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Property Law Update

Mind the (registration) gap please!

The Facts

The landlord granted a 10 year lease to Robertson Taylor Insurance Brokers Limited (“Robertson”) in March 2013. Robertson’s leasehold interest was registered at the Land Registry.

The “tenant” was defined in the lease as including Robertson’s successors in title: “the personal representatives of the tenant and any person in whom this lease may from time to time be vested by whatever means”.

The lease contained an option allowing the tenant to terminate the lease on 14 March 2018 by giving the landlord no less than nine months’ prior written notice, subject to Robertson’s compliance with various conditions.

Licence was granted by the landlord to Robertson on 23 March 2017 to assign its interest in the lease to Integro Insurance Brokers Limited (“Integro”), a group company. The licence contained a covenant by Integro to register the assignment of the lease within 10 business days of completion. The assignment completed on 29 March 2017 but the assignment was not immediately registered, as Integro’s solicitor has not realised that the leasehold interest was registered.

On 2 May 2017, Integro’s solicitors served a notice on behalf of Integro purporting to exercise the break option to terminate the lease on 14 March 2018. Integro was not registered as the leasehold proprietor until 7 July 2017.

The Law

Under section 27(1) of the Land Registration Act 2002, a transfer of a registered interest in land does not take effect legally until the registration is completed. The “registration gap” between completion of a transfer and registration is often several weeks. During the registration gap, the transferor holds the legal interest on trust for the transferee.

The court’s decision

The court decided that the break option had not been exercised correctly because notice had been given on behalf of Integro at a time when the legal leasehold interest was still registered at HM Land Registry in the name of Robertson. The lease would therefore continue until the contractual termination date in March 2023.

The court rejected, on the facts, an argument by Integro that Robertson was an undisclosed principal of Integro or an unidentified principal of Integro’s solicitors, that Integro and Integro’s solicitors had authority to serve the break notice on behalf of Robertson, and that the notice had therefore been served by or on behalf of Robertson.

Practical considerations

When a tenant is exercising a break option, it is common for rigorous investigations to be carried out to check the landlord’s identity, to include searching for the registered proprietor of the landlord’s interest at the Land Registry. This case shows that it is also essential to ensure that a tenant’s break option is being exercised on behalf of the correct party, particularly following an assignment, and to always check whether the tenant’s interest is registered (or registrable) at HM Land Registry. This is just as important when the assignment is between companies in the same group.

In this case, the annual rent was nearly £220,000 per annum, which is yet another example of the severe financial consequences when a break option is not properly exercised. The tenant remains liable for rent for the full term of the lease.

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Spring 2018

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