21 November 2005
Landlords, tenants and their advisers, take note: a major change being introduced next year means that leases will never be the same again. New rules on land registration involve the introduction of 'prescribed clauses leases'.
Prescribed clauses are a set of standard details that must appear at the beginning of all registrable leases granted out of a registered estate on or after 19 June 2006, with certain limited exceptions. The prescribed clauses will contain all the information necessary for the Land Registry to complete registration of the lease, thus it is vital that these clauses are completed correctly.
Which leases will be affected?
Landlords and tenants will have to use the prescribed clauses in all leases of registered land that require registration at the Land Registry. This means that leases out of a registered estate for more than seven years will be caught. Leases granted out of unregistered land would also be caught where the granting of the lease followed a registrable disposition, such as a sale and leaseback. A lease for a discontinuous term or a reversionary lease with a term commencing more than three months after the date on which the lease is granted will also be caught, as these are both compulsorily registrable under the Land Registration Act 2002.
The rules do, however, contain limited exceptions: where the lease is in a form expressly required by an agreement entered into before 19 June 2006; by an enactment or a court order; or by a necessary consent or licence for the grant of the lease given before 19 June 2006, for example, by a superior landlord. In addition, a lease which comes into existence following a variation that effects a surrender and regrant is exempt. If you are claiming that your lease falls within one of these exceptions it is necessary for the solicitor to include a letter or certificate with the application for registration.
What key information is to be presented?
Some of the details to be presented in the new prescribed clauses section of a lease are similar to the information commonly found in the current 'lease particulars' section. For example, relevant title numbers, parties, description of the property and the term of the lease. However, the new rules also require details of any restriction on disposal of the lease to be highlighted. Rights of acquisition must also be flagged, for example where this is a 'offer back' arrangement before the tenant can sublet or assign the lease, or where the tenant has an option in the lease to acquire the freehold. Similarly, any restrictive covenants given in the lease by the landlord, in respect of land not included in the lease, must be listed. In practice, this is useful in the retail sector, for example where the landlord has covenanted not to let another part of a centre to a competing business.
The new prescribed clauses also herald a key change in the way the Land Registry deals with easements. It is now the solicitor's responsibility to complete the relevant prescribed clause to refer to all easements in the lease that benefit the property and to which the property is subject. Unless this is done or a separate application is made, any easements in the lease will not be completed by registration and will not appear in the register of affected titles.
Not a new development
As part of the consultation on the Land Registration Rules 2003, the Land Registry proposed a structured lease document (form L1). This prescribed the form and layout of the entire lease. Bearing in mind that no two leases are the same, it was no surprise that the legal profession was vociferous in its opposition to form L1 and the proposal was subsequently withdrawn.
However, the Land Registry was not about to give up and in September 2004 it published a further consultation. The thrust of this consultation was that information required by the Land Registry should be collated in one place in the lease, which would speed up the registration process, thus preventing Land Registry staff from having to plough through leases to find the information they require.
The options put forward by the Land Registry in the 2004 consultation were either a new form L1 in tabular format at the beginning of the lease, which would contain certain prescribed information, or a set of prescribed clauses, again at the start of the lease, which would require the same information as the form L1. The Land Registry accepted, however, that other than the prescribed information set out at the front of the document, the remainder of the lease could be set out in whatever format practitioners required.
This was clearly a welcome step forward from the Land Registry's position in 2002. However, the Land Registry was asking for a great deal of information to be included in the prescribed information at the start of the lease over and above that which required entry in the register.
Another key point in the proposals that proved to be extremely contentious was that the information contained in the prescribed clauses or form L1 should take precedence over the remainder of the lease for the purposes of registration.
The 2004 consultation generated a tremendous response and the prescribed clauses came out as the favoured option, as these could be incorporated easily into existing standard form leases. The Land Registry took on board a great deal of comments made by the industry, in particular the concerns raised by practitioners that if the prescribed information was given primacy over the remainder of the lease, they would be liable for any inconsistencies. As a result, the prescribed clauses are now only required to contain information that is necessary for completion of the register and title plans, and only in the case of the description of the property will the prescribed information prevail where there is a conflict with the remainder of the lease.
What is the timeline for introduction?
From 9 January, the prescribed clauses can be used voluntarily up to and including 18 June 2006. During this period the Land Registry will look at the whole lease and will not just rely on the prescribed clauses for registration purposes. They will provide feedback about any aspect of the prescribed clauses that contain errors or discrepancies and highlight how these would have affected registration if the Land Registry had relied solely on the prescribed clauses to complete the application.
It is, of course, possible to use the prescribed clauses before 9 January. However, before this time the Land Registry will not give feedback on the completion of the prescribed clauses and it will not be possible to apply for standard form restriction in the prescribed clauses. The Land Registry will require a separate application using form RX1. It is advisable for practitioners to consider as early as possible how the changes will affect their lease precedents and the Land Registry has produced a practice guide and training pack to help this process.
Ingrid Hadfield and Alison Murrin are professional support lawyers at Lovells