29th April 2016
Times have changed since the Land Registration Act 2002 (the 2002 Act) came into force on 13 October 2003. We have weathered a global economic crisis and faced a domestic recession. House prices have soared, dropped and then recovered, whilst at the same time mortgage fraud and incidents of fraud of registered land have increased.
A Consultation Paper, amounting to some 500 pages, has been produced by the Law Commission detailing proposed amendments to the 2002 Act. The 2002 Act currently governs 24 million registered titles in England and Wales. We review the consequences of the proposed changes for mortgage lenders and conveyancers.
The role of the Land Registry, and the purpose of land registration, is to maintain a balance between parties who own, and parties who have an interest in, a particular piece of land. This is recorded on a central register and, notwithstanding certain rights which are not currently required to be registered under the 2002 Act, a purchaser acquires land subject to any entries on the register. It is important to remember that not all interests in land are capable of registration, however notice of those interests may still be recorded against the register.
The 2002 Act allows for third party interests in land to be registered by way of a restriction, a unilateral notice or an agreed notice. Mortgage lenders will be well aware of what is commonly described as a “lender restriction” which limits the powers of a registered proprietor and chapter 10 of the Consultation Paper suggests that these restrictions will continue.
Under the current procedure a unilateral notice can be registered against the land without the need to provide evidence of the interest which is being asserted. This particular system is one which is subject to reform and it is proposed that evidence of the interest claimed should in future be produced at an earlier stage. Exactly what evidence will be required is not yet known, however mortgage lenders and their conveyancers, who rely on the priority and limited protection of a unilateral notice, should pay close attention to these proposals.
In accordance with the 2002 Act, the priority of an interest over land is determined by the order in which the interest was created. The majority of priority disputes seen by the Land Registry arise between the holder of a registered estate and the holder of an interest that cannot be registered. Under section 29, the purchaser of a registered estate is generally not bound by a pre-existing interest (other than an overriding interest) unless that interest is recorded on the register. Section 29 does not currently determine the priority between two competing interests which cannot be registered. The proposals consider whether notice of an interest that cannot be registered but has been recorded, has priority over an interest created earlier, which should have been registered.
It is not simply enough for a register of land to be maintained. It is imperative that, for a reliable and effective system of land registration to exist, the register provides a guarantee that the information it holds is correct. That guarantee is currently given by section 28 of the 2002 Act and is reinforced by provision of an indemnity.
The 2002 Act allows for the register to be changed in some circumstances. These changes can be broadly divided into “alterations” and “rectification”. An alteration may simply be to update the correspondence address of a proprietor. Rectification is an amendment to correct a mistake which is prejudicial to the title of a registered proprietor. A party who suffers a loss as a result of a rectification may be entitled to claim an indemnity. The proposals surrounding rectification and the provision of indemnity include:
The 2002 Act does not differentiate between claimants for an indemnity, however that may soon all change. Proposals are in place which may limit the circumstances in which a mortgage lender can claim an indemnity. The Consultation Paper therefore asks for evidence to prove the significance of the existence of the indemnity scheme in lending decisions. Furthermore, the possibility looms that mortgage lenders may only be able to claim indemnity in certain circumstances and only when they can prove that they have met their statutory duty in verifying the identity of borrowers.
Registered title fraud is a very serious concern. A significant proportion of indemnity has been paid by the Land Registry as a result of registered title fraud. The Land Registry continues to accept that it bears the burden of the transaction once it is registered, however by the time the Land Registry is involved it is often too late to detect the fraud. The Consultation Paper considers whether the financial consequences of fraud should instead fall on the minority of conveyancers and mortgage lenders who do not conduct their business appropriately. In addition, consideration is to be made as to whether conveyancers owe the Land Registry a statutory duty of care.
Identity fraud, which was tackled by the introduction of the Form ID1 and Form ID2, continues to be a hot topic and it looks likely that further checks will be introduced as part of the amendment to the 2002 Act.
Perhaps the most memorable and indeed the most ambitious proposal within the 2002 Act was the introduction of e-conveyancing. Whilst some progress has been made, in particular with the introduction of electronic discharge and latterly the Land Registry Portal, we still remain a long way from the simultaneous completion and registration that was envisaged. Consequently the new proposals seek to remove the requirement of simultaneous completion and registration with a view to instead looking to develop a more gradual introduction to complete electronic conveyancing.
The Consultation Paper proposes significant changes to the 2002 Act which will have a direct impact on mortgage lenders and conveyancers. Those who will be affected have until 30 June 2016 to submit their responses. Walker Morris is happy to provide advice to any party who has queries or concerns regarding the proposals.
The consultation can be viewed in full at http://www.lawcom.gov.uk/project/updating-the-land-registration-act-2002/.