Leasehold Restrictions – the changes that need to be made

On the 19th October, HM Land Registry (HMLR) started its stakeholder consultation on Leasehold Restrictions with a conference in London where speakers such as ARMA, The Law Society and the CA got to put their case.

The CA and Bold Legal Group members have been critical of Lease Administrators from both a charging and provision of service point of view, and this consultation gives a chance to right some of those wrongs.

Speaking at the event I outlined our compelling argument to get much-needed reform in this area explaining how the current restrictions regime inadvertently makes Land Registry an enforcer for the ‘underworld’ of leasehold, which perpetuates the abuse of leaseholders.  And our data indicates it is only getting worse with the number of new registrations of leases with restrictions rising from 49% to 64% over the last three years.

Now, Lease Administrators themselves might say (and believe) that restrictions are there to protect the contractual provisions within the lease, for example, to ensure that notice has been served and a deed of covenant entered into to ensure the covenants within the lease can be enforced by the landlord upon the tenant as if they had been one of the original contracting parties. But hang on aren’t those two things covered already?

The service of notice is a condition of the lease and therefore must be undertaken; indeed UK Finance Lender’s handbook already requires conveyancers to have evidence they have served notice of the transfer and the lender’s charge.

Further the Landlord and Tenant Covenants Act 1995 states that covenants can be enforced between the leaseholder and landlord (or management company – though there is an argument over s.12 of the Act in that it only covers the demised premises in relation to Management Companies) as if they were the original parties of the lease. Do these not make the requirement of a restriction superfluous?

The good news is that the Chief Land Registrar can cancel superfluous restrictions under paragraph 5 of Schedule 4 of the Land Registration Act 2002 and as I am about to explain we think he should.

Leasehold Restrictions are both costly and add unnecessary delays with no duty for reasonableness imposed by Lease Administrators – by which I mean landlords, managing agents and management companies. And the enforcement of the restrictions by Land Registry is enabling Lease Administrators to not just increase their fees but create new ones. A certificate of compliance in itself is nothing but a construct of the Lease Administrators but I am also hearing of some attempting to charge for ‘notice of discharge of charge’ as well as the notice of transfer and charge – that will cost you £300 for the 45 minutes of work required for the notices.

The restrictions will often predicate a charge for all of these services. I don’t think anyone would have a problem with a notice of transfer or charge at a reasonable fee; it is of benefit to the leaseholder to receive relevant documents and notices.

But a Deed of Covenant? The L&T (C) Act 1995 states that deeds enforcing covenants between Landlord and Tenant are void documents, yet every day our clients are paying for this void document. And a Certificate of Compliance? Well that’s just something you have to do and pay for to confirm that you have done and paid for the other services. It’s ludicrous.

We have data on the average fees charged by Lease Administrators from across 21,000 records between 2014 and 2017. The deed of covenant in particular is interesting because there is case law saying that fee should be no more than £80, however on average it is charged at £125. In fact the management company against which the case was won continues to charge £300 simply because people will pay to get the certificate needed to register at Land Registry. Don’t forget that’s £300 for a document void under the L&T(C) Act 1995.

The impact of all this is considerable right across the piece. For example, 63% of these cases require follow-up letters and 32% of applications are cancelled. So Land Registry is being held hostage too and my calculation is 205 applications are cancelled every week, which is 205 OS1 priorities lost, 205 homeowner’s whose title is at risk, 205 potential lenders whose security is at risk, and 205 home movers who have to pay a further application fee upon cancellation or worse the conveyancer swallows it themselves.

So what impact do leasehold restrictions have on the conveyancing process? It makes it incredibly convoluted to say the least – completing the deed of covenant, serving notice of assignment, applying for the Certificate of Compliance, submitting the application for registration, chasing the Certificate of Compliance, responding to Land Registry’s Requisition, chasing the Certificate of Compliance again, responding to Land Registry’s Requisition again, applying for dis-application of the restriction, and finally receiving the completed registration.

Take out the restrictions and this process simply becomes to serve notice of assignment, submit the application for registration and receive the completed registration. And that’s it – quite the difference, you might agree.

So the CA’s plea is for Land Registry to break the handcuffs of leasehold restrictions and free these leasehold hostages. Cancel all superfluous restrictions or at least improve the process for conveyancers to dis-apply them where they can prove that they have complied with a valid lease term and not simply that you have paid for the Deed of Covenant – which is, and I’m in danger of repeating myself here, a void document. You couldn’t make it up.

The CA is currently running a survey on Leasehold Restrictions. We’d like to hear your views and you can complete the survey by visiting: www.surveymonkey.co.uk/r/LNPVP3S. The deadline is the 25th November.

Beth Rudolf is Director of Delivery at the Conveyancing Association

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