Land Registry Question - Charges On Titles

SDLT_Geek

Mickey666 said:

What's going on is very odd and I've never heard anything like it.  Basically, a freehold house was bought by Mr X with the intention of dividing it into four flats and selling it on.  This was back in 1985.  As each flat was converted it was sold off with a clear title. 
I would expect the “sales” to be by grants of long leases, the consent of the lender would be needed for good title.
The final flat was also sold, mortgage obtained, buyers completed and moved in.  Nearly TWO years later, buyers solicitor contacted them to say they have not been able to register the flat in their name because they can't get clear title!  Obviously a major faux pas by the solicitor, they put their hands up, admitted liability and their insurance paid the buyer compensation (redeemed their mortgage etc etc) but they had to move out.  That is all definitely known.

What is believed is that Mr A owed the bank around £130k, presumably for the original house, but the converted flat was only bought for £67k so was not enough to repay the borrowing, which might explain why the bank would not release its charge. 
This sounds the most likely explanation.
We have no idea why he didn't partly pay off the charge as the first three flats were sold.  What is known is that Mr X disappeared from the scene after the final flat sale and has never been seen again.  According to the flat title, he remains the registered owner and the bank has the land Certificate as a charge, although the exact details of that charge are not known.  So, all a bit of a mess but at least the buyer of the flat did not lose out.

I also don't understand how the original house title could be converted into the four flat titles without apportioning the original house charge across all of them.
That would not be how it would be done.  Rather, as you suggest above, the borrowing should be paid off bit by bit as flats were sold on long leases.
  Mr X would then have had to pay off the smaller charge on each flat as they were sold.  For some reason this didn't happen and the first three flats were sold with clear titles.  Or perhaps that was his plan all along, ie take the money and run, which is what he seems to have done.

Now the really odd thing.  Although the buyer moved out they somehow retained 'control' of the flat and have been renting it out for the past 30-odd years! 
The buyer had been granted a long lease.  Although they could not register it without the lender’s consent (or a release) the lease would not be entirely void.  I expect it would have a life in equity.
 During all that time the bank has made no attempt to repossess the property to recover its mortgage which has not been paid.  This is why I say it's as if the bank has just walked away from the whole mess and forgotten all about it - which seems very odd but that seems to be the reality.

So the jilted buyer has been in adverse possession of the property for 30+ years and is now wondering if they can make an AP claim and register the property in their name?  
The possession would be under the unregistered lease, so might not be correctly described as “adverse”.
My best guess, in this very odd situation, is that they can easily prove their AP claim and that Mr X is long gone so will not/cannot object, which just leaves the bank.  What will be their reaction?  Presumably, if they haven't lost all their paperwork they'll object on the basis of their charge, so will that need to be paid off before the AP claim can complete?  And what about any accrued interest?  Could it be more than the flat is currently worth?  How to find out without alerting the bank?

The alternative is to simply carry on renting out the flat as they have done for the past 30+ years.  But what will happen when they die?  They don't legally own the property so presumably it can't be part of their estate.  Do they just 'give' it to someone else to rent out for another 30 years?  All very odd.

A few thoughts above, for what they are worth.

Mickey666

SDLT_Geek said:

Mickey666 said:

What's going on is very odd and I've never heard anything like it.  Basically, a freehold house was bought by Mr X with the intention of dividing it into four flats and selling it on.  This was back in 1985.  As each flat was converted it was sold off with a clear title. 
I would expect the “sales” to be by grants of long leases, the consent of the lender would be needed for good title.
The final flat was also sold, mortgage obtained, buyers completed and moved in.  Nearly TWO years later, buyers solicitor contacted them to say they have not been able to register the flat in their name because they can't get clear title!  Obviously a major faux pas by the solicitor, they put their hands up, admitted liability and their insurance paid the buyer compensation (redeemed their mortgage etc etc) but they had to move out.  That is all definitely known.

What is believed is that Mr A owed the bank around £130k, presumably for the original house, but the converted flat was only bought for £67k so was not enough to repay the borrowing, which might explain why the bank would not release its charge. 
This sounds the most likely explanation.
We have no idea why he didn't partly pay off the charge as the first three flats were sold.  What is known is that Mr X disappeared from the scene after the final flat sale and has never been seen again.  According to the flat title, he remains the registered owner and the bank has the land Certificate as a charge, although the exact details of that charge are not known.  So, all a bit of a mess but at least the buyer of the flat did not lose out.

I also don't understand how the original house title could be converted into the four flat titles without apportioning the original house charge across all of them.
That would not be how it would be done.  Rather, as you suggest above, the borrowing should be paid off bit by bit as flats were sold on long leases.
  Mr X would then have had to pay off the smaller charge on each flat as they were sold.  For some reason this didn't happen and the first three flats were sold with clear titles.  Or perhaps that was his plan all along, ie take the money and run, which is what he seems to have done.

Now the really odd thing.  Although the buyer moved out they somehow retained 'control' of the flat and have been renting it out for the past 30-odd years! 
The buyer had been granted a long lease.  Although they could not register it without the lender’s consent (or a release) the lease would not be entirely void.  I expect it would have a life in equity.
 During all that time the bank has made no attempt to repossess the property to recover its mortgage which has not been paid.  This is why I say it's as if the bank has just walked away from the whole mess and forgotten all about it - which seems very odd but that seems to be the reality.

So the jilted buyer has been in adverse possession of the property for 30+ years and is now wondering if they can make an AP claim and register the property in their name?  
The possession would be under the unregistered lease, so might not be correctly described as “adverse”.
My best guess, in this very odd situation, is that they can easily prove their AP claim and that Mr X is long gone so will not/cannot object, which just leaves the bank.  What will be their reaction?  Presumably, if they haven't lost all their paperwork they'll object on the basis of their charge, so will that need to be paid off before the AP claim can complete?  And what about any accrued interest?  Could it be more than the flat is currently worth?  How to find out without alerting the bank?

The alternative is to simply carry on renting out the flat as they have done for the past 30+ years.  But what will happen when they die?  They don't legally own the property so presumably it can't be part of their estate.  Do they just 'give' it to someone else to rent out for another 30 years?  All very odd.

A few thoughts above, for what they are worth.

Thank you for the thoughts - I'm struggling to understand it all so any thoughts are helpful.
Regarding your points:

I would expect the “sales” to be by grants of long leases, the consent of the lender would be needed for good title.
They were.  All four flat titles are leasehold.  The freehold, which was presumably derived from the original house purchase, is owned by a limited company.


I also don't understand how the original house title could be converted into the four flat titles without apportioning the original house charge across all of them.
That would not be how it would be done.  Rather, as you suggest above, the borrowing should be paid off bit by bit as flats were sold on long leases.

Should have been but seems it was not, for whatever reason.  The flat titles are all on 125 leases from Dec 1986, so about 91 years outstanding.  I don't know much about leasehold but I've read that 90 years is about the time that a lease extension should be considered.  Presumably that's another complication if the current 'possessor' of the property is not the registered owner?  Would they be able to negotiate a longer lease?


The buyer had been granted a long lease.  Although they could not register it without the lender’s consent (or a release) the lease would not be entirely void.  I expect it would have a life in equity.
I presume you mean the 'attempted buyer'?  Yes, it was a leasehold purchase (for 125 years as above).  From the letters I've been shown, the buyer's solicitor let the sale go to completion on the assurance from someone (can't remember offhand, but not the seller) that clear title would be given, presumably not expecting the bank to hold onto the Land Certificate.  The buyer's solicitors chased this for almost two years before owning up to their error . . . hence all the compensations etc.

The leasehold title itself does not appear to be void and since it could not be transferred to the 'attempted buyers' it remains in the name of the seller, Mr X, though he disappeared immediately after the apparent completion, never to be seen or heard of since.  So the attempted buyers were compensated for their failed purchase, including their mortgage being redeemed, but seemingly no one ever bothered to ensure they moved out.  Consequently, although they did, in fact, move out they remained in possession of the property as they have done for the past 30+ years. 

I don't understand what you mean by the lease having "a life in equity.  I also don't understand why the bank would not have taken action to repossess the property in order to recover their money owed.


So the jilted buyer has been in adverse possession of the property for 30+ years and is now wondering if they can make an AP claim and register the property in their name?  
The possession would be under the unregistered lease, so might not be correctly described as “adverse”.

I don't quite understand this.  The lease IS registered at LR in the name of Mr X, the original vendor.  

SDLT_Geek

So it sounds as if leases were created in advance, ready to be "assigned" / transferred to buyers.  (I had guessed that the seller held the freehold and granted new long leases direct to each lucky buyer.)

That changes things, but the buyer will still at completion have been given a transfer signed by the seller of the leasehold title and that would have passed some title in equity, even though it could not (in the event) be registered at the Land Registry.  So their possession might well have not been "adverse", but under the rights in equity by virtue of the unregistered transfer.

This is one for specialist legal advice.

Mickey666

SDLT_Geek said:

So it sounds as if leases were created in advance, ready to be "assigned" / transferred to buyers.  (I had guessed that the seller held the freehold and granted new long leases direct to each lucky buyer.)

That changes things, but the buyer will still at completion have been given a transfer signed by the seller of the leasehold title and that would have passed some title in equity, even though it could not (in the event) be registered at the Land Registry.  So their possession might well have not been "adverse", but under the rights in equity by virtue of the unregistered transfer.

This is one for specialist legal advice.

Thanks, I think I see what you mean now.  Certainly the seller must have signed all the necessary forms to satisfy the buyer's solicitor that the sale was proceeding, as indeed it did, until it was tripped up two years later because as it turned out clear title wasn't possible.  So I see your point that the current owner could be deemed to have consented to the possession.

However, when the deal eventually fell through and was reversed, the buyers were compensated by their solicitor's insurance company, so wouldn't that also reverse any assumption of consent to be in possession?

Although, as far as anyone knows, the seller did disappear WITH the buyer's money, so is that significant in this respect.

But, whatever the legal technicalities, if the registered owner does not object to an adverse possession claim then who else would?   I'm not even sure the bank, with it's charge, would object because it surely doesn't matter to them who owns the title, they would presumably just want their money back.  And therein lies another issue - how much will the outstanding charge be?  Best guess so far is that it was originally about £130k and presumably the jilted buyers' purchase price was paid to the bank,leaving around £60k-ish outstanding (which is why the bank would not release the land certificate - fair enough).  But how much would £60k in 1987 have grown to today, given that no repayments have ever been made?  What if it's more than the flat is worth?

Where I fully agree with you is that this is going to require specialist legal advice to sort out - unless the jilted buyer decides to just carry on renting out the property as they have been for 30+ years.  The only reason they've asked me about it at all is because they are planning to move house soon and are wondering if they could sell this flat to help fund their move.  Given the peculiar circumstances, my feeling is that an application for AP will be complicated by the bank's charge on the property and almost anything could happen, so they'd risk losing possession and the rental income.  Seems to me it's probably much safer to carry on renting it out and using that income to fund a mortgage on their new home - but I freely admit I'm way out of my depth with this one and I've already told them they really need to seek some formal legal advice.

SDLT_Geek

I had previously assumed that the notice of deposit was on the freehold title, but reading again what you say, I think the notice of deposit is on the pre-existing leasehold title of the flat you are interested in.  Is that right?

Mickey666

Yes.  It's on the leasehold title.  The freehold title has no charge on it.

SDLT_Geek

For anyone else following this thread, you might be interested to know OP also put up a follow up question on the Land Registry Questions page where they have responded here: https://forums.moneysavingexpert.com/discussion/5685941/land-registry-questions/p276
Here is part of their reply: 
"Yes - back in the day the deeds (land certificate) were deposited with the lender hence the terminology used. Land certificates were withdrawn 20 years ago but the charge still exists 
That’s the key here so there was a charge and the lender protected it by way of a notice of deposit 
It doesn’t cease to exist over time even if disinterest exists. And to remove it you need evidence from the lender to discharge it in the same way as you would if it were a legal charge. 

Clearly you have wider issues involved here and there’s no point trying to speculate around hypothetical situations. Simple fact is the charge exists and to lose or get rid of it you need the lender to get involved. And if you tried to claim the registered title we would need to contact the lender to seek their consent."