Navigating the Registration Gap: Legal Ownership Risks in Commercial Property Transactions

Serving or receiving lease notices

Certain notices served under leases can only be served by or on the legal owner of the property. Since the legal title remains with the seller during the gap, the buyer may not be able to validly serve or receive these notices. This can cause problems for both landlords and tenants, particularly with break notices and notices to quit, which must be served by or on the legal owner.

Without legal title, a tenant-buyer cannot serve a break notice on their landlord. Similarly, without legal title, a landlord buyer would not be the correct person to receive a break notice served by a tenant, so may not be aware of it having been served.

Lease assignments

If a lease is registered, an assignment of that lease only takes legal effect upon registration. This means the seller (as outgoing tenant) may remain liable for costs or breaches of covenant under the lease during the registration gap.

Financing

Even though an owner can exercise "owner's powers" to grant a legal charge (i.e. a mortgage), if the owner does not have a registered title, some lenders may refuse to lend against the property.  As a result, the registration gap can delay or complicate financing arrangements.

Intervening registrations and priority risks

During the registration gap, there is a risk that third parties may acquire and register interests in the property before the buyer's application is completed. While the buyer's equitable interest may take priority if protected by a valid priority search and a timely application, any delay can leave the buyer vulnerable to competing claims or interests granted by the seller. If the buyer is not in actual occupation, or if priority protection lapses, their interest could be overridden.

Prompt application submission

Applications to the HM Land Registry should be submitted immediately after completion to avoid any further delays.

Protect priority

HM Land Registry deals with applications to register transactions strictly in accordance with priority. Typically, this is based on which application is made first (not which transaction completes first).

A transaction's priority can be protected by way of a priority search (known as an OS1 or OS2). A priority search gives a 30 working day window, known as the priority period; if the application is made within that period, the buyer's place in the registration queue is protected.

If there is a risk that the application will not be submitted within the priority period, a fresh priority search can be carried out. This simply creates a new priority period; however, it does not extend the original one. Therefore, third-party applications submitted before the new priority search may have priority over the buyer's application.

Contractual clauses

Sale contracts should include clauses to manage the registration gap. These provisions can appoint the buyer as the seller's agent for all matters relating to the property during the gap. This enables the buyer to serve or receive notices, manage lease obligations, commence legal proceedings, and generally act in relation to the property before they are registered as the legal owner. Clauses can also require the seller to act as the buyer directs in relation to the property during the registration gap.

Such clauses will often include an indemnity from the buyer to protect the seller from liability arising from the buyer's actions during this period.

Such clauses provide clarity and help protect both parties.

Application to expedite

In certain cases, a request can be made to HM Land Registry to expedite the application. This is only accepted where delay would cause significant hardship, for example, where an onward sale or a refinance is dependent on the purchase being registered. Supporting documentation (such as a contract or lender's letter) must be provided, and the application must meet the Land Registry's urgency criteria.

The registration gap is often overlooked but is becoming a significant concern in property transactions.

With delays at HM Land Registry now stretching to two years in some cases, the gap is widening, and as it does, the legal and practical issues it creates are only likely to become more problematic.

It is crucial that buyers and tenants understand the risks that can arise during this period as early as possible to anticipate potential impacts on future plans.

Early awareness and proactive planning are key to managing these risks and minimising disruption to these plans.