Generally, legal mortgages over land are ranked on a “first come, first served” basis so the charge which is registered at the Land Registry first, ranks ahead of subsequent charges.
The chargeholders can agree, if they so wish, to change the order in which the charges rank. This is usually done by way of a deed of priority or an intercreditor deed. Such ‘priority arrangements’ should be registered at the Land Registry so the charges register reflects the changes in priority of the charges, but did you know that this changing of priority can also be done by a simple letter, even for more complex arrangements?
The letter of the law
The Land Registry has guidance on when it will accept a priority arrangement by letter. It used to be the case that, although a letter could be used for a simple priority arrangement, for anything more complex (such as where priority is limited to a certain value) a deed would be required. Since 2015 however, the Land Registry has accepted any sort of postponement of charges by letter.
For the postponement of the charge to be valid, both a form AP1 and a certified copy of the letter should be lodged with the Land Registry. The letter should be:
- from and on the letterhead of the chargeholder which is postponing its charge;
- signed by the chargeholder which is postponing its charge – by a director, secretary or solicitor (for a company) or, if a bank or building society, a director, secretary or solicitor, manager or other authorised signatory (if it includes confirmation that such signatory is duly authorised). Signatory requirements are also specified for Local Authorities and the Legal Services Commission; and
- addressed to either the Land Registry or the chargeholder whose charge is gaining priority (the latter does not need to sign the letter and nor does the landowner).
Benefits of a letter
The process of sending a letter can be quicker and potentially cheaper in the context of a transaction. However, this is only if the parties are comfortable with the postponing chargeholder simply registering a letter with the Land Registry, rather than engaging lawyers to negotiate a more detailed priority arrangement.
It can also help with keeping commercial terms confidential if there are complex and commercially sensitive priority and intercreditor arrangements in place. If a priority or intercreditor deed is registered at the Land Registry it becomes available to the general public. By registering a letter rather than a full deed at the Land Registry, the newly agreed order of priority would still be shown whilst terms of the agreement would remain confidential.
Prefer a priority deed?
Although a letter can be registered at the Land Registry, some lenders may prefer to agree a priority or intercreditor deed so that their respective positions on both priority and enforcement arrangements are formally agreed. This can help prevent issues arising when it comes to enforcing their security.
A previous blog  looked at the rules surrounding anti-tacking and whether further advances are secured by a lender with a prior ranking charge (a first chargeholder lending more money to the borrower). Unless the further advance is covered by the limited statutory exemptions, the lender cannot rely on the priority of their first charge without an express agreement with the lower ranking chargeholder.
Overall it is straightforward to register a new priority arrangement at the Land Registry but having a formal agreement in place makes it clear to the parties their rights and obligations around priority and enforcement of their charges so remains useful in many circumstances.
 Land Registry Practice guide 29 – Registration of legal charges and deeds of variation of charge
This blog post was written by Jonathan Horne, for further information, please contact:
Jonathan Horne, paralegal, Banking & Finance
T: 0121 202 1463
Carol Betts, partner, Banking & Finance
T: 0121 234 0234