Response of the Law Society of England and Wales to the consultation issued by the Law Commission on updating the Land Registration Act 2002

Transcription

1 Response of the Law Society of England and Wales to the consultation issued by the Law Commission on updating the Land Registration Act 2002 Consultation Paper 227 June 2016 The Law Society 2016 Page 1 of 72

2 PREFACE 1. The Law Society of England and Wales ("The Society") is the professional body for the solicitors' profession in England and Wales, representing over 160,000 registered legal practitioners. The Society represents the profession to parliament, government and regulatory bodies and has a public interest in the reform of the law. 2. The Society welcomes the opportunity to respond to this consultation from the Law Commission. 3. This response has been prepared by the Society s Conveyancing and Land Law Committee ( the Committee ) which comprises practitioners drawn from a cross-section of the profession. EXECUTIVE SUMMARY 4. The Law Commission has recognised that the context in which the Land Registration Act 2002 was developed and the vision of e-conveyancing then is now longer applicable and that, as a result, the Act needs amendment. There are also various matters that have arisen in practice that require amendment and we largely agree with the approach taken. 5. The Consultation paper was launched shortly after the Department of Business Innovation and Skills (BIS) consultation paper 1 on moving the operations of Land Registry to the private sector. We have responded to that consultation 2. BIS has not yet responded to the consultation responses. This response is answered on the basis that the Land Registry remains in public ownership. Some, but not all, of the responses given would change if the Land Registry were to be put into the private sector. This would apply particularly to those that relate to the state guarantee, indemnity and responsibility for fraud. 6. The Society agrees that it should be set out in primary legislation that trustees may collectively delegate their power to sign an electronic conveyance and give receipt for capital monies to a single conveyancer under section 11 of the Trustee Act It may well be that, by the time this takes effect, most consumers will have their own means of signing documents and deeds so that the provision may not be required but, as it may still be useful The Law Society 2016 Page 2 of 72

3 now for conveyancers to sign on behalf of their clients where they are happy to do so. 7. We are concerned to ensure that any new duties of care, whether common law or statutory, on lenders, solicitors and conveyancers are developed very carefully. There are already a host of duties and obligations in this sphere. It would not be helpful to have further duties that do not sit comfortably with the existing obligations, which contradict them or create lacunae. 8. The existing duties come from a variety of different sources. There are already regulatory, legislative,common law and practice requirements. These come from the SRA, the Society in the form of the Conveyancing Handbook and practice notes one issued jointly with Land Registry. There are also AML verification requirements, Land Registry ID requirements and CML Handbook and BSA Mortgage Instructions. 9. The CML Handbook verification requirements have been the subject of recent discussion. 10. The objectives of these requirements are different: some aim to verify that a person exists but the more difficult issue is to establish whether the person identified or verified is actually the same person as the registered proprietor which is a more difficult task. As the Land Registry holds information about the registered proprietor if it were possible to set up a verification procedure under which Land Registry could hold further information and it could use this to better assess the likelihood of the identity of the registered proprietor being a strong match with the person wanting to deal with the land this would be very helpful. 11. We would say that the consultation paper in itself is a very useful exposition of the current law. As might be expected in relation to a consultation paper of almost 500 pages there are several matters where the Society has responded but is still considering matters further with property practitioners and other members including litigation practitioners. 12. The Society would very much like to maintain a dialogue with the Law Commission as their thinking progresses and develops on a number of the proposals. The Law Society 2016 Page 3 of 72

4 RESPONSE THE REGISTRABLE ESTATES Q1 We invite consultees to share their experiences of Land Registry s new practice of allowing the landlord s freehold title to remain on the register following a lease enlargement under section 153 of the Law of Property Act 1925, and in particular any practical problems that have arisen out of this practice. [Paragraph 3.14] 13. It is understandable that the action of the Land Registry in ceasing in 2013 to extinguish the freehold title registration to the reversion to a lease enlarged under s.153 Law of Property Act 1925 ( LPA 1925 ) as justifiable owing to the uncertainty of the law on the subject. Equally, it is understood that the Land Registry is engaged in reviewing the Land Registration Act 2002 ( LRA 2002 ) and not in reforming the law of enlargement of leases. 14. Nevertheless, those aware of the change of Land Registry practice on the subject were surprised by it, as there seemed to be no vulnerability to redress of the former reversioners, nor indeed to human rights claims. 15. Although 999 year leases are sometimes granted in flats or housing estate schemes to take advantage of enforceable positive covenants contributing to the costs of building or estate service charges and the like. The forms of lease in those cases do not admit of enlargement under s.153; they reserve a small rent having a monetary value. Grants of leases of up to 250 years for these purposes are far more common and they do not qualify, falling below the 300 year grant threshold. If the Law Commission s proposal for positive covenants to run with freehold land to become enforceable against successors in title (as the Society has endorsed in the consultation upon it), were to be adopted, the leasehold schemes would no longer be needed. In any event, the Society is of the impression that the numbers of old leases that would be capable of enlargement must now be few and far between. 16. The Society would prefer to see the cesser of the new practice of retaining the freehold title register of the reversioners to the former lease following enlargement. The Society is not aware of a prevalence of problems arising under the registration regime in the years before Members of the Committee have not encountered or heard about any practical problems arising out of this new practice but intuitively are concerned that having two freehold titles to the same land may be confusing. Nevertheless, given that s.153 (8) LPA 1925 keeps in force those covenants The Law Society 2016 Page 4 of 72

5 in the lease which relate to user and enjoyment, it may be useful to retain a title having the benefit of those covenants. On each freehold title, there is a reference to the other freehold title. Q2 We invite the views of consultees as to whether the law should be clarified so that it is possible for an owner of an estate in mines and minerals held apart from the surface to lodge a caution against first registration of the relevant surface title. [Paragraph 3.51] 18. The law relating to mines and minerals is complicated and there is a general lack of understanding of it by practitioners who do not encounter it on a regular basis. 19. For most conveyancers their experience of mines and minerals has been limited to the results of coal mining searches disclosing coal deposit lying beneath the surface and past workings of them. From the notes to the Coal Mining Search (Con29M) they have gained an awareness of the existence of the statutory compensation scheme administered by the Coal Authority but with no real understanding of the Coal Mining Subsidence Act 1991 or how the compensation scheme works. 20. Practitioners have tended to assume from the absence of an express entry on the registered title that mines and minerals are excluded from it, then they are automatically presumed to be irrevocably included in the surface title. There is little or no appreciation on their part that the presumption of subterranean strata being included in the surface title is capable of being rebutted post registration of the surface title; that there is no compulsory registration requirement for mines and minerals titles nor that the Land Registry does not make a note of a conditional mines and minerals title on the corresponding surface title. 21. About 15 months ago there was correspondence passing between members of the Association of Property Support Lawyers, whose members comprise City and major provincial solicitors practices, about the lack of any notation on the surface title of a registered qualified mines and minerals title beneath it. These letters illustrate the lack of understanding amongst conveyancers. It generated a lot of interest in the topic. 22. Apart from raising awareness of the separation of mines and minerals from the surface title and the profile of mines and minerals law, it would avoid any unnecessary unpleasantness between the owners of surface and mines and minerals titles if the owner of a mines and minerals title was allowed to register a caution against first registration on the corresponding surface titles. The Law Society 2016 Page 5 of 72

6 For the reasons set out in our response to question 22.5 below, we see no reason to distinguish between treatment of title absolute and qualified mines and minerals titles. Q3 We invite the views of consultees as to whether the provisions of section 4 of the LRA 2002 should be amended so that compulsory first registration of an estate in mines and minerals is triggered where mines and minerals are separated from an unregistered legal estate, and where an unregistered estate in mines and minerals held apart from the surface is transferred. [Paragraph 3.59] 23. A key objective of the LRA 2002 is the promotion of a legal framework in which conveyancing is conducted electronically. For electronic conveyancing to be viable and become the norm requires critical mass with all or almost all registerable interests being registered. That takes time and in the meantime we continue to operate two systems of conveyancing; one for registered and the other for unregistered titles. 24. Since the LRA 2002 came into force, one of the ways that the Land Registry has sought to boost the proportion of registered to unregistered titles has been by encouraging the voluntary registration of large estates and property portfolios. 25. By not making the registration of mines and mineral compulsory, the LRA 2002 missed an opportunity to further the development of the register as a comprehensive record of all interests in land rather than just those pertaining to the surface and above. 26. In part, the answer to this question lies in how the market for mines and mineral interests has responded to the LRA The majority of mineral interests are held as part of large estates often being the residue of the surface long since sold off. 27. Encouraged by relative ease with which the Land Registry completed the voluntary registration of their surface titles, and the benefits of being able to deal with a registered rather than unregistered title, has led to many of these owners applying to voluntarily register their mines and mineral titles as well. 28. Market forces are also driving a change in the voluntary registration of mines and mineral titles. Buyers of them now expect certainty as to what interest they are acquiring. Rather than relying on a subjective assessment of an old unregistered title, they and their funders want certainty as to whether The Law Society 2016 Page 6 of 72

7 the seller s title is sufficient to satisfy the Land Registry that it is title absolute or falls short of the mark and is qualified. This in turn reflects on value. A voluntary registration now often precedes a sale of a mines and minerals title. 29. Market practice shows that making registration compulsory and encouraging more voluntary registrations would be an easy win resulting in a more comprehensive register. It would also result in titles that are largely invisible and not understood, becoming visible and raise awareness of what they mean. Q4 We invite consultees to share their experiences of the extent to which the lack of compulsory registration of estates in mines and minerals is causing problems in practice. [Paragraph 3.60] 30. Client confidentiality prevents us from referring to specific examples. The examples given below have been compiled from experiences of our members. They are expressed in general terms in order to preserve the anonymity of the practitioners concerned and their clients. 31. The lack of visibility of mines and minerals titles is having an adverse effect on the development of land. Since the reported decision of Bocardo SA v Star Energy [2010] UKSC 35 3 developers and their funders have become wary of the prospect of challenges by third parties alleging that ground investigations, subterranean services or foundations have resulted in a trespass on their mines and minerals title. 32. With mines and mineral titles largely unregistered, when faced with a surface title that is silent on whether or not it includes mines and minerals, developers and their funders are tending to err on the side of caution and developments are being put on hold whilst a comprehensive ground survey is undertaken in an attempt to identify whether or not there are any mines and minerals under the surface and an assessment made of the prospect of another party claiming ownership of them. 33. Whilst indemnity insurance may provide some financial comfort, the reality is that if a claim creeps out of the woodwork the resultant delay to the development is on average between 12 to 24 months whilst the parties try to reach a commercial settlement. 34. The issue here is the uncertainty and the additional costs and delays resulting from the invisibility of mines and minerals titles. 3 The Law Society 2016 Page 7 of 72

8 35. For the reasons set out in 22.5 we see no justification for the Land Registry's not noting on the surface title that mines and mineral are excluded from it when the registered interest is a qualified title. For a surface owner or developer of the surface the only uncertainty over negotiating with a qualified title holder is whether someone else will come along with a stronger claim to displace that person. It leaves a cloud hanging over the finality of any negotiated settlement. 36. A knowledgeable mines and minerals solicitor has reported his experience of dealing with an application he submitted to register an absolute mines and minerals title when the Land Registry had previously registered a qualified title in respect of the same interest. The solicitor felt that the Land Registry wanted to play no part in assessing whether or not their client has a superior claim but rather leave it to the parties to resolve amongst themselves and in default of agreement, to refer it to the First-tier Tribunal. The solicitor reported that in the end the parties came to a commercial settlement. Another similar claim is looming. The solicitor holds no expectation of the Land Registry assessing the merits of the application but rather fudging it again. Had the client s mines and minerals title been the subject of a compulsory registration when it last changed hands this situation could have been avoided. It is the invisibility of these titles which is behind many of the difficulties that conveyancers experience. Q5 We invite the views of consultees as to whether surface owners should be notified of an application to register title to the mines and minerals beneath their land, regardless of whether title is to be registered with qualified or absolute title. [Paragraph 3.67] 37. Currently the Land Registry notifies the registered proprietor of a surface title that is silent on the inclusion or exclusion of mines and minerals, if a separate application made by another party to register them with title absolute is successful. It does not notify the registered proprietor of the surface title if the application results in a qualified mines and minerals title. unilateral notices require further investigation. Unilateral notices are cause some difficulties because whilst they enable the preservation of rights that might not have been able to be registered without the expense and time involved of providing full evidence, this can result in the creation of a large number of entries on the register. This has been the case especially in relation to chancel repair liability and mines and minerals (see paragraphs of our response). These kinds of entries can clog up the register and slow down the conveyancing process. The Law Society 2016 Page 8 of 72

9 38. The Society considers that the Land Registry should be obliged to notify surface owners of any separate application by another party to register mines and mineral beneath their land irrespective of whether the outcome of that application is a title absolute or a qualified title. 39. There is no reason for the Land Registry to differentiate in its treatment of title absolute and qualified mines and minerals titles. Whilst a qualified mines and minerals title does not benefit from the Land Registry title guarantee and can be displaced by someone with a stronger title claim, like an absolute title, it has the effect of rebutting the presumption of law that the surface title includes mines and minerals. The only difference between a qualified and an absolute mines and minerals title so far as the surface owner is concerned is that in the case of the former the registered proprietor of the mines and minerals title may not be the ultimate owner of them. Q6 We provisionally propose that the requirement of registration should apply to the grant of a discontinuous lease out of a qualifying estate. Do consultees agree? [Paragraph 3.78] 40. The Society agrees with the provisional proposal that the requirement of registration should apply to the grant of a discontinuous lease out of a qualifying estate. Compulsory registration in such circumstances is desirable in order to give a full picture of qualifying interests. 41. The proposal will deal with the anomaly identified in paragraph 3.73 in relation to such leases granted out of unregistered land and will also assist in increasing the number of registerable interests. Q7 We provisionally propose that it should be possible to protect a discontinuous lease by notice on the register of title to the reversion, whatever the length of the discontinuous lease and whether or not it was compulsorily registerable. Do consultees agree? [Paragraph 3.79] 42. The Society agrees with the proposal that it should be possible to protect a discontinuous lease by notice on the register of title to the reversion, whatever the length of the discontinuous lease and whether or not it was compulsorily registrable. Q8 We provisionally propose that there should be no change to the threshold of the length of lease which is registrable under the LRA Do consultees agree? [Paragraph 3.94] The Law Society 2016 Page 9 of 72

10 43. The Society agrees that there should not now be any change to the threshold of the length of lease which is registrable under the LRA While there is some logic for a term of at least 5 years to be registrable (since a sizeable proportion of commercial property leases are of that length and the current 7 years figure appears a little random), to effect that change will materially increase the administrative and cost burden of a large number of lease transactions. The costs to the lessee in doing so are not justifiable in relation to short leases where there is little or no difficulty in identifying their existence. The burden on the Land Registry would not be warranted by any benefits which a reduction in the threshold would achieve. The rationale for the proposal of a future reduction of the threshold to three years made in 2002 is not, in the opinion of the Society, now supportable in the circumstances of the much increased prevalence of leases granted for terms of less than 7 years. 44. The Society is also conscious of the dangers of the landlord s registered title being burdened by notices relating to an increased number of leases, which will need to be removed once they have ended. This process can often be problematic. FIRST REGISTRATION Q9 We invite consultees to provide evidence of difficulties they have encountered when undertaking conveyancing in the twilight period. [Paragraph 4.34] 45. The twilight period difficulties highlighted in the Consultation Paper are to most practitioners of esoteric nature and likely only to arouse their interest or concern if they become victim to the traps in the circumstances. The Society has no real evidence to assist in this regard but it is thought the examples of difficulties occurring in practice are few. Q10 We invite the views of consultees as to the form of protection that should be provided in respect of dispositions that take place in the twilight period. [Paragraph 4.35] 46. The Society agrees that some form of protection should be provided in respect of dispositions that take place in the twilight period. 47. The Commission has identified two transactions which could give rise to issues. The Law Society 2016 Page 10 of 72

11 48. The first is a dealing in the twilight period which is in the same transaction as the disposition which triggers compulsory registration ( First Scenario ). See paragraph Here A transfers part of the unregistered freehold land to B with the Transfer containing restrictive covenants. B then transfers to C. C is the applicant for first registration. 49. The second is a dealing in the twilight period which is after the disposition which triggers compulsory registration. ( Second Scenario ). See paragraph Here A transfers the unregistered freehold to B. B then enters into a restrictive covenant in favour of land owned by C. After this transaction, B then sells onto D. D is the first applicant to apply for registration of title. 50. In both scenarios, however, the dealing in question follows a transaction which triggers compulsory registration. Accordingly, the Society believes the form of protection which should be afforded to disponees in such cases should be based in the registered land regime. Practitioners would prefer to conduct the conveyancing transactions as though the first registration had been completed. Practitioners would prefer to follow the LRR 2003 than having to undertake Land Charge Searches against possible Estate Owners. 51. Therefore in the First Scenario, we agree that the difficulty described in paragraph 4.21 could be overcome by giving A the opportunity to register some form of notice at the Land Registry which is intended to protect the restrictive covenants created in A s favour. We agree an application for a caution against first registration is inappropriate for the reasons given in paragraph However, might it be possible for A to register a new form of notice such as a Pending application Registration Notice? This will fall away once the transfer from A to B has been registered. 52. We foresee several issues with this however. First, in most cases, there will be no further disposition after the A to B transfer, and so there is little risk to A. A knows if B fails to register the transfer within two months the disposition as regards the transfer will become void. Nevertheless, if such a notice was possible, Practitioners would feel it is necessary to register such notices in all cases in order to avoid any claims in negligence. Second, where there has been such a further disposal, A might not know about it. So A would not know whether the restrictive covenants would need to be protected. Thirdly, as stated by the Commission in paragraph 4.19, since B s title derives from the same instrument as A s restrictive covenant, B would need to deduce the transfer (and the restrictive convent) to C, and C would, therefore, have notice of the restrictive covenants. The Law Society 2016 Page 11 of 72

12 53. In the Second Scenario, C will be anxious to protect the restrictive covenant in C s favour. Here, the ability of C to register some form of Pending application Registration Notice to protect the restrictive covenant until such time as the first registration takes place would be useful. This type of transaction covered by the Second Scenario is less common, and having to register such Pending application Registration Notice less of a burden. It would also protect the Practitioner advising C since he could register the Pending application Registration Notice in favour of C in circumstances where C is unaware of the anticipated disposal in favour of D. 54. The Society believes in practice, the conveyancers representing A,B,C and D would work around these issues by relying on cross undertakings on completion whereby conveyancers agree with each other to submit timely and complete applications for first registration. 55. Generally it would seem that, in the case of dispositions of unregistered land requiring first registration which create land charges and there is a further disposition during the twilight period, the problem area is likely to be righted by the registration of title within the time limit by the disponee the pragmatic solution in present circumstances. 56. The position in which, before registration during the twilight period, a land charge is created by the disponee but after the disposition to them has taken place, that situation is not susceptible to be righted by the pragmatic solution of registration of title within the time limit of the twilight period. In either case, the positions that come about are anomalous and arise out of the transitional approach from an unregistered to a registered land registration regime which is not fully comprehensive in dealing with them. 57. In the exercise that is now being conducted, a reform of the law of land registration is not contemplated; only the remedying of defects in the operation of the LRA 2002 is under examination. Is there a procedural step which could be introduced which would protect the land charge holders in either of the cases whether or not a pragmatic solution is workable? 58. It is suggested that a caution against first registration procedure could be utilised as a prerequisite for the protection of the land charge holder, which would fall away on first registration of the dispositions incorporating the protections of the land charge holder duly entered on the register. It would be a robust approach and would draw attention to the problems to be avoided in the twilight period of which it is thought there is little awareness. The Law Society 2016 Page 12 of 72

13 Q11 We provisionally propose that it should be made clear that a person with a derivative interest under a trust may apply for a caution against first registration of the legal estate to which the trust relates. Do consultees agree? [Paragraph 4.39] 59. Yes the Society agrees because on first registration the person with a derivative interest under such trust will be given notice and then be able to register a restriction in Form A. THE POWERS OF THE REGISTERED PROPRIETOR Q12 We provisionally propose that express provision should be made in the LRA 2002 that a person who has a transfer or grant of a registrable estate or charge in his or her favour is entitled to be registered as the proprietor of that estate or charge. Do consultees agree? [Paragraph 5.30] 60. The Society agrees with the proposal. A removal of the doubt is desirable. 61. Express provision should be made in the LRA 2002 that a person who has a transfer or grant of a registrable estate or charge in his or her favour is entitled to be registered as the proprietor of that estate or charge proposal would clarify who is a person entitled to be registered as proprietor. However the Society would ask the Law Commission to consider further whether any such provision should also include the death or bankruptcy of a sole registered proprietor, as the extended right allows the personal representative or trustee in bankruptcy to exercise owner's powers without having to apply to be the registered proprietor. 62. The conflicting judicial decisions on the subject make the change proposed necessary. The rights of parties, if any, against the registered party in case of wrongful exercise of the powers are not compromised by the proposed changes. Q13 We provisionally propose that, for the purpose of preventing the title of a disponee being questioned, the exercise of owner s powers of disposition by both registered proprietors and persons entitled to be registered as the proprietor should not be limited by: the common law principle that no one can convey what he or she does not own (nemo dat quod non habet); other limitations imposed by the common law or equity or under other legislation; or (3) any limitation other than those reflected by an entry on the register or imposed under the LRA Do consultees agree? [Paragraph 5.63] The Law Society 2016 Page 13 of 72

14 63. Yes, the Society agrees. In particular we agree that the common law principle of nemo dat should not limit owner s powers and we agree with the conclusion reached in paragraph THE GENERAL AND SPECIAL RULES OF PRIORITY IN SECTION 28 AND SECTION 29: THE DIFFERENCE BETWEEN REGISTRABLE DISPOSITIONS AND THE GRANT OF OTHER INTERESTS IN REGISTERED LAND Q14 We provisionally propose that if an unregistrable interest is noted on the register, that interest should be subject only to the interests set out in section 29(2) of the LRA Do consultees agree? [Paragraph 6.30] 64. Yes, the Society agrees that if an unregistrable interest is noted on the register, that interest should be subject only to the interests set out in s.29(2) LRA The Society cannot see a logical reason why they should be treated differently from registrable dispositions. Our concern is that many conveyancers will believe (wrongly) that noting an unregistrable interest such as an estate contract or option on the register gives that interest priority over any unregistered rights. 66. As the commentary shows, if there is a subsisting estate contract entered into earlier in time but not registered, that will have priority over the noted estate contract. While the beneficiary of the noted contract may have rights against the registered proprietor of the property if the earlier contract was not disclosed in replies to enquiries etc., as a matter of land registration law, the unregistered contract prevails. 67. Paragraphs 6.14 and 6.26 rightly make the point that more needs to be done to protect commercial options of long duration where perhaps a considerable amount of money has been spent. 68. However, currently the noted contract only has priority over unregistered rights entered into after the contract. In order to overcome this potential trap for conveyancers and their clients and achieve a fairer position, unregistrable interests should be treated in the same way as registrable dispositions in terms of being subject only to the interests set out in s.29(2) LRA The Law Society 2016 Page 14 of 72

15 69. No mention is made in this section of the Consultation of the case of A2 Dominion Homes Ltd v Prince Evans Solicitors [July 2015] 4 and we wonder whether that case would impact on the analysis of priorities. A summary of the case and our analysis is set out below. 70. In the case, an agreement for lease was noted in the charges register of the landlord s title giving priority to the agreement. Subsequently, the landlord mortgaged its interest and under the terms of the mortgage the owner could not grant leases without the mortgagee's prior consent. While the agreement for lease had priority over the mortgage, the issue was whether the mortgage had priority over the lease granted pursuant to the agreement but after registration of the mortgage. Was the mortgagee s consent required to the grant of the lease? The High Court said it was not. This is perhaps the result that one would expect, since otherwise, the notice would not confer any protection at all on the prospective tenant, which is an especial concern if there is a significant gap between the date of the agreement and the grant of the lease. The Court thought that it would be a surprising conclusion if the notice did not confer protection where, in the case, the tenant had paid a substantial deposit. 71. The Court s logic was that a purchaser of the freehold would have been bound by the agreement and a mortgagee should be in no different position. If the mortgagee had taken possession, it would also have been bound by the agreement. The mortgagee's searches before it took its mortgage had revealed the notice. Therefore, the priority afforded to the agreement for lease by the notice equally protected the completed lease resulting from the agreement. The rigid distinction between the agreement and the lease was artificial and wrong; the latter was the product of the former. 72. The judge did state that so long as the lease itself strictly conformed to what the agreement for lease provided, it was wrong to make such a distinction. Therefore, if the lease entered into does not totally conform to what the agreement allows for, the mortgagee s consent may be required. Q15 We provisionally propose that a person who takes an interest under a registrable disposition, but who fails to complete that disposition by registration, should not be able to secure priority against prior interests through the noting of that interest on the register. Do consultees agree? [Paragraph 6.36] 4 The Law Society 2016 Page 15 of 72

16 73. Yes, the Society agrees that a person who takes an interest under a registrable disposition, but who fails to complete that disposition by registration, should not be able to secure priority against prior interests through the noting of that interest on the register. 74. The Society believes that the example cited in paragraph 6.35 justifies the proposal. The legislation is clear as to what the registrable disponee needs to do to protect their position; what is required is achievable and realistic and we see no reason to change the law on this issue. The fact that there may be defects in the formalities of the interest's creation, or that there may be a restriction preventing registration of the disposition, does not justify changing the law. The prospective disponee will usually be aware of the restriction before being contractually bound and can either choose not to proceed if concerned, or to seek to deal with the restriction via the documentation. Q16 We provisionally propose that a person who takes an interest under a disposition which is of a type which would have been registrable if all proper formalities for its creation had been observed, but who fails to observe those formalities, should not be able to secure priority against prior interests through the noting of that interest on the register. Do consultees agree? [Paragraph 6.37] 75. Yes, the Society agrees that a person who takes an interest under a disposition, which is of a type which would have been registrable if all proper formalities for its creation had been observed, but who fails to observe those formalities, should not be able to secure priority against prior interests through the noting of that interest on the register. It is within that person's control to ensure compliance with those formalities and prior interests should not be unfairly prejudiced by effectively ignoring such non-compliance. Q17 Do consultees believe that home rights should be excluded from the effects of our proposal that noting an interest (such as a sale contract) on the register should secure priority against prior unregistered rights (which would otherwise include home rights)? [Paragraph 6.49] 76. The Society does not believe that home rights should be excluded from the effects of the Law Commission's proposal that noting an interest (such as a sale contract) on the register should secure priority against prior unregistered rights (which would otherwise include home rights). The key reason for this is the standard practice on a purchase of a property which is a home, for the buyer to raise enquiries of the seller to ascertain whether there is anyone else with rights over the property or who is living there. If there is, The Law Society 2016 Page 16 of 72

17 they will usually sign to say that they will leave. If they have done that and had not noted the home rights on the register, they should not be able to secure priority over the buyer who had noted the contract on the register. Q18 We provisionally propose that the priority of unregistrable interests created prereform should remain unchanged. Do consultees agree? If consultees disagree, please state what period of time consultees consider should be allowed in order for holders of existing rights to note them on the register, before the rights become vulnerable to subsequent interests. [Paragraph 6.54] 77. The Society agrees that the priority of unregistrable interests created pre-reform should remain unchanged. The provisions in relation to interests with overriding status under the LRA 2002 were unduly complex. The time limited nature of some of them was problematic with a rash of notices being entered on the register in relation to chancel repair liability and manorial rights in the run up to 13 October These notices were extremely disconcerting to the registered proprietors and may well not have been noted if the overriding status had not been time limited. We raise one minor concern as to whether it will always be clear when the unregistrable interest was created, whether pre- or post-reform. Q19 We provisionally propose that the holder of an unregistrable interest which has been noted on the register, whose priority is adversely affected by alteration of the register to correct a mistake, should be able to apply for an indemnity from Land Registry. Do consultees agree? [Paragraph 6.57] 78. The Society agrees that the holder of an unregistrable interest which has been noted on the register, whose priority is adversely affected by alteration of the register to correct a mistake, should be able to apply for an indemnity from Land Registry. In view of the Law Commission's proposals to apply similar priority rules to unregistrable interests as to registrable dispositions, there is no reason why the indemnity treatment should be different. While this may result in a greater call on Land Registry's indemnity fund, it is important that there is entitlement to an indemnity to show the value of being able to rely on the register. After all, the primacy of the register underpins land registration law. Q20 We invite consultees to submit examples of situations in which the holder of an unregistrable interest has suffered loss as a result of the discovery of a prior unregistrable interest with priority. [Paragraph 6.59] The Law Society 2016 Page 17 of 72

18 79. The Society is not able to provide any real life examples, but the obvious example is a developer who has noted a valuable option agreement to buy land, only to find that an earlier unregistrable covenant is noted after the option has been noted, but before the disposition pursuant to the option has taken place. The covenant will prevent the development and the developer has potentially wasted huge amounts of money, for example, in relation to working up planning. There may be contractual rights against the grantor of the option, but inevitably the developer will suffer irrecoverable losses. Q21 We believe that our proposals on the relative priority of unregistrable interests will not lead to a material increase in the number of unregistrable interests being noted on the register, and therefore will not increase the burden on those entering into transactions for the grant of these interests, nor result in any additional resource requirements for Land Registry. Do consultees agree? [Paragraph 6.63] 80. The Society does not wholly agree that the proposals on the relative priority of unregistrable interests will not lead to a material increase in the number of unregistrable interests being noted on the register, and therefore will not increase the burden on those entering into transactions for the grant of these interests, nor result in any additional resource requirements for Land Registry. 81. In the Consultation, the Law Commission has proposed treating unregistrable interests in the same way as registrable dispositions for priority purposes. However, that is dependent on the unregistrable interest being noted on the relevant title. Having highlighted the current flaws and proposed a solution, the Law Commission's proposal is in our view likely to encourage more solicitors to protect unregistrable interests with a notice. While it may to a small degree increase the burden on those entering into relevant transactions, it is a comparatively small price to pay to ensure proper protection of the relevant interest. Such an extra burden should not be a reason for the Law Commission not to proceed with this proposal. Q22 We provisionally propose that it should be possible to make an official search with priority in relation to an application to note an unregistrable interest. Do consultees agree? [Paragraph 6.71] 82. The Society agrees that it should be possible to make an official search with priority in relation to an application to note an unregistrable interest. This is a logical extension to match the extension of the s.29 protection to unregistrable interests. The Law Society 2016 Page 18 of 72

19 Q23 We provisionally propose that a priority search should also protect any ancillary applications arising out of the document which effects the registrable disposition which is the subject of the priority search, provided those ancillary applications are specified on the application form for the priority search. Do consultees agree? [Paragraph 6.79] 83. The Society agrees that a priority search should also protect any ancillary applications arising out of the document which effects the registrable disposition which is the subject of the priority search, provided those ancillary applications are specified on the application form for the priority search. If the latter is done, it is clear to third parties that there is an ancillary application protected by the search and that further investigations may be required. The current inadequate protection offered by the outline application in this regard emphasises the need to implement the proposal. PRIORITIES UNDER SECTION 29: VALUABLE CONSIDERATION Q24 We provisionally propose that the requirement of valuable consideration in section 29 of the LRA 2002 should be retained, but should be clarified. Do consultees agree? [Paragraph 7.68] 84. The Law Commission provisionally proposes that the requirement of valuable consideration in s.29 LRA 2002 should be retained, but should be clarified. The Society can see the logic and some merits of what is proposed, but, as we highlight below in responses to this and other questions, we also see disadvantages of retaining the reference to valuable consideration. We consider that the Law Commission should give further consideration to the disadvantages of retaining the requirement for valuable consideration. 85. The Society considers that the problem highlighted in paragraph 7.9 is a real one, of which many practitioners may be unaware. While some may be aware that if a disposition is not made for valuable consideration, it is not capable of being the subject of a priority search, they may be confused into thinking that the disposition can be protected, because they have received a priority official search certificate from Land Registry. As the Law Commission has explained, there is little that Land Registry can currently do about this, because it will not necessarily know what the consideration will be for the disposition. However, the implications for the applicant are potentially serious, because the search does not protect the disposition. The Society, therefore, believes that it is sensible for the Law Commission to consider proposals to seek to overcome this potential trap. The Law Society 2016 Page 19 of 72

20 86. The Society can see some benefits of removing the valuable consideration requirement (see paragraph 7.56) as highlighted by the complexities of what is a valuable consideration, explored at length in Chapter 7. The Law Commission is provisionally of the view that this option for reform should not be pursued. This is partly to avoid completely overhauling the law in this area which basically appears to work well. 87. The other reason cited is to avoid allowing a person who has acquired an unregistrable interest without giving anything for it effectively to defeat the earlier interest of a person who may have paid a significant amount for his or her right, but who failed to register it. The rejoinder to that argument is why, if a significant amount was paid for the right, was it not registered? 88. The Society does not believe that the valuable consideration requirement should be removed, just that the Law Commission should give further consideration to the implications, positive or negative, of making such a change. Q25 We provisionally propose that the definition of valuable consideration in section 132 of the LRA 2002 be amended so that a nominal consideration in money is no longer excluded from the definition of valuable consideration. Do consultees agree? [Paragraph 7.69] 89. The Society agrees with the provisional proposal that the definition of valuable consideration in s.132 LRA 2002 be amended so that a nominal consideration in money is no longer excluded from the definition of valuable consideration. 90. In relation to the Law Commission's discussion of "nominal consideration in money" at paragraph 7.38 onwards, we would add to the analysis the difficulties of obtaining an order for specific performance if the contract lacks adequate consideration summed up by "equity will not assist a volunteer". 91. The Society agrees with the comment in paragraph 7.46 about the difficulty of where to draw the line as to what constitutes nominal consideration. For that reason, we agree with the Law Commission's position in paragraph 7.47 that the exclusion of nominal consideration in money from the definition of valuable consideration in s.29 no longer serves a useful purpose. 92. In relation to the Law Commission's comments in paragraph 7.48 that a court can find that no "valuable consideration" has been provided where The Law Society 2016 Page 20 of 72

21 consideration is specified in transaction documents but nothing changes hands, the example given in paragraph 7.49 is a fraud case. However, there may be many lawful transactions such as intra-group transfers where a valuable consideration of thousands if not millions of pounds is specified in the document, but "nothing changes hands" because it is intra-group (although there may be changes to book entries). We would not want such transactions to be regarded as lacking valuable consideration. If they were seen in that way, how could one tell, on looking at a document which contained such a substantial consideration, that it was not for a valuable consideration. Q26 We do not believe that it is necessary to make any special provision for a reverse premium in the LRA Do consultees agree? If consultees disagree, we invite consultees to share any examples of transactions for which no form of consideration is given other than the reverse premium. [Paragraph 7.70] 93. As to whether we agree with your proposal that it is not necessary to make any special provision for a reverse premium in the LRA 2002, we consider that this question requires some more consideration as we explain below, in which we also share some examples of transactions. 94. In the discussion on reverse premiums in paragraph 7.15 onwards, we consider that the Law Commission does not address the question of whether a reverse premium is valuable consideration. Instead, the Law Commission argues that it is not a practical problem, because usually there is consideration moving from the disponee. 95. The Society considers that it would be worthwhile for the Law Commission to answer more directly the question of whether a reverse premium is valuable consideration. While a reverse premium does not meet the orthodox definition of consideration in terms of contract law, could there be a separate test of what is "valuable consideration" for Land Registration Act purposes? The payment of a reverse premium can be used to encourage the disponee to take on a property that is onerous because for example it is over-rented, or to allow a surrender of a rack rent lease to take place, or to encourage a tenant to take a new lease. While none of those situations matches the law of contract definition of valuable consideration, the payments made have a value to the payer because of what they achieve no longer paying a rent greater than the market rent, or no longer having to comply with the lease covenants, or having the benefit of a new tenant. In that light, the Law Commission may wish to consider whether reverse premiums should be treated as valuable consideration perhaps within a new definition for land The Law Society 2016 Page 21 of 72

22 registration purposes. That would then potentially enable a priority search to be used to protect the payer of the reverse premium. If that was permitted, one could envisage priority searches being used for the benefit of both disponor and disponee on the same transaction depending on its terms. 96. The Law Commission asks for examples of transactions for which no form of consideration is given other than the reverse premium. An example might be a transfer by way of surrender of a registered lease. The lease may have little or no value because of the tenant's covenants and the tenant is paying the landlord to take it off its hands. Although perhaps unlikely, there may be no release of past and present lease breaches, nor any other obligations on landlord and tenant in the transfer. So the only consideration (apart from the fact that the transfer is a deed) is the reverse premium and it may be that protection by a priority search would be helpful. Q27 We provisionally propose that where an interest has a negative value, a disposition of that interest is to be regarded as being made for valuable consideration for the purposes of section 29 of the LRA Do consultees agree? [Paragraph 7.71] 97. The Society agrees with the proposal that where an interest has a negative value, a disposition of that interest is to be regarded as being made for valuable consideration for the purposes of s.29 LRA In terms of the Law Commission's analysis of whether indemnity covenants constitute valuable consideration, we agree with the Law Commission's conclusion in paragraph 7.26 that they do and that, therefore, no change is required to the LRA 2002 in that regard. Q28 We invite consultees views as to whether it would be beneficial to clarify the effect of a disposition for which a peppercorn is the only consideration. We invite consultees to provide examples of dispositions which may be structured in this way. If consultees agree that clarification would be beneficial, we invite consultees views as to whether a peppercorn should engage the protection of section 29 of the LRA [Paragraph 7.72] 99. The Law Commission invites views as to whether it would be beneficial to clarify the effect of a disposition for which a peppercorn is the only consideration, examples of dispositions which may be structured in that way and whether a peppercorn should engage the protection of s.29 LRA This question relates to the issue of whether a peppercorn can constitute valuable consideration and whether transactions where the only The Law Society 2016 Page 22 of 72

23 consideration is a peppercorn should have the protection of s.29 LRA 2002 (see paragraph 7.36). As we explain below, our concerns relate not so much to peppercorns (and the need to clarify the effect of a disposition for which the peppercorn is the only consideration), but more to protection for parties where there is no consideration (other than the document being a deed). Having said that, a peppercorn is an anachronism and does not, in practice, comprise any consideration. To the extent that the protection of s.29 requires valuable consideration, we believe that a peppercorn should not engage its protection As the Law Commission has noted, most transactions that have a peppercorn have other consideration so the 999 year may be granted for a peppercorn rent, but there will be other tenant's covenants. Another example of a long lease at a peppercorn rent is the typical Tyneside Flat lease, of which there must be thousands in existence The Society considers that an intra-group transfer may perhaps have a peppercorn but no other consideration, yet it is difficult to see why the peppercorn would be needed since usually the document will be a deed which will of itself provide the consideration However, for a document such as an intra-group transfer, where there may be no other consideration (other than the fact that the transfer is a deed), we do not see why such a document should not be capable of being protected by s.29. The fact that the transaction is between companies in the same group and, therefore, s.29 protection may be perceived to be less necessary, does not mean that the transaction should not be capable of protection under that section. There may be corporate benefits, not taking the form of a consideration, which may warrant protection. Whilst the situations that we have in mind are perhaps few and far between, we would ask the Law Commission why, in principle, such transactions should not benefit from protection, simply because there is no consideration, valuable or otherwise? Q29 We invite consultees views as to whether there are any other types of bargain, not covered above, where consultees believe that it is unclear whether the disposition is made for valuable consideration for the purposes of section 29. Please explain in each case whether it is believed that the disposition should be included within, or excluded from, the priority protection of section 29. [Paragraph 7.73] 104. Addressing the Law Commission's comments on excluding protection for "gifts", the Society agrees with the comment in paragraph 7.61 that the language of gift is not well-suited to describe many of the situations (especially commercial) in which transfers of interests in property occur, even The Law Society 2016 Page 23 of 72

24 those which may appear on their face to be gratuitous, and the example cited of the lease assignment is a good one. The Society also agrees that the use of "gift" provides no greater certainty than the term "valuable consideration" So the Society supports the Law Commission's view in paragraph 7.63 not to recast the valuable consideration requirement in terms of whether or not a disposition is by way of gift. The Society is also broadly supportive of the Law Commission's distinction between a "bargain" with some commercial gain (which generally will attract s.29 protection) and something truly gratuitous (which will not). Q30 We provisionally propose that our proposals on reform of the requirement for valuable consideration under section 29 should apply both to registrable dispositions and unregistrable interests which are noted on the register in accordance with our earlier proposals. Do consultees agree? [Paragraph 7.75] 106. The Society agrees with the proposal that its proposals on reform of the requirement for valuable consideration under s.29 (to the extent that we agree with them) should apply both to registrable dispositions and unregistrable interests, which are noted on the register in accordance with the Law Commission's proposals. There is no logical reason to distinguish between registrable dispositions and unregistrable interests in that regard. Q31 We invite consultees views as to whether any amendments are necessary to the definition of valuable consideration as it applies to section 30 of the LRA [Paragraph 7.78] 107. The Society does not believe that any amendments are necessary to the definition of valuable consideration as it applies to s.30 LRA The meaning of valuable consideration in ss.29 and 30 LRA 2002 should be the same. Q32 We invite consultees views as to whether any difficulties would arise if the proposed amendments to the meaning of valuable consideration were also to apply for the purposes of section 86 of the LRA 2002 (bankruptcy of the registered proprietor). [Paragraph 7.81] 108. The Society agrees that amending the valuable consideration requirements should not have an adverse effect on s.86 LRA 2002 (bankruptcy of the registered proprietor) for the reasons specified in paragraph The Law Society 2016 Page 24 of 72

25 Q33 We believe that our proposals to clarify the meaning of valuable consideration for the purposes of section 29 can be applied equally to the meaning of that phrase in paragraph 5 of schedule 10 to the LRA 2002 (indemnity). Do consultees agree? [Paragraph 7.83] 109. The Society agrees that the Law Commission's proposals to clarify the meaning of valuable consideration for the purposes of s.29 can be applied equally to the meaning of that phrase in paragraph 5 of schedule 10 LRA 2002 (indemnity), for the reasons specified in paragraph PRIORITIES UNDER SECTION 29: POSTPONEMENT OF INTERESTS, AND THE PROTECTION OF UNREGISTRABLE LEASES Q34 We provisionally propose that where a person applies for a unilateral notice in respect of an interest which was formerly overriding until 12 October 2013, and the title indicates that there has been a registered disposition of the title since that date, the applicant should be required to give reasons why the interest still binds the title. The notice will only be entered if the reasons given are not groundless. Do consultees agree? [Paragraph 8.48] The Society has no proper evidence but anecdotally there seems to be little evidence of difficulties being encountered during the twilight period because the vast majority of transactions now concern registered land The closest practical examples in conveyancing transactions in the twilight period seem to be transactions such as sub-sales and sales and leasebacks. In these situations, conveyancers overcome perceived risks by rely on undertakings, cross undertakings and protocols such as the CLLS Protocol for the discharge of commercial mortgages. Q35 We invite consultees to provide evidence of the extent to which applications are being made for unilateral notices on registered titles where there has been an intervening disposition which engaged section 29, resulting in the postponement of the interest which is the subject of the notice to the interest under the intervening disposition. [Paragraph 8.49] 34 and The Society sees merits in the proposal that where a person applies for a unilateral notice in respect of an interest which was formerly overriding until 12 October 2013, and the title indicates that there has been a registered The Law Society 2016 Page 25 of 72

26 disposition of the title since that date, the applicant should be required to give reasons why the interest still binds the title and the notice will only be entered if the reasons given are not groundless. However, the proposal, in our view, begs a number of questions This question concerns an issue that has caused considerable practical concern among conveyancers, lenders and purchasers the fear that a property owner may become burdened by chancel repair liability The "Aston Cantlow" case increased awareness of the possibility of a property being burdened by chancel repair liability. Due to the inaccurate records of which properties are affected and the ambiguous nature of some search products, there is an understandable, possibly excessive propensity to put in place insurance to cover off the risk of being burdened by chancel repair liability. It was hoped that with such liability ceasing to be an interest with overriding status from 13 October 2013, the concerns around purchasers (immediate or later) for valuable consideration being subject to the liability would disappear That has not happened. There appear to be two main concerns. First, a not insignificant number of unilateral notices were entered on registered titles to protect chancel repair liability in the run up to 13 October The Law Commission in footnote 8 on page 139 refers to 257 registered titles being affected by applications for notices since 13 October Second, the demand from lenders and purchasers for insurance against chancel repair liability continues post that date this appears to be because some commentators regard such liability as something akin to council tax which binds the property owner for the time that they are the owner and has nothing to do with whether the liability is protected on the relevant registered title. The consequence of the demand for insurance is delay and cost and this is a very real administrative burden on transactions The Society supports the abolition of chancel repair liability, but understands that this is not something that the Law Commission can advocate in a project on the LRA However, in view of the apparent basis for the continued relevance of chancel repair liability not resting on land registration, we wonder whether Land Registry can stop protecting the liability (by declining to enter a notice) on the basis that it no longer relates to land. We also wonder if there is anything that the Law Commission can do to mitigate the adverse impact of chancel repair liability, perhaps through the criteria for being able to use a notice. The Law Society 2016 Page 26 of 72

27 117. The Law Commission provisionally proposes that the applicant (to note chancel repair liability) should be required to give reasons why the interest still binds the title and Land Registry will only enter the notice if the reasons given are not groundless. Our problem with that proposal is if the relevant Parochial Church Council applies to enter a notice, they may provide reasons why they believe the interest still binds the title and it will be difficult to say that those reasons are groundless, because of the uncertainties in the law. Therefore, the concerns around chancel repair liability in particular will be perpetuated. So we would ask that the Law Commission reconsiders the basis for entering a notice Whilst the Society notes that the Law Commission does not propose the provision of extra evidence to support the entry of a notice, we believe that the Law Commission should consider the possibility of Land Registry requiring specific evidence to show that the chancel repair liability affects the particular registered title, before Land Registry will note the liability The concerns that we express also apply to manorial rights but to a lesser degree. As a more general point, we believe that there would be considerable support for a Law Commission project to consider the future of chancel repair liability in view of the problems it continues to cause on many residential and commercial property transactions. Q36 We invite consultees to provide evidence of the extent to which section 29(4) has operated to confer priority on an unregistrable lease over an interest which is protected by a priority search. [Paragraph 8.65] 120. The Society does not believe that, in practice, significant, if any, problems have been caused by s.29(4) operating to confer priority on an unregistrable lease over an interest which is protected by a priority search. In fact, the Law Commission's commentary in paragraph 8.54 onwards would suggest that any unfairness, if it is perceived as that, would fall on the tenant under the unregistrable lease, in circumstances where the lease was entered into before the mortgage, but both were entered into within the priority period protecting the mortgage While we note the concern highlighted in paragraph 8.55 and the court's concern in Scott v Southern Pacific Mortgages Ltd that it was unpalatable on the facts of that case that the unregistrable lease could take priority over the prior mortgage, the reality is that the majority of mortgages will be protected by a priority search. Provided that the priority search is made before the unregistrable lease is entered into, the lease will be postponed to The Law Society 2016 Page 27 of 72

28 the mortgage protected by the search (assuming the mortgage application was submitted on time) The Society notes the Law Commission's concern about the undermining of the inclusion of the unregistrable lease as an overriding interest. However, we question whether any change needs to be made in view of the infrequency with which this issue has arisen before the courts and the reality that in most situations the unregistrable lease will not have priority, because of the priority search protecting the mortgage. PROTECTION OF THIRD PARTY RIGHTS ON THE REGISTER PART I: NOTICES Q37 We provisionally propose that it should be possible to protect a right by one of two kinds of notice: a full notice and a summary notice. Do consultees agree? [Paragraph 9.116] 123. Yes, the Society agrees. Q38 We provisionally propose that an application for a summary notice should not need to be accompanied by any evidence to support the interest claimed. Do consultees agree? [Paragraph 9.117] 124. Yes, the Society agrees. Q39 We provisionally propose that, if a registered proprietor applies to cancel a summary notice, the beneficiary of the summary notice will be required to make an initial response within 15 business days (subject to an extension of up to a maximum of 30 business days). The response must demonstrate a case for the retention of the notice which is not groundless. Do consultees agree? [Paragraph 9.118] 125. The Society does not have any comments on this question. Q40 We provisionally propose that, in the event that the beneficiary submits an initial response objecting to cancellation of the notice, the beneficiary must produce evidence to satisfy the registrar of the validity of the interest claimed. Evidence must be provided within a maximum of 40 business days of the original notification of the application to cancel. Do consultees agree? [Paragraph 9.119] 126. Yes, the Society agrees although there should be the provision to allow an extension to the time limit if there is due cause. The Law Society 2016 Page 28 of 72

29 Q41 We provisionally propose that where an application is made to cancel a unilateral notice following implementation of our reforms, the beneficiary of that notice should (following an objection to cancellation) be required to produce evidence to satisfy the registrar of the validity of the interest claimed. Do consultees agree? [Paragraph 9.121] 127. Yes, the Society agrees. Q42 We provisionally propose that it should be clarified that an insolvency practitioner appointed in respect of an insolvent registered proprietor is able to apply to cancel a unilateral notice on behalf of the registered proprietor. Do consultees agree? [Paragraph 9.141] 128. Yes, the Society agrees. Q43 We provisionally propose that it should be clarified that attorneys acting under a power of attorney may apply to cancel a unilateral notice on behalf of a registered proprietor who is the donor of the power. Do consultees agree? [Paragraph 9.142] 129. Yes, the Society agrees. Q44 We invite consultees to share with us other situations in which they believe the persons who can make applications to Land Registry are unnecessarily limited. [Paragraph 9.144] The Society does not consider that any further provisions are necessary. Q45 We invite consultees views on what benefits would accrue if an agreed notice could identify the beneficiary of that notice, in a similar way to the entries made in relation to a unilateral notice? Would there be any disadvantages to identifying the beneficiary of an agreed notice in this way? [Paragraph 9.153] 131. The Society considers that identifying the beneficiary of an agreed notice (or full notice) is beneficial. Whilst such a notice cannot be cancelled there will be situations whereby the interest it protects may no longer be relevant or in existence. If the beneficiary s details are listed it will encourage parties to transactions to liaise with the beneficiary to remove such a notice thus keeping the register more up to date. The Law Society 2016 Page 29 of 72

30 Q46 If consultees support identifying the beneficiary of an agreed notice on the register, should this be mandatory or optional? [Paragraph 9.154] 132. For the reasons set out at above, the Society considers that the noting should be mandatory (although there could be a provision to exclude it similar to the exempt information regime if there were specific reasons). PROTECTION OF THIRD PARTY RIGHTS ON THE REGISTER PART II: RESTRICTIONS Q47 We have provisionally formed the view that it should continue to be possible to protect contractual obligations by means of a restriction. Do consultees agree? [Paragraph 10.25] 133. The Society wishes to consider these matters (questions ) further and would appreciate a discussion of these matters with the Law Commission and the Land Registry. We wholly understand that there needs to be a coherent and consistent policy across contractual arrangements. We are not certain that some obligations are easily distinguishable In practice the existence of restrictions create delays in registration: this is particularly the case in relation to the protection of obligations in registered leases. The applicant has little or no control over demonstrating compliance even when this has occurred Delays also occur in relation to charges containing restrictions where the discharge of a charge is awaited meaning that the Land Registry early completion policy cannot be applied The Commission has given examples of those instances where a restriction is intended to protect a particular contractual obligation such as: Paragraph 10.9 protection of the requirement a new freehold owner on a housing or industrial estate executes a deed of covenant; Paragraph protection of the requirement for an incoming assignee to execute a deed of covenant; Paragraph protection of contractual obligations contained in rights of pre-emption or option agreements, and securing compliance with overage arrangements In all these instances, the restriction performs an important function for the person with the benefit of a particular obligation namely being able to The Law Society 2016 Page 30 of 72

31 have some control over dispositions. Generally in relation to restrictions we support where appropriate that the relevant Standard Form of Restriction is used so that a disponee knows what has to be done in order for the restriction to be complied with and the disposition registered at the Land Registry The use of restrictions is vital in those transactions involving shared ownership leases for example. The Homes and Community Agency requires landlords to use the model form of shared ownership lease. This model form lease contains the following restriction The Parties to this Lease apply to enter the following standard form of restriction against the title of the Property:- No disposition of the registered estate (other than a charge) by the proprietor of the registered estate or by the proprietor of any registered charge, not being a charge registered before the entry of this restriction, is to be registered without a certificate signed by the proprietor for the time being of the estate registered under title number [specify title number] [or [their conveyancer or specify appropriate details]] that the provisions of Clause (Pre-emption provisions ) of the registered lease have been complied with [or that they do not apply to the disposition] The restriction protects the right of the landlord in a shared ownership lease on a disposal by the leaseholder to: dispose of the property to a person nominated by the landlord. This will invariably be someone on the landlord s waiting list for such accommodation surrender the property to the landlord. Again this might be to house someone on the landlord s waiting list. In such a situation the landlord might wish to change the tenure of the property from a shared ownership lease to, for example, social rented property Often such properties will have been constructed using funds obtained by way of Housing grant, or s.106 planning obligations. It is therefore imperative the landlord exercises close control over dispositions, and the use of restrictions is a very effective tool to achieve this. Q48 We invite the views of consultees as to whether there are any particular types of contractual obligation which should not be capable of protection by way of a restriction. If so, please explain why these obligations should be treated differently from other contractual obligations. [Paragraph 10.29] The Law Society 2016 Page 31 of 72

32 142. Subject as set out in our reply to there may be certain types of contractual obligation which should not be capable of protection as a restriction but we understand the need to have a consistent policy position. Q49 We provisionally propose that it should continue to be possible to enter restrictions in Form K in relation to charging orders over beneficial interests but that the ability to enter restrictions should not be extended to holders of other derivative interests under trusts. Do consultees agree? [Paragraph 10.41] 143. Yes, the Society agrees. Q50 We provisionally propose that it should be made clear that a court may order the entry of a restriction to protect a charging order relating to an interest under a trust, but that such a restriction must be in Form K. Do consultees agree? [Paragraph 10.52] 144. The Society agrees. Otherwise, as set out in Paragraph 10.43, any other form of restriction might give such a beneficiary under a trust, a right they were not entitled to under the trust. The right of overreaching needs to be maintained, otherwise beneficiaries might seek to delay transactions, and disponees would then need to be concerned with the rights of beneficiaries, rather than focusing on transaction with the legal owners and the entries on the register. OVERRIDING INTERESTS Q51 We believe that it should continue to be possible for an estate contract to be protected as an overriding interest where the beneficiary of the contract is in actual occupation. Do consultees agree? [Paragraph 11.30] 145. Yes, the Society agrees that it should continue to be possible for an estate contract to be protected as an overriding interest where the beneficiary of the contract is in actual occupation. A purchaser should make enquiries of the seller to find out whether there are any such interests, see for example enquiry 4 on CPSE.1 (version 3.5) General pre-contract enquiries for all commercial property transactions. Q52 We believe that the fact that the benefit of an interest has been registered should not preclude that interest from being an unregistered interest (and so overriding) for the purposes of schedules 1 and 3 to the LRA Do consultees agree? [Paragraph 11.41] The Law Society 2016 Page 32 of 72

33 146. Yes, the Society agrees that the fact that the benefit of an interest has been registered should not preclude that interest from being an unregistered interest (and so overriding) for the purposes of schedules 1 and 3 LRA Paragraph states that Section 132 says nothing about registration of the benefit but neither does the section refer specifically to the registration of the burden. Q53 We invite consultees views as to whether section 29(3) of the LRA 2002 serves a useful purpose and should be retained. [Paragraph 11.54] 147. On balance the Society would favour the retention of s.29(3). After considering the arguments for and against, the Society agrees that they are evenly balanced. In such a situation the Society would propose retaining the status quo. Q54 We invite consultees to provide examples of situations where section 29(3) has either created a problem in practice, or conversely performed a useful function. [Paragraph 11.55] 148. The Society does not have any real life examples of situations where s.29(3) has either created a problem in practice, or conversely performed a useful function. Q55 We invite consultees views as to whether any transitional provisions are necessary in the event of the abolition of section 29(3). [Paragraph 11.57] 149. The Society does not favour the repeal of s.29(3) and so does not have any views as to whether any transitional provisions are necessary in the event of the abolition of s.29(3). LEASE VARIATIONS AND REGISTRATION Q56 We provisionally propose that express provision should be made to permit the recording of a variation of a lease on either the landlord s registered title, or the tenant s registered title, or both. Do consultees agree? [Paragraph 12.40] 150. The Society agrees with the proposal that express provision should be made to permit the recording of a variation of a lease on either the landlord s registered title, or the tenant s registered title, or both. So while there may be no requirement to register the lease variation, the parties can register the variation if they so wish. The Law Society 2016 Page 33 of 72

34 151. The Society also agrees with the Law Commission s rejection of the option of making the registration of all lease variations compulsory. The Society agrees that if the lease is not registrable, then as a general rule a deed of variation of that lease should not need to be registered either, subject to the exceptions highlighted by the Law Commission and our comments on those exceptions. We are also aware of inconsistencies between the Landlord and Tenant (Covenants) Act 1995 and the LRA 2002 and the Law Commission s proposal helps to reduce the inconsistencies. Q57 We invite the views of consultees as to whether express provision should be made to permit the recording of any other documents which are ancillary to a lease on either the landlord s registered title, or the tenant s registered title, or both. [Paragraph 12.44] 152. The Society is against making express provision to permit the recording of any other documents which are ancillary to a lease on either the landlord s registered title, or the tenant s registered title, or both. Documents which vary a lease are already catered for by other Law Commission proposals in the paper. Most of the documents highlighted in paragraphs are not variations of the lease and the danger of allowing the recording of such documents is to encourage such recording which will clutter up the register and add to the administrative burden and costs. It is a given that the register is not a complete record of all relevant documents (despite aspirations to the contrary) and there appears little logic to increase administration, but still not achieve a reliable record of all relevant documents If the licence to alter or other document includes a variation to the lease, this can be dealt with under the Law Commission s other proposals in relation to lease variations. For example, if in a licence to alter, the alterations permitted are structural and the lease itself does not allow them, this is a variation, which under the Law Commission s proposals, can be recorded, but without obligation to do so. In the unlikely event that recording of the variation in the licence is expressly required in order for a disposition effected by the variation to operate at law under the LRA 2002, or to preserve the priority of the interest, again this is catered for by the Law Commission s other proposals on deeds of variation. Q58 We invite the views of consultees on the severity and extent of problems with the Landlord and Tenant (Covenants) Act We invite consultees to provide evidence in support of their views. [Paragraph 12.48] The Law Society 2016 Page 34 of 72

35 154. The Society believes that there are a number of serious problems and uncertainties with the Landlord and Tenant (Covenants) Act 1995 ( 1995 Act ), highlighted by significant and well-known recent cases. The implications are serious because many of the concerns relate to the covenant strength of the tenant and guarantor and uncertainties in that regard can have a major adverse impact on the investment value of properties and put at risk transactions. We set out below our concerns in this regard The treatment of the outgoing tenant s guarantor following a lease assignment under the 1995 Act remains an important point of concern for the commercial property industry. While the Court of Appeal decision in K/S Victoria Street v House of Fraser (Stores Management) Limited [July 2011] 5 answered some questions and provided greater certainty in how to deal with guarantor's liability following the release of the tenant it guaranteed, a number of questions were left unanswered and new questions were raised. It appears to us that much of the uncertainty emanates from ambiguous, possibly defective, drafting in the 1995 Act We consider that a review of the 1995 Act to address concerns arising from the House of Fraser and Good Harvest 6 judgments would make for an excellent and crucial Law Commission project or other Government analysis that would be likely to result in more efficient and effective processes. The points mentioned below have significant financial impact on property transactions up and down the country, since they go to the heart of the landlord and tenant relationship the covenant strength of the tenant and any guarantor. Uncertainties in this area have caused and will cause major transactions to flounder and have a serious adverse impact on the businesses not only of landlords but also tenants. These uncertainties may also adversely impact on the efficient completion and registration of transactions In House of Fraser, the Court of Appeal decided that the tenant's guarantor cannot be required to guarantee an assignee, because of the antiavoidance provisions. The Court then sought to address certain issues of particular interest to the property industry, on which it was not required to decide. Some of the comments (particularly on "sub-guarantees") are not legally binding precedent, but are regarded as strongly persuasive, because of the judges' seniority Their conclusions on the 1995 Act's effect on existing guarantors were as follows. An existing or contracting guarantor of a tenant cannot validly be The Law Society 2016 Page 35 of 72

36 required to commit himself in advance to guarantee the liability of a future assignee. While an assignor's guarantor cannot validly guarantee the liability of the assignor s assignee (even if the guarantor wishes to do so), it can validly be required to guarantee the assignor's liability under the AGA (sometimes known as a "sub" or "parallel" guarantee). That is a key statement for the property industry as the landlord can be more confident that it can continue to look to the financially strong guarantor following the assignment and also makes commercial sense, since the guarantor is often the key element in the tenant's covenant strength. A final important conclusion is that the guarantor can in any event validly guarantee the liability of an assignee on a further assignment The decision provides some clarity on which types of guarantee are enforceable. The obiter approval of the enforceability of sub-guarantees is helpful and it is likely that most practitioners will consider the Court's support for sub-guarantees will enable them to be more comfortable about accepting them, although it should be noted that some commentators have queried the logic behind the Court's views It may be thought that the distinction between directly guaranteeing an assignee and providing a sub-guarantee is semantic and that, in effect, guaranteeing the outgoing tenant's obligations in the AGA is the same as guaranteeing the assignee. This issue should be considered by the Law Commission or other Governmental reviews can the 1995 Act be amended to clarify the position? Our opinion is that the 1995 Act, while adequately dealing with the position of the outgoing tenant as authorised guarantor, inadequately deals with the outgoing tenant s guarantor, and many of the difficulties highlighted by the cases spring from this problem The House of Fraser decision is clearly problematic for completed transactions, where reliance is being placed on an assignor's guarantor's guarantee of an assignee. That guarantee is now void, which may leave the landlord with no substantial covenant, which has implications, valuation-wise, not only for landlords, but also buyers and lenders, and will continue to be a focus of due diligence. Clearly, there is little that the Law Commission or the Government can do about already completed documents. Certain of the Court's obiter comments in House of Fraser have created uncertainty with potentially important implications. Can the original guarantor directly guarantee T3? 162. The first issue is whether the original tenant's guarantor can directly guarantee T3 (the second assignee after the original tenant). This is The Law Society 2016 Page 36 of 72

37 important, particularly, in the context of intra-group arrangements by the tenant and group companies. It is a common occurrence that, within the tenant's group of companies, there is only one strong financial covenant and the original tenant is a special purpose vehicle with few assets, guaranteed by that strong company If the tenant assigns intra-group, following House of Fraser, the guarantor can sub-guarantee, but what happens if the assignee, subsequently, further assigns to another special purpose vehicle in the group? Can the original guarantor directly guarantee T3? The judgment, on its words, would suggest that the original guarantor can directly guarantee T3, even when it had previously sub-guaranteed T1's AGA obligations for T2. This interpretation would be very useful in the intra-group situation, where, provided there was no sham, it seems that the landlord can continue to look to the perhaps only strong covenant from assignment to assignment by way of direct guarantee for the original tenant, to sub-guarantee for T1's AGA obligations for T2, to direct guarantee for T3, to sub-guarantee for T3's AGA obligations for T4 and so on. It is important that such an arrangement is not "embedded" in the documentation as this would fall foul of the statutory antiavoidance provision However, there is a dissenting view to that interpretation. The judgment did not specifically address a direct guarantee for a new T3 situation and there needs to be a break in the chain of continuing liabilities on the part of the strong covenant. Even though the liability was taken on in, arguably, different capacities (from sub-guarantor to direct guarantor), the dissenting view is that is not enough of a break and this succession of liabilities could be void. It would be helpful for the Law Commission or other Government project to analyse this issue and, if appropriate, suggest changes to the 1995 Act to clarify the position. Can the tenant assign to its guarantor, or to the guarantor and itself? 165. The next significant issue raised by House of Fraser is whether a tenant can assign to its guarantor, or to the guarantor and itself. The general tenor of the judgment suggests the Court considered such an assignment did not work, because it would be the equivalent of asking the outgoing tenant's guarantor to directly guarantee the assignee, but the Court did not have to decide the issue. However, the Court s obiter comments are somewhat disconcerting, because prior to the decision, the general view seemed to be that, provided there was no sham; assignments to guarantors did not fall foul of the anti-avoidance provision. The Law Society 2016 Page 37 of 72

38 166. That was because the guarantor was becoming the tenant, a different capacity from its previous one as direct guarantor for the tenant. The major purpose behind the 1995 Act was to protect tenants after they had assigned - however, in this situation, the guarantor was becoming the tenant, and with the ability to occupy and use the premises, it should be liable under the tenant's covenants in the lease The Court's comments create some doubt, but many consider that assignments by the tenant to the tenant's guarantor or to the tenant and its guarantor should work, provided there is no sham. If such assignments are void, this creates a number of uncertainties including: What is the impact on registration of the assignment at the Land Registry? Or, on any derivative under-lease or mortgage of the assigned lease? 168. If a tenant cannot assign to its guarantor, can a tenant assign to itself and another party? By the same logic, it appears not, and this could have serious implications for partnerships and trustees, although trustee legislation may assist in allowing for changes in trustees in a way that does not fall foul of the anti-avoidance provisions These concerns may lead to tighter controls on intra-group assignments, but landlords will need to consider the rent review and other valuation impacts of a more onerous level of control The recent High Court decision (EMI Group Limited v O & H Q1 Limited [16 March 2016] 7 ) stated that a tenant cannot assign a "new tenancy" to its guarantor. A number of uncertainties are created as a result of the assignment being void. They include: What is the impact on registration of the assignment at the Land Registry? Or, on any derivative underlease or mortgage of the assigned lease? What is the position of the party in occupation who now is no longer the legal tenant under the assigned lease? If a tenant cannot assign to its guarantor, can a tenant assign to itself and another party? By the same logic, it appears not, and this could have serious implications for partnerships and trustees, although trustee legislation may assist in allowing for changes in trustees in a way that does not fall foul of the anti-avoidance provision in the Act. 7 The Law Society 2016 Page 38 of 72

39 These concerns may lead to tighter controls on intra-group assignments, but landlords will need to consider the rent review and other valuation impacts of a more onerous level of control The EMI Group Limited v O & H Q1 Limited decision creates binding precedent which adds some urgency to tackling the uncertainty through legislative change. We understand that an appeal in the EMI case is due to be heard in May This decision will impact on due diligence in terms of there being the need to check whether tenants have assigned new tenancies to their guarantors. The 7th edition of the CLLS Land Law committee s Certificate of title has a standard statement in relation to Letting Documents that are new tenancies as follows the Letting Document is not now and has not been previously vested in any guarantor of a previous tenant. So the checking of this issue has already been going on in a certificate of title context 8. Changes in relation to contracting out of sections of the Landlord and Tenant Act There are also a number of concerns arising from changes made to the Landlord and Tenant Act ( 1954 Act ) by the Regulatory Reform (Business Tenancies) (England and Wales) Order We would be grateful if the Law Commission or Government can consider these concerns and whether changes are required to the 1954 Act to address them. These concerns lead to inconsistent practices among professionals and potential delay, disruption and increased costs for commercial property transactions. The Government has in the past acknowledged concerns with the changes made by the 2003 Order and suggested possible changes to the legislation to deal with the concerns. We think it would be sensible for the Law Commission or Government to consider the Government s papers addressing such concerns and move forward the implementation of changes. Set out below are a number of concerns that we have. Must the warning notice be served on the tenant direct? 174. There is sufficient doubt as to whether service on the tenant's solicitor will constitute good service that many law firms practice is to serve on the tenant direct with a copy to his solicitor acting on the grant of the lease/agreement for surrender. This is inefficient The Law Society 2016 Page 39 of 72

40 Simple and statutory declarations 175. The Central London County Court in Patel v Chiltern Railway Co Ltd [23 May 2007] 11 considered that there is no problem in using a statutory declaration when a simple declaration would have been sufficient. The Court of Appeal has subsequently confirmed the decision and the reasoning of the judge would appear to apply to the warning notice/statutory/simple declarations for agreements to surrender protected tenancies (falling within sections of the 1954 Act). It would be good for the 1954 Act to make this clear. Must the exchange of warning notice and declaration be repeated if the tenant's interest is assigned? 176. Yes, if the change of intended tenant occurs before the agreement for lease or lease (if no agreement for lease) is entered into. No, if the assignment occurs after the lease has been completed. However, the position is unclear, if the assignment occurs between the agreement for lease and grant of the lease. The solution is to prohibit assignment of the benefit of the agreement for lease either absolutely or without the landlord's prior consent. If the latter, the agreement for lease can make non-compliance with the new procedures a "circumstance" in which such consent can be absolutely withheld (for the purposes of s.19(1)(a) of the Landlord and Tenant Act ). Again, the position can be clarified by legislative change. There is a similar lack of clarity as to whether the exchange of warning notice and declaration must be repeated if the landlord's interest is transferred between the agreement for lease and grant of the lease. How early can the landlord's warning notice be served? 177. A concern arises about whether the landlord's warning notice needs to be re-served if the form of lease is changed after service of the notice but before the lease is completed (or the agreement for lease is exchanged if earlier). In the past, the Office of the Deputy Prime Minister (ODPM) confirmed that the "spirit of the law" is that the tenant should only be able to validly give up his security of tenure rights if he knows what he is giving up. If the terms of the lease change materially after the tenant signs his declaration, the ODPM suggested that this would cast doubt on the informed nature of the tenant's consent (through the declaration). Therefore, by implication a new The Law Society 2016 Page 40 of 72

41 notice and declaration would need to be exchanged for the lease to be validly contracted out. The ODPM believed that the Palacegate principles (relevant to the former Court Orders for contracting out) still applied. Clarification here would be welcomed. Does the warning notice need to be re-served and the declaration re-sworn if the form of lease attached to an agreement for lease is varied materially after exchange of the agreement but before completion of the lease? 178. This is, probably, not a problem if the "variations" are ones the parties were bound to agree in accordance with the terms of the agreement. Otherwise, problems may arise perhaps the procedures should be re-done before the landlord is bound to agree the variations to the lease or, alternatively, perhaps the changes should not be made until after the lease has been granted and then the lease can be formally varied, but there may be tax consequences. Consideration should be given to whether the process can better take account of transactional realities. Where the contracted out lease contains an option to renew on a contracted out basis, what needs to be done to ensure that the renewal lease is validly contracted out? 179. The warning notice and declaration must be exchanged in relation to the renewal lease (as it is intended to be granted) between the parties who are the intended landlord and tenant to the renewal lease before the tenant is contractually obliged to take up the renewal lease. There are at least two ways of achieving this: exchange the warning notice and declaration before the lease containing the option to renew is entered into. Therefore, with a contracted out lease containing an option to renew on a contracted out basis, there will need to be two sets of warning notices and declarations before the "original" contracted out lease (or agreement for such lease) is entered into. One set in relation to the original contracted out lease/agreement for such lease and one set for the renewal lease. However, this only works if the form of the renewal lease is frozen (or possibly where any changes are immaterial on the Palacegate test). Also the tenant may change during the currency of the original lease and, therefore, there will be a need to serve new warning notices on the assignee before it becomes contractually bound to take the renewal lease (to ensure it is validly contracted out). To deal with this, there will The Law Society 2016 Page 41 of 72

42 need to be an extra "circumstance" in the assignment provisions (for the purposes of s.19(1)(a) of the Landlord and Tenant Act ), permitting the landlord to refuse consent to assign unless the warning notice and declaration have been swapped in relation to the renewal lease. Even this would not pick up automatic assignees (by operation of law). wait until the tenant has decided to exercise the option before doing the contracting out paperwork. The tenant would need to be obliged in the option mechanism to serve an "advance notice" on the landlord that the tenant is going to exercise the option and it would need to be a precondition to completion of the renewal lease that the new procedures for contracting out have been carried out. The tenant will probably want a landlord's obligation to serve a warning notice within a specified period of receiving the tenant's advance notice. The advance notice will be a separate notice from the one exercising the option that contractually commits the tenant This is somewhat convoluted and it would be useful for the Law Commission or Government to consider if this process can be streamlined. A protected lease contains an offer back clause on tenant's assignment (or subletting) so that the landlord has the right to take the lease back before it passes to a third party. What has to be done to render binding the "agreement to surrender back" to the landlord? 181. There must be an exchange of the warning notice and declaration before the agreement to surrender becomes contractually binding. However, there is a potential impasse (the Allnatt stalemate) with offer back clauses in leases protected by Part II of the 1954 Act that have not specifically been authorised by the warning notice/declaration process. To deal with this, the offer back clause may prescribe that: the tenant notifies the landlord of its desire to assign; the tenant must obtain the landlord's consent to assign; the landlord, if it wishes to take the lease back, can choose to serve a warning notice within a particular time period of the tenant's notice; if and when, in response to the warning notice, the tenant signs the declaration (and provides a copy to the landlord), the obligation to surrender will arise but not before; 13 The Law Society 2016 Page 42 of 72

43 and the assignment provisions in the lease can prescribe that the landlord can withhold consent to an assignment to a third party unless and until the offer back procedures as above have been fully complied with With that arrangement, there may be a typical Allnatt stalemate in that if the tenant does not co-operate in signing the declaration, he cannot assign to the third party and yet the landlord cannot enforce the agreement to surrender. Commercially, however, the tenant is likely to sign the declaration to try to achieve his objective of assigning. In practice, many landlords and tenants who have entered into Allnatt-style offer back clauses simply follow the contractually agreed procedures and do not take the 1954 Act compliance point and of course once the surrender itself is completed the compliance issue goes away. However, the Law Commission or Government should consider if there is any statutory solution to the Allnatt stalemate, which remains a potential problem in many commercial property transactions with the adverse impact of delay and extra cost. The contracted out lease contains a put option whereby the landlord can require the tenant to take another contracted out lease. What needs to be done to ensure the new procedures are complied with in relation to the lease the tenant is required to take up? 183. The warning notice and declaration must be swapped in relation to the new lease (as it is intended to be granted) between the intended landlord and tenant to the new lease before the tenant is contractually obliged to take up that lease. The landlord can simply serve the warning notice before it exercises the put option. The problem for the landlord is it cannot compel the tenant to sign the declaration and if the declaration is not signed, the new lease will be protected. As a result, put options for contracted out new leases (a rare breed, admittedly) are not likely to be worth the paper they are written on More significantly, there remains the issue of put options in guarantor clauses in contracted out leases and whether there is a need to go through the new procedures in relation to a landlord requiring a guarantor to take up a new contracted out lease following a tenant s disclaimer. There are two schools of thought here. One is that if there is a guarantor and the guarantee contains such a put option, the landlord should serve a warning notice and the guarantor should sign a declaration before the "original lease containing the guarantee is entered into. The more pragmatic view is that the new procedures should be carried out if and when the landlord requires the The Law Society 2016 Page 43 of 72

44 guarantor to take a lease following tenant disclaimer. Although there is a risk that the lease has not been properly contracted out, some landlords may take the view that this risk is less of an issue than the confusion that is caused by having to serve a multiplicity of warning notices on guarantors (which of course may include guarantors under licences to assign, underlet, authorised guarantee agreements etc) It is worth reiterating that such warning notices and declarations do not relate to the contracted out lease that is about to be entered into, but relate instead to a lease that may never be entered into pursuant to the guarantee clause. Differences of practice among law firms cause confusion in the property industry and delay, disruption and extra costs on transactions. The Law Commission or Government should look to clarify the position, perhaps, along the lines previously suggested by the Government that if the original lease is contracted out, the lease pursuant to the guarantee clause is automatically contracted out without needing to serve the notice on the guarantor and have a declaration for that lease. This would have an important beneficial deregulatory impact. ALTERATION AND RECTIFICATION OF THE REGISTER Q59 We provisionally propose that the ability of a person to seek alteration or rectification of the register to correct a mistake should not be capable of being an overriding interest pursuant to paragraph 2 of schedule 3 to the LRA Do consultees agree? [Paragraph 13.87] 186. Yes, the Society agrees, provided that the right to rectification remains a proprietary right capable of being protected by a unilateral notice as suggested in paragraph 13.85, or some alternative method of protection is created. NOTE: In its introductory paragraph 13.1 to Chapter 13, the Law Commission refers to a main objective of title registration being to remove the need for a purchaser to read the deeds of the property. The Society agrees with the statement in that paragraph that "Not needing to look at title deeds is generally advantageous." The Society therefore particularly dislikes the current trend of Land Registry to refer to covenants in some instances merely by referencing the deeds containing them, rather than extracting the text of the covenants. An example is reproduced below. The Law Society 2016 Page 44 of 72

45 Q60 We provisionally propose that a chargee who has been registered by mistake, or the chargee of a registered proprietor who has been registered by mistake, should not be able to oppose rectification of the register so as to correct that mistake by removing its charge. Do consultees agree? [Paragraph 13.95] 187. No, the Society remains to be persuaded by these arguments. Notwithstanding the legal analysis, there may be cases where the mortgagee's interest is in reality more than merely securing money and, coupled with the suggestion in paragraph and Chapter 14 that limits may be placed on a mortgagee's right to indemnity, the Society is not convinced that registered chargees should have lesser rights than registered owners. It is possible that they may be able to establish exceptional circumstances under which their charge should be preserved. Q61 We provisionally propose that where the proprietor of a registered estate has been removed or omitted from the register by mistake, the proprietor The Law Society 2016 Page 45 of 72