We asked specialist insurer Christopher Taylor to provide some insight into the risks that lenders and developers may face.
Not all UK land is registered with HM Land Registry
According to the HM Land Registry (HMLR) the 25.5 million titles in the register covers 86.6% of all land in England and Wales. It states that this land is worth £7 trillion, and has more than £1 trillion of debt secured against it. That means that approximately 15% of land remains unregistered. Where is this unregistered land? This unknown is a difficult one, but what if this land was in rural areas?
It is important to note that while all land in England and Wales is required to be registered at HMLR, following any significant change in title, this does not affect land that has not “changed hands” since registration was made compulsory in 1990. An example would be where land has been gifted through generations. Therefore, accurate statistics on the identity of the landowner and the nature of land holding in the UK can be very difficult to produce.
Is this a real risk to a developer?
The answer is yes, because the transfer of land to a developer would trigger compulsory registration at the HMLR and to do this the conveyancer acting for the developer will be required to prove ‘root of title’ before the registration process can take place. They must be in possession of all title deeds, leases and maps, which are often missing where land has been gifted through the generations.
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Deeds prove ownership, but also other aspects, such as boundaries, access, rights, burdens and restrictions as well as the terms of any leases that have been granted. The aim is for the solicitor to obtain ‘title absolute’, anything less becomes a problem when the land is required to provide security for a loan. A qualified or possessory title is not only less marketable, but does not form the best possible security for a secured lender as it is always subject to challenge until it has been perfected.
So, what can be done?
The vendor could be required to complete the first registration before they sell. This is not only a painfully slow process, but it is expensive and there may be issues with selling or using the property as security during that process. Where the lawyer has certified the title to be good and marketable, but there are unknowns or uncertainties around the registration process, title insurance can provide a form of gap coverage pending full registration to enable the deal to progress.
Title insurers can provide an insurance policy that will protect against the inherent risks associated with acquiring unregistered land, so that if any issues come to light post-completion and during first registration then the policy will respond by meeting the legal costs of perfecting the title and will compensate for any diminution in value, should the worst occur.
A policy like this must be put in place right at the beginning of the transaction and before anyone tries to perfect title, as it is often the case that what were originally latent title defects can become live problems once questions are asked, at which point the title could be rendered uninsurable.