Lauren Parsons, Senior Associate at Berry Smith, considers the importance of registering a lease.
Since the Land Registration Act 2002 came into force on 13 October 2003 it is compulsory to register a lease at Her Majesty’s Land Registry (‘HMLR’) if the term of the lease is over seven years. The responsibility to register the lease lies with the tenant but a failure to register it can have significant implications for both landlord and tenant.
Registration
Registration is the process where you provide the information regarding the lease to HMLR, which they then place on the land register for the leased property. This must usually be done within 2 months of the date of the lease.
The information, including the lease, is registered on the title of the property and this is then available as public information.
The details you have to provide to HMLR include (1) the parties to the lease, (2) the term of the lease, (3) the date of the lease, and (4) the rental sums.
Failure to register
A failure to register the lease can have serious consequences for both landlords and tenants and so it is important that both parties confirm that a lease that should be registered has been.
Consequences for tenants
A tenant with an unregistered lease is in a precarious position.
The main concern is that, should the landlord sell the property, any new owner may not be bound by the lease. This is because a party is usually only bound by a lease if they have had notice of it. As noted above, once a lease is registered, it will be specifically referred to on any title documents for the property, meaning that anyone purchasing it will be notified. That is not the case for an unregistered lease.
This means that any new owner may not be bound by an unregistered lease, which places the tenant at risk of the new owner gaining possession of the property, despite the fact they have a lease signed with the previous owner.
Additionally, registration is necessary for a lease to be considered as a legal lease. In the absence of registration, a lease is considered as being equitable only, or, potentially, for the tenancy to be a periodic tenancy only. Both of these leave the tenant in a much weaker position from a legal perspective.
Moreover, most leases contain a clause placing the tenant under an obligation to register the lease. If this is the case, a failure to do so would also be a breach of lease by the tenant, which may open the door for the landlord to try and forfeit the lease.
It is also important that you comply with the two-month deadline as, whilst HMLR may agree to register a lease after this time, there is no guarantee they will do so. If HMLR refuse, the only way in which to ensure registration can occur would be for a new lease to be granted, which would allow the landlord the opportunity to renegotiate the terms.
Consequences for landlords
Landlords also do not escape from any consequences if a lease is not registered.
For instance, if the lease has a guarantor by way of security for the landlord to recover unpaid rent etc., then, if the lease is unregistered, landlords may be unable to seek any recovery from a guarantor, as, from a legal standpoint, they will not be liable.
Furthermore, should a landlord wish to sell their interest in the property, they may find it extremely difficult to do so until the position with the lease is formalised. This may result in additional costs and also any potential sale being significantly delayed or lost.
There is also a risk that, should the landlord wish to obtain finance on the property, this may be refused, as whilst the lease is considered an income stream, that stream would be incredibly vulnerable, meaning it was too risky to secure a loan against.
Conclusion
Whilst there are possibilities for arguments to be raised should a landlord or tenant seek to capitalise on a lease that is not registered, the litigation that follows can be timely and costly, with no guarantees as to who would succeed.
In the round, it is better to ensure that a registrable lease is, in fact, registered, thereby avoiding the risks of costly litigation that may arise because of a failure to do so on
Should you find yourself, as a tenant or a landlord, in a position where you need advice on a dispute regarding an unregistered lease, Berry Smith’s Dispute Resolution Team can assist. Please contact us on 029 2034 5511 or disputeresolution@berrysmith.com
