There are circumstances in which a lease must be registered. This is when the lease is granted for a term of more than 7 years; where the lease term is to take affect more than 3 months in the future; or where a tenant takes assignment of an unregistered lease where the unexpired term is more than 7 years.
There are two sets of complementary rights at play when a lease is granted. These are equitable rights, which the right to use and enjoy the property, and legal rights, which are derived from a legal source.
Registerable dispositions only become legal rights and ‘operate at law’ when they are registered at the Land Registry.
If a tenant should fail to registrar a registerable lease then the lease will ‘operate in equity’ only, which involves certain drawbacks for a tenant:
- Where a lease does not list any easements, statute steps in and grants the tenant the easements on the landlord’s title (unless the parties expressly exclude the effect of statute). The statute does not operate in the case of equitable leases and so the danger exists that a lease may be granted with no easements for the tenant to rely on.
- An equitable tenant is not ‘a bona fide purchaser of a legal estate for value’ and so the equitable tenant’s interest in the property will be bound, and in some cases rank below, other prior equitable interests.
- Registration also protects the tenant’s interest by the entry of a notice on the landlord’s title. If there is no notice then an equitable interest will not override a disposition of the landlord’s interest, unless the tenant is in actual occupation. A subsequent landlord may therefor not be bound by an equitable lease.
Because of the uncertainties caused by the issues in the bullet points above, a tenant will find it difficult to dispose of an equitable lease or obtain finance on the strength of it.
How we can help
Here at Gregg Latchams, we have experience in acting for both landlords and tenants in the context of commercial property transactions and have a great deal of experience in ensuring that every reasonable step is taken to protect your interests. Contact our Commercial Property team to discuss what we can do to help you.