Leases for more than seven years must be registered with the Land Registry, and it’s usually the tenant’s responsibility to complete that registration. If they fail to do so within two months of completion, it is not a valid legal lease and only takes effect as an agreement for a lease (a contract). The landlord continues to hold the legal estate rather than the tenant until the lease is registered.
What does this mean for the landlord?
Registration at Land Registry constitutes notice of the lease to all parties and for all purposes. If the lease is not registered, it follows that this notice is not given.
The consequence of this is that a landlord may not be able to recover unpaid rent from the guarantor if the tenant fails to pay. In addition, if the landlord sells the property, the lease will not transfer to the purchaser and will remain as a personal contract between the landlord and the tenant. A landlord may also find it difficult to obtain finance on the strength of a lease that is contractual and not legal.
What can the landlord do?
It seems like common sense that the landlord would simply register the lease himself in this situation. Unfortunately, common sense does not prevail here. The Land Registry will only register the original lease signed by the landlord, but this will be with the tenant’s solicitor following completion.
If the tenant refuses to cooperate, the landlord can apply to court for an order for specific performance. This will compel the tenant to perform the lease covenant to register the lease at Land Registry. The costs of this application are likely to be recoverable from the tenant under the terms of the lease. However, if the tenant becomes insolvent in the meantime, the landlord will be left to pick up the costs. Another option may be to forfeit the lease.
Landlords – be sure to check that your tenant registers the lease within two months of completion. If they fail to do so, act quickly and seek professional advice.
Tenants – check that your solicitor has registered the lease for you or you could face significant additional costs, and possibly even lose your lease.
These are three real cases that illustrate the mess that can be created if a lease is not registered.
- We acted for the purchaser of a prime retail site on Cheltenham’s Promenade. Our client wanted to buy the freehold as an investment property with the tenant in situ. We discovered that the tenant had traded for 18 months without registering their lease. So the property was useless as an investment because the lease would not transfer to our client on completion. As a result, the tenant had to vacate and a new tenant had to be signed up before the purchase could go ahead.
- A business located at a significant retail investment property in Cheltenham was being sold, but although the lease of the property had been assigned by the original tenant, that had not been registered. So the transfer of the lease was not effective and the lease could not be transferred to the buyer. This caused major issues in the sale of the business and led to significant delays and increased costs for the seller.
- We represented a landlord renewing the lease of a commercial property. After completion the tenant’s solicitor failed to register the new lease – and failed to advise the tenant that registration was necessary. The tenant would have to pick up the costs of this application or face losing his lease for breach of covenant.
For more information, please contact our commercial property team at [email protected]