Two types of entry for the protection of third party interests affecting registered estates and charges are notices and restrictions [1]. A notice is an entry made in the register in respect of  interest affecting a registered estate or charge [2].  It can be made either unilaterally, that is, without the property owner’s (registered proprietor’s) involvement or by way of an agreed notice (with his consent).  A restriction on the other hand is an entry in the register that prevents or regulates the making of an entry in the register in respect of any disposition or a disposition of a specified kind[3]. Lenders are more likely to be familiar with restrictions required under legal charges to ensure the charged property can’t be disposed of or charged to a third party.

A notice can give protection against a later disposal of the property, even where a buyer is making payment, ensuring the interest is protected. A restriction means that a later disposition (which can include security)  in breach of the restriction will not be registered, even where there is valuable consideration paid.

The High Court has recently considered whether a unilateral notice registered against a freehold title at the Land Registry to protect an agreement for lease gave priority to leases granted under that agreement over a charge which was later granted to a bank.

Background

A2 Dominion Homes Ltd (the Claimant) was the successor to a housing association which had entered into an agreement with the freehold owner of a block of flats for the grant of 33 long leases of flats in the property. Prince Evans Solicitors (the Defendant) entered a unilateral notice against the owner’s freehold title at the Land Registry to protect the agreement for lease. The entry of a unilateral notice is common practice in situations where there is to be a long delay between exchange of the agreement for lease and completion of the leases themselves.

The owner of the property later granted security to its bank, by way of charge over the property. Under the charge, the bank’s consent was required for the creation of any leases. The agreement for the creation of the leases was subsequently completed without the bank’s prior consent.

The Claimant alleged that the Defendants had been negligent in respect of the leases, arguing that the bank’s charge had priority over the leases. The Defendants maintained that the notice registered at the Land Registry over the agreement for leases, by their very nature, extended to the leases themselves which gave the leases priority over the bank’s charge.

Decision and consequences…

The court held in favour of the Defendants and confirmed that the leases took priority over the bank’s charge as the agreement for lease was protected by the unilateral notice. As the leases were the product of the agreement for lease, it was only right that they also had priority over the bank’s charge and as such, the completion of the leases did not require the bank’s consent. This was a logical decision…and in fact is what we always thought was the case!

If we stop and think about it, if the protection only extended to the agreement for lease and not to the leases themselves, then in practice no real protection would have been granted by the registration of a unilateral notice, particularly where there is a gap between the agreement for lease being entered into and completion of the leases. Instead, the leases too are afforded the same protection as the agreement from which they are created.  The case does however serve as a reminder that when taking security, proper attention should always be paid to any prior notices in the register to ensure there are no nasty surprises for the lender that could impact on the effectiveness of security or the value of the property.

For more information, email blogs@gateleyplc.com

Additional notes/information:

[1] Land Registration Act 2002

[2] Section 32(1) of the Land Registration Act 2002

[3] Section 40(1) of the Land Registration Act 2002.

A2 Dominion Homes Ltd v Prince Evans Solicitors [2015] EWHC 2490 (CH


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.