The registration gap (the so-called interval between completion of a purchase and completion of the registration of the buyer’s title at the land registry) has the scope to cause a variety of problems in the field of leasehold reform as a decision of the Central London County Court from September of last year, Renshaw and others v Magnet Properties South East LLP quite clearly demonstrates.

In this particular case the enfranchising tenants had served a notice under Section 13 of the 1993 Act and the landlord had subsequently exchanged contracts for the sale of the freehold subject to the tenant’s notice of claim.

The purchaser (having completed its purchase, but before registration had completed) served a landlord’s counter notice under Section 21 admitting the tenants’ claim but disputing the price to be paid. The tenants brought an action under s.25 of the 1993 Act on the basis that no valid counter notice had been served and the court was asked to decide (among other things), whether the landlord’s counter notice in response was valid. The court held that it was not.

The court’s reasoning was based on the fact (as argued by the tenants) that Section 27 of the Land Registration Act 2002 states very clearly that no disposition will take effect at law (regardless of the position in equity) until it has been registered.

As a result of this the freehold owner (whose title was not at that time registered) lacked the relevant standing to serve the notice. The court also stated that it had come to this view on the basis that the tenants were entitled to rely on the register for information concerning the ownership of the freehold. It would always be open to a purchaser to protect itself by requiring that the Seller serve any counter notice that was required at its direction as a term of the contract.

The purchaser advanced an argument based on s.19(3) of the 1993 Act. This section states that if the reversion is assigned during the course of a claim to the freehold that all the relevant parties are to be in the same position as if the purchaser had been the owner before the notice was given. In other words the situation is to be as if he had in all respects ‘stepped into the shoes’ of the seller. The thrust of the purchaser’s argument was to assert that s.19 could retrospectively ‘validate’ anything done by the buyer on behalf of the seller. However, the court rejected this argument.

Conclusion

This is a cautionary tale for anyone acting for a landlord purchasing in circumstances where an initial notice has been served under s.13.

To protect the client’s position a contractual provision must be sought requiring the seller to serve a counter notice at the buyer’s direction in the event that the response date is likely to fall during the ‘registration gap.’    

Mark Chick

25.03.2008