In yet another illustration of the registration gap, the High Court has confirmed in Sackville v. Robertson [2018] EWHC 122 (Ch) that an assignee of a registered lease may be precluded from exercising a contractual break clause until the assignment has been registered with the Land Registry.

Background

In 2013 Sackville granted a lease to Robertson for a term of 10 years (the Lease). The Lease was registered at the Land Registry with Robertson as registered proprietor.

The Lease contained a tenant break clause as follows:

"The Tenant may terminate this Lease on 14 March 2018 (the "Termination Date") by giving to the Landlord not less than nine months' prior written notice … " (the Break Right).

"Tenant" was defined to include successors in title and any person in whom the Lease was from time to time vested.

In early 2017 Robertson entered into a licence to assign with Sackville to allow the Lease to be assigned to one of Robertson's group companies, Integro. Shortly thereafter a deed of assignment was completed and Integro served notice of the assignment on Sackville. On 2 May 2017, before completing registration of the assignment at the Land Registry, Integro served a further notice on Sackville purporting to exercise the Break Right.

The question was whether or not Integro could validly serve the break notice.

Decision

The High Court held that the break notice could only be served by Robertson.

By virtue of section 27 of the Land Registration Act 2002 a disposition of a registered estate (such as the Lease in this case) cannot operate at law until the disposition is completed by registration at the Land Registry. Accordingly, at the time the break notice was served Integro did not hold legal title to the Lease – that remained vested in Robertson – and so it could not be said that the Lease was vested in Integro or that Integro was a successor in title to Robertson. Instead, until the assignment was registered at the Land Registry, legal title to the Lease was held by Robertson on trust for Integro and the assignment operated in equity only.

This outcome was not altered by the operation of the Landlord and Tenant (Covenants) Act 1995 (the 1995 Act). By virtue of the 1995 Act:

  • an assignee automatically becomes bound by the tenant's covenants and automatically benefits from the landlord's covenants in a lease from the date of assignment; and
  • an assignment includes an equitable assignment such as that which had occurred in this case.

As such the benefit of the Break Right was vested in Integro from the date of assignment. However, the obligation on Sackville as landlord to accept the break was dependent on all the conditions to the exercise of the Break Right being satisfied. One of those conditions was the service of a notice by the tenant and the court had already concluded that Integro was not the tenant (as defined in the Lease) at the time it served the break notice. In the words of Mr Justice Fancourt: "although the Lease created a new tenancy to which the provisions of the Act of 1995 apply, the Act does not vary the meaning of the condition in the break option".

The registration gap is a recurring problem with the system of land registration in England and Wales (for example, see our update 'The registration gap strikes again'). It arises because of the delay between completing a transaction, such as the assignment of a lease, and registration of that transaction at the Land Registry. Unfortunately despite being widely publicised, the registration gap continues to catch parties out.

This case is a reminder that the best advice is to always register your transactions at the Land Registry without delay. It took Integro more that three and a half months to register the assignment of the Lease, the ultimate consequence of which was that Integro was unable to validly exercise the Break Right.

There are of course ways of drafting around the issue. For example, in Pye v. Stodday (another registration gap case) Mr Justice Norris suggested that it is not difficult to address the problem and that "the time will come when every completion pack for the sale of a reversion includes a document in appropriate form constituting the transferee the agent of the transferor in respect of all matters concerning the estate transferred pending registration, a copy of which will be provided by the landlord to the tenant along with notice of the assignment".

Drafting, however, is only a short term fix for the problem. In the longer term the solution will lie in electronic conveyancing. The Land Registry is very keen to push on with its 'Digital Street' project which ultimately aims to introduce digital dispositions which can be registered almost simultaneously with completion. Given the relative frequency of cases such as this, it seems clear that these changes cannot come soon enough.