. It is a detailed and forensic exercise. The funder will want to know that any matter impacting on value, or any impediment on sale in the event of enforcement, is removed or nullified. Your lawyers must have the skills to look back down the chain of ownership at the same time as looking forward in time to identify, both existing and upcoming, relevant risks and remedies.
Examining the chain of ownership
A newly built unit could have a complex chain of ownership before it is even out of the ground. There may be an original owner, a developer owner, an investment owner and an ultimate end user, with planning interests attached. This chain of ownership may contain numerous transfers, rights and restrictions, indemnities, and undertakings (to name but a few) of the various hazards to be negotiated on this technical 'paper trail'. The obligations may be oblique or obvious, sometimes hiding in plain sight. The particular wording used may make a vast difference. Obligations may have a limited, or long, shelf life. These issues all need to be picked out and identified to highlight any attendant risk. If a problem needs to be rendered harmless before a funder will accept the property as security, the appropriate evidence must be found or produced. It is an exacting task to report on title not yet registered, scouring through often lengthy documents for any wording which may cause concern.
It may be necessary to engage with a chain of solicitors each of which may have acted for a different party along the chain of ownership. If there are rights or obligations to be dealt with or eliminated along the way, it will need to ensured that the correct documentation is in place.
This approach is being employed particularly in the for-profit sector, in part because these organisations are new and need fast and flexible funding.
We can offer the depth and breadth of skills to undertake this work efficiently and effectively to ensure that clients get best value from their asset base. Do get in touch if you have any portfolios that are affected by such issues so that we can advise you on the appropriate next steps.