12 November 2018

Home Sweet Home - or is it? Fighting fraud: Updating the Land Registration Act 2002

Approximately 85% of land in England and Wales has been registered at HM Land Registry (the “Land Registry”), amounting to 25 million titles.  By 2030, the Government aims to have the remaining 15% registered. 

Registration of land is important – it aims to give certainty on ownership of land and the entitlement to sell it.  The register supposedly acts as a “mirror” providing an accurate and complete reflection of the property, with a state backed guarantee that indemnifies anyone who suffers loss if the register is incorrect. It is designed to make conveyancing faster, cheaper and easier.

So what is the Land Registration Act 2002 and why does it need updating?

For property lawyers, the Land Registration Act 2002 ("LRA 2002") is up there as one of the top 5 biggest shake ups to land law since the feudal system first began…it was heralded as the start to e-conveyancing and aimed to ensure that all land was registered so that the Land Registry would be a full and accurate picture of the title to land in the UK.  

Whilst the LRA 2002 has accomplished a great deal of modernisation, its inaugural 16 years have also revealed weaknesses and gaps - in part, where its drafting is unclear, inefficient or has led to unintended consequences and partly because the changing technological landscape has outpaced it.  The Law Commission (the independent statutory body which keeps the laws of England and Wales under review) now wants to address some discrete issues, without affecting the fundamental principles of the LRA 2002, which they think would benefit the economy by approximately £40 million.

What are the Law Commission’s recommendations?

Their 611 page report can be neatly summarised into the following 6 areas:

1. Tackling registered title fraud

Preventing Fraud

Once your name is on the title register to a property, you are the legal owner even if you acquired it through fraud.  Property fraud has increased hugely and in the last ten years, the Land Registry has paid out approximately £58 million in indemnity payments to defrauded owners.  That cost is then passed down to the Land Registry users via the registration fees.  The government is very conscious that cases of fraud need to be caught at an earlier stage (before the fraudulent transaction is registered) to avoid the need for an indemnity arising. 

In addition, there is currently uncertainty about who should ultimately end up owning a property in a fraud case. For example, A is impersonated and "sells" its land to B, who sells it on to C, who is registered as the proprietor. When the fraud is discovered, should A have the land returned and C be indemnified or vice versa?

Recommendation: the Law Commission suggests imposing a new duty of care on conveyancers for identity checks (above and beyond the existing anti-money laundering checks already in place). The idea is that the Land Registry would outline “reasonable steps” conveyancers must undertake to verify their client's identity  If a conveyancer complies with the steps but fraud still occurs then the Land Registry indemnity would remain the ultimate remedy but if a conveyancer fails to undertake the appropriate steps then the Land Registry will have a right of recourse against them.

The Law Commissions also recommends reforming the scheme for determining when register alterations are made and provide further guidance about which party remains registered as the owner of land and who is indemnified in fraud cases.

2. Facilitating electronic conveyancing

The LRA 2002 had an ambitious plan for electronic conveyancing.  It envisaged that all aspects of a conveyancing transaction would occur electronically and that, ultimately, the creation and registration of interests would take place simultaneously.  Whilst some steps forward have been made, anyone who currently has an application to register a transfer stuck in the Land Registry’s backlog knows that this vision is far from being fully realised.

Main recommendation: Learn to walk before we can run…rather than trying to leap straight to simultaneous completion and registration (which will remain the ultimate goal) new powers will be created to introduce gradual electronic conveyancing.  First electronic conveyancing will be made mandatory.

3. Unilateral notices

Currently, anyone can register a unilateral notice on someone else’s title without producing evidence in support of the interest they claim to have in a property.  Only if, the owner disputes the notice, the dispute cannot be resolved by agreement and it is referred to the Land Registration Division of the First-tier Tribunal (Property Chamber) (the “Tribunal”) does the beneficiary have to provide evidence of its interest.  This can take a long time and the presence of a maliciously-entered unilateral notice can, in the meantime, frustrate a sale of the property.

Recommendation:  When a registered proprietor applies to cancel a unilateral notice, the beneficiary will have to provide evidence demonstrating its interest exists before the proceedings will be referred to the Tribunal, meaning malicious notices should be removed at a much earlier stage

4. Bring mines/minerals onto the register

Mines and minerals lying beneath the surface of land can be separately owned from the surface of the land. A transfer of a freehold or leasehold estate in mines/minerals is not required to be registered at the Land Registry (unless they have already been voluntarily registered) as there is no compulsory first registration for such estates and nor is the surface owner informed unless the mines/minerals estate has absolute title. This undermines the "mirror" principle of the title registration system.

Recommendation:  Compulsory registration for dealings with estates in mines/minerals where the purchaser is likely to want to work the mines or extract the minerals.  Notification to the surface owner whenever an application to register a mines/minerals estate under their land is received.

5. Clarifying the scheme governing adverse possession

The LRA 2002 introduced a new procedure for claiming adverse possession (AKA squatters’ rights) of registered land – however, there have been issues around its operation.

Recommendation:  Whilst keeping the existing framework, clarify the procedure for its operation, including whether an adverse possessor can make repeated applications for registration when their previous application has been rejected. 

6. Rationalising the jurisdiction of the Tribunal

The Tribunal determines issues arising out of applications to the Land Registry which cannot be resolved by agreement.  However, the LRA 2002 does not expressly empower the Tribunal to resolve matters which relate to boundaries and estoppel.

Recommendation:  Expressly confer on the Tribunal power to determine how an equity by estoppel should be satisfied and to declare the extent of a beneficial interest.

What happens next?

Following publication of the Law Commissions Report (which contains a draft bill to implement these proposed recommendations) in July, we are now within the six month window that the Government has to issue an interim response.  The full response will be received within one year of publication i.e. July 2019 (unless otherwise agreed with the Commission) and will set out which of the recommendations the Government intends to accept, reject or implement in modified form.  For those recommendations which are to be implemented, the Commission and the Government will agree what additional support (if any) is to be required to assist implementation.

Sarah Bool is an associate on our Commercial Real Estate team.

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