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Refining Restrictions

  • United Kingdom
  • Real estate

13-09-2019

A well-drafted and properly considered restriction on a title register can be a reliable mechanism to ensure that arrangements made between buyer and seller, landowner and neighbour, are enforceable. But likewise, the need to comply with a restriction can bring a deal to a halt, prevent a buyer securing funding and add considerable time and effort to a transaction. The introduction of standard form restrictions by the Land Registry has reduced, but not removed, the margin of error as to the wording of the restriction itself. Still, with so many restrictions resting on compliance with an underlying document, there remains huge potential for ill-considered drafting to cause trouble. So careful thought is still needed, and we should all be asking ourselves three key questions before drafting.

Firstly, what sort of transaction should be caught by the restriction? The choice for a standard form restriction is either to refer to a disposition, or else any transfer, lease or charge (or any mix of those three). Restricting dispositions generally might mean that more deals are caught than anticipated, such as the grant of a cable easement, a substation transfer, or the sale of an individual plot. As it isn’t possible to specify in a standard form restriction which dispositions should be caught and which should not, one way around this is to define an "exempt disposition" in the underlying document.

That definition of "exempt disposition" might list, for example, transfers of individual dwellings, transfers or leases or grants of easements to utility companies for the purpose of providing services to the site, or the transfer of land required by a statutory agreement running alongside a planning permission. If the buyer’s covenant in the underlying document is not to dispose of the property other than by way of an exempt disposition, then the restriction itself can refer to compliance with the provisions of that clause or confirmation that those provisions do not apply. Be very sure to include the optional "do not apply" wording at the end of the standard form restriction. Those words can be essential, otherwise one can be left considering if it is even possible to certify that a contractual provision has been complied with on the basis that it doesn’t have to be complied with in the first place.

If the restriction is to be in standard form, then it is only possible to refer to compliance with just one clause of the underlying document. So, if there are several obligations to which the transferee must sign up (perhaps to enter into a deed of covenant and pay the third party’s costs), then those must be drafted as sub-clauses of one clause. Neither will the standard form restrictions allow reference to compliance with a whole document rather than a specified clause.

Secondly, looking forward to a time when the restriction must be complied with, who should give the necessary consent or provide the necessary certificate? The standard form restrictions include the name of a particular person or entity, the owner of a particular title number, or a conveyancer. Obtaining a consent letter from a once upon a time neighbour who has long since moved away is likely to be very difficult so should be avoided. A certificate confirming compliance to be given by a conveyancer is often an acceptable compromise, but consideration should then be given as to what that conveyancer will be required to certify. A conveyancer will easily be able to certify that a deed of covenant has been entered into or that an amount of overage demanded has been paid, but perhaps won’t be able to certify matters that involve a degree of subjective judgement, such as requirements to keep shared roadways in good repair.

Thirdly, how should dispositions by existing or future chargees be affected, if at all, by the restriction? A sale by a chargee using its power of sale (rather than a sale by a receiver or administrator) is not a disposition by the registered proprietor. So consider carefully whether the restriction should restrict dispositions by both the registered proprietor and the proprietor of any registered charge. A future charge is, of course, itself a disposition, but any future lender will refuse to sign up to obligations such as to contribute towards estate service charges, maintain shared driveways or pay overage. The often seen compromise is to allow the charge without requiring compliance with the obligations giving rise to the restriction but require any onward disposition by the chargee to comply with the restriction.

Finally, some practical considerations. To be sure your application for registration of a transaction won’t be prevented by a restriction:

  • Ask for a draft of the consent or certificate well in advance of completion so the exact wording can be settled and agreed.
  • Consider including contractual provisions requiring the party who must consent or certify to do so promptly when requested, or obtain a solicitor’s undertaking to provide the original consent or certificate at completion.
  • When reviewing a third party’s consent to a disposition, be sure that the letter of consent states that consent is given to registration of the disposition in question, rather than just the disposition itself. The Land Registry will not be enforcing this rule until April 2020, but it is worth getting into this habit early. (If a restriction requires a certificate then the certificate need not comply with this requirement so long as it complies with the requirements of the restriction itself).
  • When reviewing a certificate given by a third party organisation rather than an individual, be sure that the signatory’s name and position are included (such as director); and where the certificate is to be signed on behalf of a law firm, the name and position of the individual lawyer signing the certificate (not just a signature in the name of the firm itself) should be included.

The potential for a restriction to bring a transaction to a dead halt means that they should be handled with great care. They are not to be taken lightly or considered convenient but nothing more. The lawyer who imposes an illconsidered restriction now, will not be thanked by colleagues in the future.

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