Risky business: HM Land Registry delays leaving lenders in limbo
Demand on processing applications is continually climbing and the escalating wait times are leaving lenders in an unusually risky position.
Property transactions are notoriously lengthy and involved, with various moving parts. When a transaction successfully completes, one of the few remaining hurdles is registration at the Land Registry.
The Land Registry used to estimate that completion of registration of a routine application would take between 10 to 30 days. However, recent centralisation of Land Registry application processing has quietly increased delays and wait times have been further exacerbated by the pandemic. Furthermore, the stamp duty holiday led to a rapid revival of the property market and, consequently, an exceptionally busy period of registrations.
Demand on processing applications is continually climbing. The Land Registry issued guidance in November 2022 on its estimated completion timeframes, which now range from 80 days for simple amendments to existing titles, to over a year for registering plots on new developments. There is an equally excruciating wait when registering a property for the first time with an average completion period of 275 days. Registering a new lease can take at least 11 months, but most applications require 15 months or longer to process depending on their complexity.
Processing delays are a growing cause of concern in respect of what is commonly referred to as the ‘registration gap’.
Whilst lenders were content to wait several weeks for the registration of a legal charge, the escalating wait times are leaving them in an unusually risky position. Lenders are essentially navigating a legal limbo if their borrower defaults before registration is completed. In the case of a purchase, the borrower will not have legal title over the land but rather a beneficial interest until its title has been registered and, whether a refinance or a purchase, the lender’s charge will not be perfected until registered. As a result, enforcement during this ‘registration gap’ can be complicated.
The appointment of receivers prior to a legal charge being registered is reasonably unchartered territory. A fixed charge receiver would need to get comfortable with the underlying security in order to accept the appointment, which will likely delay the process. They would also likely require an indemnity from the enforcing charge holder to protect them against the risk of the appointment being invalid or a claim of trespass being brought against them. Even if a fixed charge receiver is prepared to accept an appointment prior to the legal charge being perfected by registration, their ability to realise the assets will be impacted. For lenders this means they may have to wait longer to get their money back.
Another issue faced by lenders as a result of the Land Registry delays, is the rising number of prior applications that may be pending registration at the point of completion.
While in some cases completion will be able to proceed following additional due diligence and appropriate undertakings being provided, this can have a knock-on impact to the lender’s legal costs, and often the lender’s legal advisors will not be able to give an unqualified confirmation that such applications will be registered by the Land Registry, for example where an application has been made by a party other than the borrower. This leaves lenders in the difficult position of deciding whether to accept the risk or delay the transaction. The position is exacerbated where there are several prior applications sitting in priority.
In certain circumstances, applications can be expedited.
This option is available where a delay would put a sale or refinancing at risk. Approved expedition requests usually prompt applications to be processed within 10 working days, and we have successfully used this avenue for clients. Nevertheless, if an application is in a queue behind others requiring processing or if requisitions are raised on any of the prior applications, it can often be a matter of waiting.
Understanding your security risk is vital in the current climate and it is important to seek legal advice throughout a property transaction. At Weightmans, we can guide you through the process and provide expert legal advice about your options and how to minimise risk.
Registering a new lease can take at least 11 months, but most applications require 15 months or longer to process depending on their complexity.
If you have any queries please contact a member of our team of finance solicitors.