"Mind the Gap" - Registering a Mortgage in England
Commuters on the London Underground will be familiar with the announcements "mind the gap" and the perils of ignoring that advice! What about the "gap" when registering transfers at the Land Registry in England and Wales?
The "Registration Gap"
The "registration gap" is a term used to describe the interval between the date of a transfer (of any kind) and the date on which that transfer is registered with the Land Registry. For the purposes of this blog, we will be focusing on the implications of the registration gap with reference to a transfer of a registered charge.
The significance of the registration gap is illustrated in the Land Registration Act 2002 which clearly states that, until such time that the transferee of the charge is registered at the Land Registry as the proprietor of the charge, the transferee will only hold the beneficial (equitable) interest in the charge. The transfer does not therefore take effect at law until it is registered with the Land Registry.
The significance of this is that (simplistically) a person with "equitable" rights does not have as strong a position as a person with "legal" rights under English law.
The Courts recently considered this, and have provided some comfort for lenders.
Has the "registration gap" been bridged?
A recent case - Skelwith (Leisure) Ltd v Armstrong [2015] EWHC 2830 (Ch); [2015] PLSCS 286, saw the High Court consider scope of the powers of an assignee of a registered legal charge (mortgage) who has not yet been registered as the new proprietor at the Land Registry and, more specifically, whether that assignee is able to sell the property that is subject to that legal charge.
Facts
The land in question was sold to a developer who was unable to pay the full purchase price on completion. In order to secure the remainder of the purchase price owed, the seller took a legal charge over that land. When the purchaser was subsequently unable to repay the monies owed to the seller, the seller served a formal demand and assigned the legal charge to a connected company who, in turn, contracted to sell the property to a third party (prior to the assignment of the charge being registered with the Land Registry).
The purchaser attempted to attack the sale on the basis that the assignee did not have the power to sell the land owing to the fact that it was not yet registered as the proprietor of the charge pursuant to the Land Registration Act 2002 (as detailed above).
Decision
The ultimate question for the Judge was whether the assignee was entitled to exercise the power of sale despite the fact that it was not yet registered as the transferee of the registered charge with the Land Registry (and therefore only held a beneficial interest in the charge). The answer to this question was "yes" for the reasons detailed below.
In the judge's view, it was insufficient to rely solely on the argument that the assignee should be afforded the right to exercise an owner's powers (including the right to exercise the power of sale) owing to the fact that the assignee only holds a beneficial interest in the charge. In other words, an equitable interest cannot simply be "promoted" to a legal interest.
However, the judge held that section 106 of the Law of Property Act 1925 (namely the provisions relating to the exercise of a power of sale) permits any person who is entitled to receive monies pursuant to the charge and give a discharge for such mortgage monies to exercise the power of sale found at section 101 of that Act.
As the assignee in this case was entitled to receive mortgage monies and give a discharge for such mortgage monies, it was within its rights to contract for the sale of the land despite not yet being registered at the Land Registry.
Our thoughts
Although the decision will provide lenders with some comfort, litigation such as this serves as an important reminder to ensure that charges are registered with the Land Registry promptly following completion.
Had the registration of the transfer been completed with the Land Registry prior to the contract for sale being entered into, the issues of this case would not have arisen and there would have been no need for any litigation. That being said, we are aware of delays with the processing applications at the Land Registry. The consequences of these delays mean that, even if a transfer is promptly submitted to the Land Registry, the applicant and transferee may still be exposed to the issues faced in this case whilst the application concerned is still to be processed and registered by the Land Registry (the implications being until registration is complete, the interest is "equitable" not "legal"). On the facts, the Court was able to utilise provisions of the 1925 legislation to protect the secured party.
As the registration gap applies to a transfer of any kind, transferees need to be mindful of the fact that there may be an extended period of time before the transfer in question has been registered at the Land Registry.
The Law Commission will hopefully make recommendations to deal with these issues next spring when the highly anticipated report on the workings of the Land Registration Act 2002 is due to be released.