1 (1) Due Diligence Flashcards
How to Investigate title to Freehold Registered Land
- Obtain copies of the register of title (’official copies’)
- Obtain copy of Land Registry plan for the property (’title plan’) through their account with the Land Registry
DEF: Deduction of Title
‘Deduction of Title’ is the expression used for the seller’s obligation to prove to the buyer their ownership of the property they are trying to sell
How is deduction of title shown?
Proved by producing documentary evidence of title to the buyer
When does the ‘deduction of title’ take place, what obligations do the seller and buyer (and their solicitors) have?
Generally, title deduced before exchange of contracts and buyer prevented from raising any objections to that title after exchange of contracts, seller should supply to the buyer (at their own expense) official copies less than 6 months old, Buyer’s solicitor needs to investigate whether there are overriding interests affecting the property, this information will come through various searches and enquiries
What do ‘official copies’ show
Show title number and edition date (date when Land Registry updated title) and ‘search from date’ (date of official copies showing entries subsisting on the register at a certain time), and the entries on three registers: (1) the property register (2) the proprietorship register (3) the charges register
What does the property register contain?
(1) description of the land by reference to the postal address and title plan (2) whether title is freehold or leasehold (3) whether there are easements (4) things one might expect to come with the land that have been excluded from the title (eg. rights of light)
What does the proprietorship register show?
(1) current owners and their address (2) the class of title (3) price paid if land is sold since 1 April 2000 (4) if owners gave indemnity covenant when they bought the land (evidence of a chain of covenants) (5) restrictions on owners’ ability to sell
Defect in registered title
The state guarantees the title and compensation is payable in certain circumstances of a defect is found in a registered title
What is ‘class of title’, how is it determined?
Class of title determined by Land Registry when land is first registered: three possibilities:
(1) Absolute title
(2) Possessory title
(3) Qualified Title
What is an ‘absolute title’
Most common and best: registered proprietor has the legal estate vested in them subject only to entries on register, overriding interest and where proprietor is a trustee, minor interests (if they have notice) such as those of beneficiaries
What is a possessory title?
Granted where the proprietor is in possession of the property but has lost title deed or is claiming through adverse possession (prop. subject to all adverse interests existing at date of first registration)
DEF: qualified title
Granted where there is a specific identified defect which registrar feels cannot be overlooked or ‘cured’ by the grant of absolute title
Why is absolute title the best
Anything less than (qualified or possessory title) may impact the buyer’s ability to get a loan to purchase the property / sell it in the future
The two types of entry to protect third party interests
(1) notices and (2) restrictions (prior to 2002 could be cautions and inhibitions but these are becoming more rare)
What does a ‘restriction’ on the register mean
Proprietor’s ability to deal with property is limited or prior condition must be satisfied for a disposition to be registered, may be permanent or for a period, may be absolute or conditional
Examples of restrictions
(1) co-owner restriction (2) lender restriction (3) court order for restriction to be entered resulting from litigation
What is on the ‘charges’ register, what would a solicitor look for?
Encumbrances:
(1) covenants
(2) easements which burden the property
(3) charges over land (mortgages)
(4) leases granted over whole or part of property
(5) notices registered by third parties with an interest
Is the solicitor liable for failing to advise buyer on nature and extent of third party interests in land?
Yes, likely to be negligent
Where do easements appear?
(1) easements which burden the property = Charges register (2) potentially also property register if land registry has extracted text from a conveyance and easements that burden are mixed with easements which benefit (3) Property register = any financial requirement attached to an easement
Easements with financial requirements: role of solicitors
(1) enquire into whether seller contributes to maintenance costs (how frequently and how much) (2) request for details of any disputes about easement / sharing of costs (3) client should be advised to instruct surveyor to inspect the land to see if its useable and in good condition or whether it will require maintenance costs (rule in Halsall v Brizell)
What is a ‘mining exception’, how would this look?
(1) Seller has excepted or reserved the mines and minerals beneath the surface of the land for sale, together with right to extract them (2) In property register: ‘There is excepted from the registration the mines and minerals underneath the
property together with ancillary powers of working thereof.’
What does seeing a mining exception mean?
The seller does not own any mines and minerals underneath the surface of the property and cannot transfer them to the buyers, any encroachment = trespass
What does mining exception signal for solicitor representing buyer?
(1) should investigate into ground stability (2) inquire into whether this right was exercised in the past / how often / who (3) conduct index map search at land registry on form SIM to check whether mines and minerals are registered under a separate title (if so, help identify owner of mines)
Interests in coal
Vested in the Coal Authority under Coal Industry Act 1994 (coal mining search should be carried out)
What inquiries should be made wrt a ‘right to air / light’
(1) enquiries about the extent and location of the adjoining land owned by the Vendor should be made (2) buyer needs to be informed and asked whether reservation causes concern given their intended use of property and likelihood of development nearby
Registered Land: how is equitable interest of property held (assumption)
Assumed as a joint tenancy unless there is a restriction in register: “No disposition by a sole proprietor of the registered estate (except
a trust corporation) under which capital money arises is to be registered unless
authorised by an order of the court.”
Jointly owned property being sold by one co-owner: responsibility of solicitor
(1) find out what happened to missing co-owner
Jointly owned property being sold by one co-owner because one is dead: responsibility of solicitor
(1) seller’s solicitor has to provide certified copy of death certificate (2) if equitable interest held as joint tenants, surviving owner can transfer property alone (also check no bankruptcy or memorandum of severance) (3) if held as tenants in common, interest of deceased co-owner must be ‘overreached’ (appoint another legal owner / second trustee and transfer purchase price to both) - this should be in contract
Jointly owned property where deceased transferred interest by will or intestacy: how is this proven?
(1) producing certified copies of the grant of probate and (2) assent from the PRs to the surviving co-owner as beneficiary
What should buyer’s solicitor do if restrictive covenant is found in charges register and buyer wants to breach it?
(1) ask seller for person who owns property with benefit of covenant and ask this person if buyer can come to an arrangement (ie. release from covenant) (2) obtain restrictive covenant insurance policy for proposed breach of covenant (3) apply to Upper Tribunal (Lands Chamber) for modification or discharge of covenant under s 84 LPA 1925 on grounds that covenant is obsolete or confers no practical benefit of value or is contrary to public interest and loss of covenant can be compensated in money
When is a restrictive covenant insurance policy not available?
When an approach has been made to the person with the benefit of the covenant alerting them to their rights
Positive Covenants: benefit and burden
(1) always binds original covenantor but (2) burden of positive covenant does not run to successor of original covenantor UNLESS INDEMNITY COVENANT WORK AROUND
Where would indemnity covenant be on registered title:
Proprietorship Register
DEF: Unknown covenants
The property is subject to covenants but the nature / wording unknown
Unknown Covenants: What should be done?
(1) assume covenants are restrictive and will be binding on buyer and consider options for dealing with them (likely indemnity insurance policy)
Unknown Covenants: What should be done by seller?
seller should disclose this defect in title in contract so buyer cannot object to it to prevent completion
Mortgage: how to tell if one exists
Two entries on charges register: (1) date and purpose of charge (2) identity of lender - may also be entry in prop. register restricting disposition without consent of lender
Leases: where do they appear
Notices in the charges register of the landlord’s title
Leases: when will they bind the buyer
If they are protected by the date when the transfer of the property to buyer is registered, they will bind buyer
Lease for 7+ years not registered: will it bind
(1) No (2) but may be overriding interest if the tenant is in occupation
Types of leases which could be overriding interests
(1) legal leases for 7 or less years (2) equitable leases with actual occupation
Formalities for lease creation
(1) created by deed (2) should be one of the title deeds scheduled in epitome of title
DEF: Notice
(1) Entry on charges register in respect of the burden of an IARE or charge, (2) may be agreed or unilateral (3) does not guarantee that interest is valid (4) wants to ensure priority of interest in notice protected against subsequent interests
DEF: Unilateral Notice
Used where registered proprietor has refused to consent to the entry or has not been asked about it
Unilateral Notice on register: what should buyer do
(1) ask seller’s solicitor to figure out what unilateral notice relates to, then either (a) Walk away from transaction or (b) refuse to go further until seller deals with it - gets it cancelled by Land Registry before exchange of contracts (Beneficiary may agree to cancel or confirm interest has expired)
DEF: Home Rights
(1) A home right is a statutory right created under the Family Law Act 1996 for a non- owning spouse or civil partner to occupy the matrimonial home. (2) not an interest in land
Are Home rights binding on buyers?
(1) Yes, if protected by notice in charges register by date when transfer of property to the buyer is registered
Home Right on register: what should be done?
(1) seller should obtain a release of all rights from non-owner and (2) agreement to vacate on or prior to completion
