While this might sound like one of those arcane issues that only property lawyers can get excited about, it is potentially significant for anyone who owns a freehold subject to a long lease and who may therefore have a lease enlarged "against" them; also, to anyone taking a lease from a freehold owner where there appears to be a strange note on the Land Registry title entries...
What is "enlargement"? It is the process by which the tenant can unilaterally declare (by deed) that his leasehold term of years is transformed, or "enlarged", into a freehold estate as of the moment when he enters into that deed. The tenant "ousts" his landlord, and becomes the freeholder himself, merely by way of a piece of paper and its subsequent registration at Land Registry.
Which leases are capable of being enlarged? It is those leases which satisfy all of the following conditions:
- The lease must have been granted for, originally, a term of at least 300 years.
- There must be at least 200 years still to run.
- There must be no more than a "peppercorn rent" payable under the lease. Or, if the rent was originally more than a peppercorn, that rent must somehow no longer be due (for example, it might have been released by the landlord, or its recovery has become time-barred). By section 153(4) of the Law of Property Act 1925, a rent of up to one pound per annum which has not been collected for more than 20 years is deemed to be no longer payable at all.
- The lease must not contain a provision by which it can be forfeited in the event of the tenant's breach.
- If it is an underlease, any superior lease must also be capable of enlargement.
- The lease must not be subject to any trust or right of redemption in favour of the landlord.
Because of these factors, the opportunity for enlargement of a lease will tend not to arise that frequently. For example, a modern lease - even if granted for 999 years - will usually include a forfeiture clause, exercisable in the event of breach.
Historically, when a lease was "enlarged" into a fee simple, no one would be any the wiser, except the actual parties to the lease. This is because the land was often unregistered, and enlargement of a lease was not a "trigger" for its first registration. More recently, of course, the number of freehold and/or leasehold titles registered at Land Registry has increased. Overall, some 80% of land in England and Wales is now registered.
And, because more titles to land are registered, Land Registry has seen an ever-increasing number of enlargement applications (although the overall number is still low). Land Registry states that it is precisely this increase which has caused it to review its practice in this area. Until the recent announcement, Land Registry practice was to close down the tenant's leasehold title, as well as the title to the landlord's freehold. In place of both, a fresh freehold title register would be opened in the name of the tenant.
Under Land Registry's new practice, the existing freehold register will not be closed down. Instead, Land Registry will keep it open but add a note to the schedule of leases (where the existence of the tenant's long lease will be recorded) advising that "the term created by the lease dated X has been enlarged into a fee simple under the power contained in section 153 LPA 1925". A copy of the deed of enlargement will be filed at Land Registry, and an annotation to this effect put on the register as well.
The tenant's leasehold title will still be closed, and Land Registry will still open a new freehold title in the tenant's (sic) name. But this means that there will now be two freehold titles in relation to the same piece of land at the same time. Each will have a note on it warning of the other freehold title, but there will be no note advising which is the "current" freehold title.
And there lies one of the dangers of the new system. If a prospective tenant of land is given title entries to the landlord's reversionary title (out of which the lease is going to be granted), he will now need to be certain that there is no other "competing" freehold title. Likewise, any prospective buyer of a freehold interest in land will need to be certain that there is (or, more correctly, was) no lease in existence that might already have been enlarged.
There are many situations where Land Registry might want or need to serve notice on a registered owner. We have previously mentioned the need to keep addresseses for service up to date at Land Registry. The potential for being contacted by Land Registry in the case of an enlargement application is another such situation.
Land Registry has said that any newly-created freehold title, arising because of the enlargement process, will indicate - by way of a note forming part of the title register - that it has been created as the result of enlargement. And the "old" freehold title should be annotated as mentioned above. But the issue is yet another potential pitfall to which a prospective buyer or tenant needs to be alert.