Disapplying a restriction
Evans v Stoneleigh Pavilions (Birkby) Ltd  EWLandRA 2015_0343 (11 February 2016)
On the purchase of a flat it is usual to find that there is a requirement in the lease for the tenant, on the sale of a flat, to ensure that each incoming tenant enters into a deed of covenant with the management company. And to ensure that this obligation is complied with, there will then be a restriction in the Proprietorship Register of the title. In this case it read as follows: “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 by MDC (Birkby) Limited (Co.Regn. No. 6952337) of Westfield Farm, Westgate Hill, Bradford, West Yorkshire BD4 0SL that the provisions of clause 3.19.5 of the registered lease have been complied with.” As well as requiring the deed of covenant, clause 3.19.5 also required the assignee to become a member of the management company. But can a management company withhold the certificate, even though the provisions of the clause have been complied with, in order to achieve some other purpose?
The dispute in this case arose over a sale in 2014. This was completed and the buyer applied for the transfer to be registered but Land Registry raised a requisition requesting the certificate. The management company refused to issue the certificate on the basis that the outgoing tenant owed some £30,000 to the landlord. This had been outstanding since the purchase of the flat from the landlord when new some 5 years earlier. The same solicitors acted for the landlord and the management company and the person with day to day control of the management company was also a substantial shareholder in the landlord company. The buyer subsequently applied to Land Registry for the restriction to be disapplied; the management company objected to this and the dispute was ultimately heard by the First Tier Tribunal (Property Chamber; Land Registration) as successor to the Adjudicator to HM Land Registry.
The jurisdiction to disapply a restriction i.e. to register a transaction even though the terms of the restriction have not been complied with, comes from section 41(2) of the Land Registration Act 2002 (“the 2002 Act”), which states that: “The registrar may by order— (a) disapply a restriction in relation to a disposition…”.
Judge Owen Rhys held that the purpose of the Restriction in this case was to protect the interests of the Management Company on an assignment of a flat – to ensure that an assignee entered into the deed of covenant and became a member of the company. Here the deed of covenant had been entered into and the assignee had applied to become a member of the management company, so those interests had been protected. The company had refused to register the buyer’s application to become a member of the company, but this was unreasonable. It was established law that a company could only refuse to register an application to become a member if that was in the best interests of the company, not for some collateral purpose. Here the refusal to register was clearly being used for a collateral purpose – as way of forcing payment of the £30,000 to the landlord. The interests of the management company were being confused with the interests of the landlord and the judge had no doubts that the Restriction should accordingly be disapplied.
This is the first reported judicial consideration of the exercise of the power to disapply and will be useful both to Land Registry and practitioners affected by a refusal to supply the necessary certificate. One must comment, however, on the unfortunate circumstance that the buyer completed the purchase without the certificate being provided. This surely must be avoided. Although the restriction has now been disapplied, this was some 18 months after the transaction was completed. Only now can the buyer – and his mortgage lender – be registered.