The Land Registry has recently introduced a new procedure that will affect lenders and borrowers alike.
Where a property is being transferred and the current charge discharged, in order to complete the application, the Land Registry has to receive a discharge. This can be either a hard copy form DS1 or an electronic discharge. In the past, the Land Registry has been prepared to wait for that discharge to be sent, maintaining the protection that a buyer and its lender have from their searches.
From 3 August, the Land Registry will register the transfer, and any new charge, even if it does not have the discharge relating to the old charge. The property would be put into the name of the buyer and it would be subject to both charges, the new charge taking effect as a second charge.
As soon as the discharge of the old charge is available, a further application has to be made to the Land Registry whereupon the old charge will be cancelled.
The new procedure cannot be used where there is also a restriction on the title (which is commonly the case now with commercial property) that prevents a transfer or a new charge being registered without the consent of the first charge holder. In those cases, the Land Registry will allow an extended period of 40 business days after the application is originally received for receipt of the discharge. Following expiry of that period, the application will be returned without any changes made to the title. This would mean that the buyer and the new charge holder had no registered interest and no protection.
As a result of this change, you are likely to find that buyers and lenders will require that a discharge is available on the completion of the sale or remortgage of a property rather than relying on solicitors' undertakings to provide these later. Special conditions in the contract may make completion conditional on the availability of the discharge at completion of a transaction. Without it, a buyer and lender may be left feeling precarious. Sellers should therefore be doing everything possible to organise the signing of the discharge forms as early as possible.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 16/09/2009.