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Land Registration Bill [HL]

These notes refer to the Land Registration Bill [HL] as brought from the House of Lords on 8th November 2001 [Bill 48] LAND REGISTRATION BILL [HL] EXPLANATORY NOTES INTRODUCTION 1.     These explanatory notes relate to the Land Registration Bill [H.L.] as brought from the House of Lords on 8 November 2001. They have been prepared by the Lord Chancellor's Department (LCD) in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament. 2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given. BACKGROUND Origins of the Bill 3.     In 1996, the Law Commission and HM Land Registry began a joint programme to update and reform the statute law relating to land registration. Their initial proposals were published in Land Registration for the Twenty-First Century: A Consultative Document in September 1998. Revised recommendations, amended in the light of the consultation response, were published in Land Registration for the Twenty-First Century: A Conveyancing Revolution on 10 July. The Bill implements those recommendations. The joint report contains a detailed discussion of the policy behind the recommendations, and full explanatory notes on each clause of the draft Bill. Title to land 4.     The Crown is the only absolute owner of land in England and Wales: all others hold an estate in land. Estates, which derive from feudal terms of tenure, originally took many forms but were reduced by the Law of Property Act 1925 to two, an estate in fee simple absolute in possession, generally known as "freehold"; and an estate for a term of years absolute generally known as "leasehold". Apart from an estate, land may have the benefit of or be subject to other interests, which are rights and obligations relating to the land, belonging to the owner or to a third party. [Bill 48—EN]     53/1 Unregistered conveyancing 5.     Before the introduction of registration, there was only one way to establish the seller's right to sell a property. Purchasers had to satisfy themselves from the title deeds, searches and inspection of the land that the seller had power to sell the land, and that it was subject to no undisclosed obligations. That remains the case with properties which have not yet been registered (perhaps around one-fifth of freehold titles). Registered conveyancing 6.     In registered conveyancing, there is a single statement of title as it stands at any given time, guaranteed by the State. If any person suffers a loss as a result of some omission or mistake in the register of title, they are entitled to be indemnified for that loss. 7.     Land registration was first introduced to England and Wales by legislation of 1862 and 1875. Those Acts provided only for voluntary registration of title, and few titles were registered until the Land Transfer Act 1897 made registration of title compulsory in dealings with land in the County of London. Compulsory registration was gradually extended to cover the rest of the country. Since 1 December 1990, the whole of England and Wales has been subject to compulsory registration. This requires registration of a conveyance of a freehold estate, a grant of a lease of more than 21 years, and an assignment of leasehold land with more than 21 years to run. If the disposition is not registered within the required time, it becomes void as regards the transfer or creation of a legal estate or mortgage. The legal estate reverts to the person transferring it (who then, however, holds it on a trust for the intended recipient). 8.     Freehold titles are registered with three degrees of quality, and leasehold with four. A purchaser may also be bound by two kinds of interest on the land: an overriding interest, which does not appear in the register (e.g. leases for 21 years or less and rights of access across the land), and minor interests which only bind if they are protected by some entry in the register (e.g. a contract for sale or a restrictive covenant). The current legislation 9.     The principal legislation was provided by the Land Registration Act 1925, as amended by Land Registration Acts in 1936, 1986, 1988, and 1997, and by the Land Registration and Land Charges Act 1971. That legislation provides an improved machinery of conveyancing, rather than changing the underlying law, which applies to both unregistered and registered conveyancing. Its principles and definitions have sometimes been found obscure and confusing, and its language not easy for even for professional users. The objectives of the Bill 10.     The joint project undertaken by the Law Commission and the Land Registry therefore faced a complex, and in many respects, out-dated piece of legislation. As work proceeded an additional factor had to be considered. The Land Registry has now automated many of its functions, which can now be accessed on line. It became clear during the Commission's work that there was wide support within the property industry and from many legal practitioners for the introduction of a system of dealing with land electronically. The Law Commission and Land Registry therefore recommend that the new legislation should aim to create the necessary legal framework in which all registered conveyancing can be conducted electronically. The Bill establishes such a system. The Law Commission and the Land Registry recommend a fundamental objective. To enable an effective system of electronic dealing with land, the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land on line, with the absolute minimum of additional inquiries and inspections. Electronic conveyancing 11.     The Bill creates a framework in which it will be possible to transfer and create interests in registered land by electronic means. It does so by enabling the formal documents to be executed electronically; and providing for a secure electronic communications network. Because it is envisaged that the execution of those documents and their registration will be simultaneous, and the process of registration will be initiated by conveyancers, permitting access to the network is to be controlled by the Land Registry, which will also exercise control over the changes which can be made to the register. The Land Registry will be obliged to make arrangements for access to the network by those who wish to undertake their own conveyancing. Establishment of the system will require new ways of working by the Registry, and by conveyancing practitioners. It will, therefore, best be introduced in stages, starting with the simplest transactions and progressing to the more complex. The Bill therefore provides for the Lord Chancellor to regulate by rules transactions that can be carried out electronically. 12.     Some of the benefits of electronic conveyancing can only be maximised if it is used universally. The Bill, therefore gives the Lord Chancellor power to make the use of electronic means for conveyancing compulsory, subject to appropriate consultation. The use of this power will become feasible only when electronic conveyancing has become much the most usual way of effecting transactions. Associated changes 13.     The Bill contains a range of other provisions which increase the extent to which the register gives a complete and accurate reflection of the state of title. The number of dispositions that must be registered is extended, in particular by reducing the length of registrable leases from 21 to seven years, with a power to reduce it further. With very limited exceptions, express dispositions of registered land will also have to be appropriately protected in the register. 14.     One important aspect of the current legislation changed by the Bill is that of "overriding interests". Under the Land Registration Act 1925, these include all the incumbrances, interests, rights and powers which are not entered on the register, but override registered dispositions under the Act. Such interests create a number of problems, since people can find that they have bought estates which are subject to adverse interests which are not be clear from the register, and can be quite difficult to determine. In the Bill, the categories of interests which are not registrable appear in two distinct lists, one relevant to first registration of title, the other to dealings with registered land. In each list they will be reduced in scope. The ambit of particular categories will be narrowed, some categories will be abolished altogether, and others will be phased out after ten years. 15.     In favour of those dealing with them, owners of registered land will be presumed to have unrestricted powers of disposition in the absence of any entry in the register. The rules as to the competing priority of interests in registered land are clarified. Charge certificates will be abolished, and land certificates will have a less important role. 16.     The Bill reduces to two the methods of protecting the interests of third parties over registered land. Notices may be used to protect encumbrances on land that are intended to bind third parties (such as easements or restrictive covenants). Restrictions regulate the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the register. Either can be sought without the consent of the registered proprietor who must be notified and who will be able to apply for cancellation of the notice, or object to an application for a restriction. People who apply for either must act reasonably. 17.     One of the objectives of the Law Commission and Land Registry's report is that registration alone should confer title. The Bill introduces a new scheme for protecting the interests of registered proprietors against the acquisition of title by persons in adverse possession, or "squatters". A squatter will be able to apply to be registered as proprietor after ten years' adverse possession. The registered proprietor will, however, be notified of that application and will, in most cases, be able to object to it. Where the proprietor does object, the application will be rejected unless the squatter can meet one of three limited exceptions. The proprietor will then have to take steps to evict the squatter, or otherwise regularise the position within two years. Squatters still in adverse possession after two years will be entitled to be registered as proprietor. 18.     Where the Crown is the direct owner of its land (known as demesne land), it does not hold an estate. It is therefore not open to it to register this land (since only estates are registrable). The Bill provides a procedure for the voluntary registration of demesne land. It also modernises procedures for returning to economic use land which has reverted to Crown ownership (usually in the course of insolvency proceedings). 19.     The Bill also revises the arrangements for the handling of business within the Land Registry. A new system of independent adjudication of disputes arising out of disputed applications to the registrar will be set up. The Bill includes provision enabling the Registry to provide consultancy and advisory services. 20.     The Bill also restates the law in modern and simple language. SUMMARY 21.     The following is a summary of the contents of the Bill: Part 1: Preliminary to continue provision for a register of title to estates in land, and explain what interests can be the subject of title registration; Part 2: First registration of title to specify who is entitled to apply voluntarily for the first registration of a title; to define when an application must be made, on whom the duty to make it lies; and the consequences of failing to do so; to define the titles in freehold and leasehold land which may be registered, and the effects of registration; to provide for cautions against first registration; Part 3: Dispositions of registered land to define the powers of an owner of registered land, and who can exercise them; to make provision to protect disponees from the effect of limits on powers which are not the subject of an entry in the register; to define the dispositions of registered land which must be registered; to lay down rules about the effect of dispositions on the priority of interests effecting registered land; Part 4: Notices and restrictions to provide for the registration of third party rights against registered titles by means of notices in the register and for the entry of restrictions which limit the circumstances in which an entry in the register may not be made in respect of a disposition of registered land which can be made without the approval of the Registrar or a court; Part 5: Charges to make provision about the relative priority of charges on registered land and about powers and duties of chargees; Part 6: Registration: General to make provision about the effects of registration of title; to make provision about alteration of the register; to make provision for public access to the register; to make provision for procedures for priority periods during which the rights of intending buyers can be protected; to make provision for a right to object to applications to the Registrar and for the reference of disputes about applications to the adjudicator; Part 7: Special cases to make special provision for a number of cases for which that is appropriate, including various matters relating to the Crown, and the treatment on pending actions, writs, orders and deeds of arrangement (including bankruptcy petitions and orders); Part 8: Electronic conveyancing to enable dispositions with a connection to land registration to be made by means of documents in electronic form; to enable registration to be made a pre-condition to effect dispositions of registered land or other interests which are the subject of a notice in the register; to enable an electronic network to be set up to carry out functions related to registration; to provide for circumstances in which conveyancers may be required to use electronic means to complete and register transactions simultaneously; Part 9: Adverse possession to introduce a new regime for dealing with adverse possession in relation to certain registered interests; Part 10: Land registry to make provision about the land registry, including the conduct of business and fees; Part 11: Adjudication to establish a new independent officer to determine disputes between individual parties relating to land registration, and to regulate proceedings before him; Part 12: Miscellaneous and general to enable specific provision to be made for a number of rights in land, and other miscellaneous and general provisions. COMMENTARY ON THE CLAUSES PART 1: PRELIMINARY Clause 1: Register of title 22.     This clause continues the requirement for a register of title to be kept, under the responsibility of the Chief Land Registrar. Rules may govern the information to be kept in the register, and its form. Clause 2: Scope of title registration 23.     This clause sets out the matters in relation to which the Bill makes provision for registration. Clause 2(a) is concerned with the unregistered estates which are capable of being registered. These are dealt with in Part 2, Chapter 1 of the Bill. Clause 2(b) is concerned with legal interests created by a disposition of land the title to which is registered. These are addressed in Part 3 of the Bill. PART 2: FIRST REGISTRATION OF TITLE Chapter 1: First registration Voluntary registration Clause 3: When title may be registered 24.     This clause makes provision for the voluntary first registration of title. Subsection (1) specifies the legal estates that may be registered. These are: a freehold or leasehold estate in land; a rentcharge; a franchise (a grant from the Crown such as the right to hold a market or fair, or to take tolls; this provision enables franchises to be protected by registration, rather than by means of a notice or caution); and a profit ... prendre in gross (these are rights with an independent existence such as the right to hunt or shoot game; these also have previously only been able to be protected by an entry against the title of the relevant land, if that land is registered, and will now be able to be registered in their own right, since these rights are often sold and leased and can be very valuable). 25.     Subsection (2) continues the existing law, stipulating who is entitled to apply to be registered as the first registered proprietor. The first entitlement belongs to the legal owners of the land. The second group comprises people who are entitled to have the legal estate vested in them but where, for example, the title is currently vested in a nominee on their behalf. Subsection (6) provides that a person may not apply to be registered if he or she is a person who has contracted to buy land. That is because the contract will be completed by a conveyance, and that conveyance will be subject to compulsory registration under clause 4 (fees for voluntary first registration are likely to be lower than those for compulsory first registration). 26.     Subsection (3) changes the existing law. Currently, only leases with more than 21 years to run may be registered voluntarily. This is reduced to seven years, in furtherance of the objective that all title to land in England and Wales should be registered. Subsection (4) provides that leases with less than seven years to run may, however, be registered if the right to possession is discontinuous. Such leases are not very common, but are sometimes used for time-share arrangements. Subsection (7) makes provision for a situation in which a person holds land under one lease, but has been granted another to take effect on or shortly after the first expires. If, taken together, the terms exceed seven years, the lease will be registrable. Clause 5 gives the Lord Chancellor the power to reduce the length of leases that are capable of being registered, after consulting such persons as he considers appropriate. 27.     Subsection (5) provides that a mortgage term created by demise or sub-demise is not registrable when there is a subsisting right of redemption. Compulsory registration Clause 4: When title must be registered 28.     Clause 4 sets out the events that trigger the compulsory first registration of title. These were updated and extended by the Land Registration Act 1997, and the Bill therefore largely replicates the existing position. First, compulsory registration is triggered by specified types of transfer of a qualifying estate, which is defined as either a legal freehold estate, or a legal lease with more than seven years to run. The transfers are those made: i)     for valuable or other consideration (which under subsection (6) includes estates which have a negative value); ii)     by way of gift (which subsection (7) provides will include transfers for the purposes of constituting a trust under which the settlor does not retain the whole of the beneficial interest, or transfers for the purpose of uniting the legal title and the beneficial interest in property held under a trust under which the settlor did not, on constitution, retain the whole of the beneficial interest); iii)     under a court order; and iv)     by means of an assent (including a vesting assent). 29.     Under subsection (3), transfers do not include transfers by operation of law (where, for example, an owner's property vests in personal representatives on death). Under subsection (4) compulsory registration will not apply to transfers involving: i)     the assignment of a mortgage term (where there is a mortgage by demise or sub-demise, and the mortgagee assigns the mortgage by transferring the mortgage term); or ii)     where a lease is assigned or surrendered to the owner of the immediate reversion where the term is to merge in that reversion (because the estate transferred disappears). 30.     Registration will be compulsory where section 171A of the Housing Act 1985 applies (i.e. where a person ceases to be a secure tenant because his or her landlord disposes of an interest in a house to a private sector landlord (subsection (1)(b), replicating the current law)). Compulsory registration will also apply to the grant of leases out of freehold land or a leasehold, with more than seven years to run, where the lease is granted for valuable or other consideration, by way of a gift, or under a court order, apart from the exceptions in the clause. 31.     Compulsory registration will also apply where a lease is granted to take effect more than three months after it is granted. This provision is new, and is designed to avoid a conveyancing trap that such reversionary leases may create. At present, a lease granted for 21 years or less, which has not yet taken effect cannot be registered or protected by the entry of a notice in the register against the landlord's title but takes effect as an overriding interest. A buyer of land so affected may not be able to discover the existence of the lease, because the tenant will not be in possession. 32.     Grants of a lease out of an unregistered legal estate under the right to buy provisions of Part 5 of the Housing Act 1985 will also be subject to compulsory registration (replicating the present law). Compulsory registration will also apply to the creation of a protected first legal mortgage (i.e. one which on creation ranks in priority ahead of other mortgages affecting the mortgaged estate) out of a legal freehold estate, or a lease with more than seven years to run. Clause 5: Power to extend section 4 33.     This clause enables the Lord Chancellor to add new events to those that trigger compulsory registration, by statutory instrument to be laid before Parliament. There is a similar power under the present law, although the new one is exercisable only after consultation. To be added, events must relate to unregistered estates specified in the clause, which correspond to those listed as capable of registration with their own titles under clause 3. Under subsection (3), the power may not be exercised to require the compulsory registration of an estate granted to a mortgagee, because no benefit would be derived from requiring a charge over land to be registered, if the title to the estate affected remained unregistered. Clause 6: Duty to apply for registration of title 34.     This clause imposes a duty on the responsible estate owner to apply for registration within the period for registration if the registration requirement applies. Where registration is triggered by the creation of a protected legal mortgage (under clause 4 (1)(g)), the mortgagor must apply for the registration of the estate charged by the mortgage. As now, there is a power by rules to make provision to enable the mortgagee to require the estate charged by the mortgage to be registered, whether or not the mortgagor consents. In other cases it is the transferee or grantee who must apply. The period for registration is two months beginning with the date on which the relevant event occurs (subsection (4)), but subsection (5) enables the registrar, on application by an interested person, to specify a longer period for registration if there is a good reason for doing so. Clause 7: Effect of non-compliance with section 6 35.     The effect of not complying with the requirement of registration is: i)     where the event is a transfer, the transfer becomes void and the transferor hold the legal estate on a bare trust for the transferee (subsection (4) avoids the possibility which arises under subsection (1) of converting an unregistered fee simple into a determinable fee, which is not a legal estate); and ii)     where the event is the grant of a lease or the creation of a protected mortgage, the grant or creation is void and takes effect instead as a contract made for valuable consideration to grant or create the lease or mortgage concerned. 36.     If a transaction has become void under these provisions and the registrar then makes an order extending the period in which an application for registration can be made, it is treated as having never become void. Clause 8: Liability for making good void transfers etc 37.     If it is necessary to repeat a transaction because it became void under the provisions in Clause 7, the person who is responsible for the registration is liable to the disponor or mortgagee for all the proper costs of and incidental to the repeated disposition. He or she is also liable to indemnify the disponor or mortgagee in respect of any other liability reasonably incurred because of the failure to register. Classes of Title Clause 9: Titles to freehold estates 38.     Where a person applies to be registered as proprietor of a freehold estate, he or she may (as now) be registered with an absolute, qualified or possessory title. A person may be registered with absolute title if the registrar considers that the title is such as a willing buyer could properly be advised to accept. Defective titles may still be registered as absolute if the registrar considers that the defect will not cause the holding under the title to be disturbed. Almost all freehold titles are, in practice, absolute. A person may, however, be registered only with qualified title, if the registrar considers that the applicant's title can only be established for a limited period, or subject to certain reservations. Qualified title is extremely rare but it might be appropriate, where, for example, the transfer to the applicant had been in breach of trust. Possessory title is only appropriate where the applicant is either in actual possession or in receipt of the rent and profits from the land, and there is no other class of title which may be registered. In practice, land is registered with a possessory title where the basis of the application is adverse possession, or where the applicant's title cannot be proved (usually because the title deeds have been lost or destroyed).

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Prepared: 9 November 2001