Certificates of Title are used where a buyer or lender does not intend to investigate the title of the property.
The Certificate of Title (CoT) summarises the details of the title, any search results and any occupational leases. The City of London Law Society (CLLS) standard form CoT is the widely accepted industry standard.
The Seventh Edition of the CLLS Certificate was published on 1 October. What has changed?
The presentation of the CoT has changed significantly. In the Sixth Edition, standard statements about matters affecting the property were separated from both the disclosures against those statements, and the key details about the property. This separation made the CoT more difficult for the recipient to review and has not proved popular.
In the Seventh Edition, key details of the property are much earlier - in Schedule 2. Schedule 3 contains details of matters affecting the property. Schedules 4 and 5 respectively provide basic details of any headlease and any occupational leases, followed by standard statements reflecting a 'typical' headlease and occupational lease. Details of searches and enquiries are set out in Schedule 6.
Disclosures are now made immediately after (or very close to) the statement to which they relate, as each of the standard statements in Schedules 3 to 5 is followed by a "Disclosures" box. There is also a 'disclosures' box at the end of the main body of the CoT for disclosures in respect of the main body of the Certificate and Schedule 1.
The CLLS is concerned that that this new approach will increase the risk that the certifier changes the provisions of the Certificate, and advises that a blackline should be provided to the recipient showing any changes. However, there is also a statement in the CoT that no changes have been made to the main statements in the CoT.
Some of the key changes to the standard statements contained in the CoT are:
- There is a positive statement that the company has absolute title as opposed to requiring the certifier to state the class of title.
- There is more detailed information on how the company acquired its knowledge of the property where it is in the process of acquiring the property. This will enable the recipient to understand more clearly the basis for the company's confirmations being provided in the CoT.
- The statements relating to rights granted and reserved, and rent review, alterations and alienation provisions in any headlease have been changed. They are now more reflective of standard headlease provisions, and ensure that a full summary is provided.
- There is a new statement that the headlease contains provisions designed to protect a mortgagee from threatened forfeiture. The Seventh Edition further states that the superior title (if any) is not subject to a right of re-entry except for a breach by the tenant or any contractual right of termination. These are crucial points that a recipient should always normally ask when acting for a bank particularly in the current climate.
There are also some important changes in relation to reporting on occupational leases:
- Key details - the Seventh Edition now requires the certifier to provide a summary of the rights to determine where there is damage or destruction by an uninsured risk as opposed to just an insured risk. This reflects the fact that it is much more common now for the landlord to take the risk of any damage occurring to the property by uninsured risks. The Seventh Edition also requires any other options to break or renew to be detailed rather than just disclosed against the standard statements. These are key terms of an occupational lease and should definitely be in the main summary of the occupational lease.
- Multi-let properties - the Seventh Edition allows the certifier more flexibility where there are a number of occupational leases. There is a supplemental table whereby the certifier can detail the key terms of each occupational lease and then disclose any material variations between each occupational lease and the relevant standard occupational lease. The disclosures are contained in a separate section under the table which will prevent the Certificate becoming unnecessarily long and make it much easier for the recipient to review.
- Good harvest - as a result of the decision in K/S Victoria Street v House of Fraser there are several new statements designed to give the recipient facts from which to judge whether there may be questions over the enforceability of guarantees or leases vested in former guarantors.
- Guarantees - the Seventh Edition contains a summary of the most important terms of a standard guarantee which will be important to a recipient where there is a guarantor of the occupational tenant's obligations. The Sixth Edition simply required details of the guarantors to be given.
A welcome edition?
There were substantial changes between the Fifth and Sixth Editions of the CLLS CoT, and the Sixth Edition generally proved unpopular with the industry when it was first published in 2007.
The industry appears to have now accepted the format of the Sixth Edition, and the Seventh Edition does not contain many substantial changes. The Seventh Edition tweaks the existing format to make the CoT more user friendly and amends and adds to a number of the standard statements to reflect what was previously missing in the Sixth Edition and changes in the market since the Sixth Edition was published. All in all, it does indeed appear to be a welcome Seventh Edition.