Leases granted after 13 October 2003 for a term of more than seven years are compulsorily registerable with HM Land Registry. As a Landlord you may think that this is purely a Tenant’s problem, however, from a Landlord’s perspective it is important that you ensure your Tenant registers their Lease, as failure to do so will have implications for you as well as your Tenant.
You may ask what the status of that unregistered Lease would be. Failure to register a Lease created out of an existing registered Title means that the grant of that unregistered Lease cannot “operate at law” (Section 27 Land Registration Act 2002). Equitable principles would therefore step in to salvage what was clearly the intention of the parties. Equity treats the Lease as creating an equitable term of years equivalent to the term of years intended to be created at law. In other words, the Tenant now has an equitable Lease rather than a legal one.
Equitable Leases have their drawbacks for both the Tenant and the Landlord, but in particular, there are circumstances where an unregistered Lease makes the Landlord’s life difficult when it comes to enforcing Tenant’s covenants – a most unsatisfactory position for any Landlord to find themselves in.
It is therefore common to see a clause in such Leases compelling the Tenant to register their Lease as promptly as possible post-Completion. The aim of the clause is to cover a few possible issues which include a right for the Landlord to damages against the Tenant if it suffers a loss as a result of the Tenant’s failure to register the Lease.
Some Tenants may argue that such a registration Clause in the Lease is unnecessary given that statute obliges them to register in any event, but Landlords should ensure that they are contractually protected from any losses that are incurred.
We would also advise any Landlords with concerns to check with HM Land Registry to ensure that their Tenants have registered their Leases long before any problems might arise (Title searches using a Plan can be undertaken for a small fee via the HM Land Registry services page on the Government website). Do not assume that this was done when the Lease was granted as you may not have instructed your Legal Advisor at the time to follow up on this aspect post-Completion.
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