Residential developers should be aware that agreeing to enter a Land Registry restriction on the title to a property may inhibit their ability to manage it.
A positive obligation relating to land will not, as a matter of law, bind future owners of the land. To ensure that it will, the original parties to that land obligation will often agree that any future owner enters into an identical obligation on its purchase of the land. To ensure that this is not overlooked, a restriction is put on the title to the land so that the Land Registry will not register any disposition of it unless that agreement is observed.
This is a recognised and effective means of ensuring that positive covenants will bind future owners including obligations to carry out works and to make overage payments.
The disadvantage of this approach is its potential to stymie or delay other essential deals with the property. And concerns arise where this method of protection is used to protect any positive obligation and where no limitations are placed on the restriction.
A recent example is the requirement of an Internal Drainage Board ('IDB') for a restriction to be placed on the whole of the title to a property to protect works provisions in a land drainage consent. The consent required any future owner to enter into a deed of covenant to comply with the consent to ensure that the works were completed. Although the consent only affected a very small part of the land, the effect of the restriction (which was embedded in the consent) was that anyone acquiring any interest in any part of the land had to give a direct covenant to the IDB to comply with all the obligations in the IDB consent.
This potential to frustrate other dealings with a property is due to the inflexibility of a basic restriction on title.
Land Registry standard form restrictions state that no disposition shall be registered without certificates or consents being produced to confirm that the provisions of the original agreement have been complied with, or are not applicable.
'Disposition' has a wide meaning and will prevent sales, charges, leases, and even easements from being registered without the relevant consents or certificates being produced. This could lead to an excessive, and unnecessary amount of administration and delay when dealings such as sub-station leases or plot sales are ongoing.
Once entered into, a restriction will remain on the register until it is cancelled or withdrawn.
If a restriction has to be agreed, there are ways of mitigating the impact of it on a development site. Examples of how this might be done are:
- Agreeing that the restriction will only apply to transfers of the freehold of the property, and not to other types of dispositions. It may be important to consider whether the restriction should catch a dealing by a mortgagee;
- Agreeing that the restriction will only affect the relevant part of the land, and not the whole of the development site, leaving the remainder of the site capable of being sold, charged, leased as needed;
- Limiting the time that the restriction applies in line with the period for compliance with the provisions of the original obligation, for example, the agreed period for completion of works;
- Providing that consents or certificates to confirm that the provisions of the agreement have been complied with might be given by the person making the application to register the disposition, rather than the person who benefits from the original obligation; and
- Providing for the restriction will be cancelled once the obligations have been satisfied, and giving control to the landowner where possible to allow him to remove the restriction if the beneficiary will not.
The extent to which these carve-outs can be agreed will depend upon the nature of the obligation, but they should always be considered before agreeing to a blanket restriction.