Beware the Registration Gap!

What is the Registration Gap?

Under the Land Registration Act 2002, after completion of the sale of registered freehold or leasehold land or the grant of a registrable lease, the legal estate remains vested in the seller until the buyer is registered as proprietor at the HM Land Registry.

The Registration Gap is the gap in time between the date of completion of a purchase (or the grant of a lease) of a registered property, and the date of the registration of the buyer as the new owner of the property (or the tenant as the registered proprietor of the lease) at HM Land Registry.

During the Registration Gap, the purchase of the registered freehold property takes effect in equity only (this means that the legal interest remains with the seller, who holds the property on trust for the buyer) until registration of the buyer as the new owner of the property at HM Land Registry has completed.

It is not uncommon for HM Land Registry application processing periods to be lengthy (sometimes, 2 years or longer!); The issue has attracted media attention – https://www.theguardian.com/money/2023/aug/27/homeowners-left-out-of-pocket-after-two-year-delays-at-uk-land-registry.

Therefore, it is important to be aware of the implications which arise out of the Registration Gap.

Impact in practice

In practical terms where a buyer is waiting for the Land registry to register the buyer as the legal proprietor of the property,  the buyer of the property would be entitled to the benefit of the property (including the right to receive rents generated by the property and they can also sell, lease or charge the property)  – but would not be in a position to deal with the property in the same way as the legal owner. As such, where certain actions wish to be taken by the buyer during the Registration Gap, there are various points to be wary of, including:

1. Service of notices

Particular difficulties can arise where notices are to be served during the Registration Gap. The Registration Gap affects both tenants serving notice upon a landlord who has transferred the reversion and on landlords serving notice on a tenant who has assigned a lease.

Notices must generally be served by or on a legal owner. This means, for example, that a buyer of an investment property wishing to serve a break notice on an occupational tenant cannot do so lawfully until the buyer is registered as the owner of the legal interest in the property at HM Land Registry; the same applies for notices served under the Landlord and Tenant Act 1954 . Notices are often time critical, and parties cannot afford to make mistakes – if they do, they may find that the relevant timeframe for service has expired.

In a situation where the landlord has recently sold its reversion the Registration Gap is again an issue. In particular, to whom should the tenant apply to for consent to assign, underlet, or charge and who owes the landlord’s duties under the LTA 1988?

3. Breach of covenant

In order to enforce a covenant on, say, a purchaser of a registered lease, a landlord should join in the seller of the registered lease to any action for breach of the registered lease during the Registration Gap. This is because, until the purchaser of the registered lease is registered as the legal owner of the leasehold title at HM Land Registry, its title is equitable only – therefore, the legal owner should be joined in.

4. Forfeiture

The same applies to forfeiture proceedings – if a registered lease has recently been transferred (assigned) from one party (i.e. a seller) to another (i.e. a buyer), a landlord should serve a claim on both the seller of the registered lease and the buyer of the registered lease if the landlord wishes to bring court proceedings to forfeit the lease during the Registration Gap.

Bridging the gap

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. The solicitor can then include provisions in the purchase agreement for 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. Later, buyers should carefully consider on whom they should serve notices. Many notices are time-critical so there is no time for mistakes.

Jas Virk is an Associate Partner in Real Estate at Lichfield based law firm, Keelys LLP, 01543 420000