Monday, 20 May 2013

A post completion nightmare - difficulties with a restriction

It is not unusual in a dealing with leasehold transaction to be faced with a restriction on the title in favor of a management company.

Many leases for new developments in the 80s and 90’s imposed obligations on a management company formed by the residents of to ensure that responsibility for the upkeep and management of the block. More often than not this resulted in a restriction on the leasehold titles along the following lines:

“RESTRICTION: No disposition of the registered estate (other than a charge) by the proprietor of the registered estate is to be registered without a certificate signed on behalf of ABC Management Company of [address] by a director, its secretary or its conveyancer that the provisions of clause 5 of the Lease dated [ ] 1995 referred to in the charges register have been complied with.”

Hundreds of thousands of titles (including freehold - where there is a management estate) have a similar restriction.

The pressure to supply lenders with evidence of title registration  as soon as possible after drawdown of funds is increasing. I spoke with the mortgage fraud team of a major lender recently and was surprised to be advised that firms start going on their radar as a potential ‘problem firms’ if the lender has not received the TID within 4 weeks of completion. And yet most lawyers have to spend weeks chasing the management company for the release of the restriction which prevents any transfer by the proprietors of the registered leasehold titles in the block, from being registered unless the appropriate certificate by the management company is supplied. Evidence other than a certificate will not be accepted as it places an unreasonable burden on the registrar to decide if it complies with clause referred to in the restriction .

So what do you do if you are simply banging your head against the proverbial brick wall when it comes to  obtaining a certificate from the management company?

If, despite your best efforts, the certificate is still not forthcoming, either from the management company or its lawyers but you can show that there is no reason why the transfer should not proceed, the registrar may make an order disapplying the restriction to enable the transfer to be registered. The transfer (and any new charge) can then be registered.

An application to disapply a restriction must be made in form RX2. Evidence of the efforts made to comply with the restriction must accompany the application. If the registrar decides to make an order he will also make an entry in the register noting the terms of the order along the following lines: along the following lines:
“NOTE:- By an order dated [ ] made under section 41(2) of the Land Registration Act 2002 the restriction set out above was disapplied in relation to any application to register a Transfer of the registered estate to [ ] provided the application to register the Transfer is made within three months of the date of the order and that the application is in due course completed by registration.”

Please note that if you are applying to disapply and you are also acting for a lender don't forget to keep the lender informed as to what you are doing. 

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