Post-October 2013, practitioners still obtain chancel repair screening reports, are still consider the need to obtain chancel repair insurance policies, and, when acting for mortgagees, are still requiring borrowers’ solicitors to do the same. At a property conference recently, a search provider’s agent gleefully told the delegates: “Chancel repair searches? You still need them, you know”.
Why is this so? Part of the continuing concern is the Land Registry’s strictly administrative approach to dealing with applications from Parochial Church Councils (PCCs) to register chancel repair liability (CRL), which involves accepting the PCCs UN1 application, seemingly without enquiry as to whether the CRL has ceased to bind the title, and leaving it to the registered proprietor to object – at potential legal cost to the proprietor. The Land Registry asserts that it is an administrative office and does not exercise a judicial function. In cases where the UN1 has been lodged unreasonably (e.g. because it does not bind), the registered proprietor can apply to cancel its registration, and/or seek compensation from the UN1 applicant under section 77 Land Registration Act 2002. As has been widely publicised (e.g. see CPI Issue 116 – October 2013), the removal of overriding interest status under the LRA 2002 for property rights such as CRL on October 13, 2013 did not cause the interest to lose its status as a property right. Hence, if land remained undisposed of after October 2013, it remained open to PCCs to attempt to register CRL by way of a unilateral notice against an apparently affected title. However, a disposition of the title for valuable consideration changes the landscape. Are there any cases, therefore, where a cost-efficient approach to acquisition can be taken?
Purchase of registered title.
In an ordinary purchase of registered land in 2014, if the register entries for the relevant title do not reveal any notice (unilateral or agreed) in relation to CRL, the buyer’s conveyancer is able to obtain a clear priority search (i.e. confirming that no new entries have been made against the title since the “search from” date), and the conveyancer is able to complete the transfer and apply for registration of the transfer before the expiry of the priority search period, then provided the application for registration of the transfer is duly completed, the title will have been acquired free from CRL. Where the purchase involves a contemporaneous mortgage, the mortgagee can obtain the same protection as the purchaser, provided the priority search protection is extended to the mortgagee by identifying it as the lender/applicant. So, in answer to the question: “Is CRL insurance still required?” the answer might be: “Possibly not”. However, the priority search upon which the buyer wishes to rely would ideally be extracted before the buyer commits to a binding exchange of contracts, and in many commercial transactions, the buyer cannot guarantee that it can exchange, complete and register within the 30 working day priority window.
Charge of a registered title.
Lenders’ conveyancers require borrowers’ conveyancers to obtain chancel repair screening reports and to consider the need to obtain chancel repair insurance policies, even though the chargee’s interest might be able to be acquired free from CRL in the same way as might a purchaser’s interest (in the example above). Why is this so? A lender is concerned that, even though it may have secured registration of its charge (a “disposition for valuable consideration”) at a time when CRL was unprotected, a PCC may still subsequently register a UN1 against the borrower’s title. This will not directly bind the chargee, but it raises three main concerns for the lender: First, the borrower may incur a costly liability to repair the chancel of the church; second, the lender’s ability to sell through a receiver (as opposed to selling as mortgagee in possession) will be prejudiced; and third, even if the lender sells as mortgagee in possession, the UN1 will remain on the register until the buyer’s conveyancer applies to cancel it. This will inhibit the sale (although it is questionable as to whether standard CRL insurances provides the answer in this regard). A combination of these concerns is the reason why lenders are still requiring borrowers’ conveyancers to chancel check.
Purchase/charge of unregistered land.
In unregistered land, the ability to acquire free from CRL is dictated by whether or not any liability is present in the title deeds, and whether any caution against first registration to protect CRL has been registered against the land. Unfortunately, a Form SIM search of the public index map affords no priority protection period for a buyer/chargee. Hence, a caution against first registration could be registered at any time up until first registration. Accordingly chancel repair screening reports, are a consideration of the need to obtain chancel repair insurance policies remains best practice.
Second disposition after October 12 2013?
If land has already been disposed of after October 12, 2013, is the land now safely free from liability? Where the first disposition after October 12, 2013 was a transfer, the next disponee can acquire free from CRL provided that the register entries for the title do not reveal any notice in relation to CRL, and the transfer to the current transferor was registered on or after 13 October 2013 and was made for valuable consideration. Where the first disposition after October 12, 2013 was a legal charge, a transferee from the chargee can take the same approach, and should also take free from UN1s registered after the registration of the registered charge.
How does LRA 2002 afford “priority”?
In the first-mentioned ordinary purchase of registered land, it is the fact that the transfer is a “registrable disposition…made for valuable consideration” that affords it priority over an unprotected CRL.
What is valuable consideration? Valuable consideration means that something of value is given for the transaction. However, it need not be adequate and the term does not imply that full value is given. Hence, an undervalue transaction can be made for valuable consideration. Section 132(1) LRA 2002 defined valuable consideration negatively by excluding marriage consideration and a nominal consideration in money. A question then arises as to what is a nominal consideration in the context of a multi-million pound acquisition? In Midland Bank Trust Co. Ltd v Green [1981] 2 WLR 28, in relation to the Land Charges Act 1972, Lord Wilberforce considered that: “Nominal consideration” and a “nominal sum” in the law appear to me, as terms of art, to refer to a sum or consideration which can be mentioned as consideration but is not necessarily paid. To equate “nominal” with “inadequate” or even “grossly inadequate” would embark the law upon enquiries which I cannot think were contemplated by Parliament.”
What does “priority” mean? Heretical ideas are floated around to suggest that “having priority” over an interest does not render the interest void: “The Land Registration Act does not make an unprotected interest void (Ruoff & Roper Registered Conveyancing, para 42.003). Rather, lack of protection by the registration of a notice will, after the liability ceases to be an overriding interest, make it lose priority over a registered disposition for valuable consideration (Land Registration Act 2002, s.29). The effect of this is far from clear.” (Chancel Repair Liability – A Law Society Submission. October 2006). This cannot be so. Under section 29 LRA 2002, the registration of a disposition for valuable consideration “has the effect of postponing [unprotected interests such as CRL] to the interest under the disposition”. Where the disposition for valuable consideration is a freehold transfer, the interest under the disposition is the freehold. Hence, the unprotected interest is postponed to the freehold. That is the same as saying that the interest is void, for good, as against the freehold.
Continuing risks/concerns?
- Could title be subsequently rectified? Rectification is a prevalent risk in registered land ownership where a mistaken registration or omission is corrected. It is not something unique to CRL – all transactions carry a residual risk. However, as a general rule, rectification of title will not be awarded against a proprietor who is in possession of the property unless the proprietor caused or substantially contributed to the mistake by fraud or lack of proper care, or if it would be otherwise unjust not to rectify the register.
- Was the disposition for “valuable consideration”? The concept of valuable/nominal consideration remains to be explored by the courts. For the time being, regard will be paid to the comments made above by Lord Wilberforce to the effect that a nominal consideration is of an amount such that it is “not necessarily paid”.
- Is CRL an interest in land in the first place? Land Registry Practice Guide 66 (Overriding interests losing automatic protection in 2013) says: “There have been arguments that chancel repair liability is not an interest in land that can be protected by notice. Land Registry currently operates on the basis that it does constitute such an interest.” Were that to be the case, the downgrading of the “interest” from overriding status would have been of no practical effect. However, statements made in the House of Lords in Parochial Church Council of the Parish of Aston Cantlow and Wilmcote with Billesley, Warwickshire v Wallbank & Anor [2003] UKHL 37 seem clearly to infer that CRL is an interest in land. For example, Lord Hope: “This is a burden on the land, just like any other burden that runs with the lands”; and Lord Hobhouse: “The obligation to repair is one which derives from the ownership of land to which the obligation is attached. The obligation runs with the land.”