Practice Guide 75 – Transfer under a chargee’s power of sale

Issued: June 2012

Scope of this guide

This guide details Land Registry practice and requirements relating to the registration of transfers of a registered estate under a chargee’s power of sale. It is aimed at lenders and conveyancers and you should interpret references to ‘you’ accordingly. Land Registry staff will also refer to it.

1 Abbreviations and terms used

In this guide:

‘charge’ means any mortgage, charge or lien for securing money or money’s worth, and ‘chargee’ has a corresponding meaning

'conveyancer' means an authorised person within the meaning of s.18, Legal Services Act 2007 who is entitled to provide the conveyancing services referred to in paragraphs 5(1)(a) and (b) of Schedule 2 to that Act, or a person carrying out those activities in the course of their duties as a public officer. It also includes an individual or body who employs or has among their managers such an authorised person who will undertake or supervise those conveyancing activities (r.217A, LRR 2003)

‘LPA 1925’ means the Law of Property Act 1925

‘LRA 1925’ means the Land Registration Act 1925

‘LRA 2002’ means the Land Registration Act 2002

‘LRR 2003’ means the Land Registration Rules 2003

‘registered charge’ means a legal charge which has been completed by registration in accordance with s.27(2)(f) of, and paragraph 8 of Schedule 2 to, LRA 2002. 

2 Introduction

This guide explains Land Registry practice where:

• a charge has been created by a deed expressed to be by way of legal mortgage¹ (whether or not it is a registered charge) over a registered estate, or
  
• an order has been made under s.90, LPA 1925 vesting in the mortgagee a legal term of years absolute² to enable the mortgagee to carry out the sale of a registered estate.

¹ Under the LRA 2002, a proprietor, or person entitled to be registered as proprietor, cannot create a mortgage by demise or sub-demise: s.23(1)(a).

² There is no conflict between this provision and LRA 2002, s.23(1)(a) (please see the previous footnote), because the charge created by a s.90 order is not created by a proprietor or person entitled to be registered as proprietor.

In the case of a charge created by deed expressed to be by way of legal mortgage, in the absence of an expression of contrary intention in the charge, the chargee has a statutory power of sale when the mortgage money is due³. Although the power of sale arises at this point, it does not become exercisable unless one of three conditions has been satisfied.

(i) Notice requiring payment of the mortgage money has been served on the borrower and default has been made in payment for three months thereafter.

(ii) Some interest under the charge is two months or more in arrears.

(iii) There has been breach of some provision contained in the LPA 1925 or the charge deed (other than the covenant for payment of the mortgage money or interest)⁴.

³ S.101, LPA 1925. 
⁴ S.103, LPA 1925.

We presume that the power of sale has arisen where the transfer by the chargee is made at least one month after the date of the charge. Where the transfer is made less than one month afterwards, we require evidence that the power of sale has arisen.

If the statutory power of sale has arisen, the purchaser’s title is not impeachable merely because none of the three conditions above have been satisfied or the power of sale has in some other way been improperly or irregularly exercised⁵.

⁵ S.104(2), LPA 1925. The sale is deemed to be made in exercise of the statutory power of sale unless a contrary intention appears: s.104(3). 

3 Registration of a transfer where the charge has been completed by registration

3.1 Requirements for registration

The transfer must be in form TR2 or TP2, depending on whether the sale is of the whole or part only of the borrower’s registered title⁶, and must be executed by the chargee.

⁶ R.58 and Schedule 1, LRR 2003.

The transfer operates to release the land from the charge. A separate discharge for the charge is therefore not required.

The transfer must be lodged with a completed form AP1 and, where this is required, a stamp duty land tax certificate.

3.2 Cancellation of entries in the register

3.2.1 General

On registration of the transfer we will cancel the entry in the proprietorship register that gives the proprietor’s details, and the other entries that would normally fall on registering a transfer for valuable consideration – in particular, a Form A restriction, a price paid entry, and entries in respect of personal or indemnity covenants.

We will cancel the entries for the charge and any associated restrictions.

We will only cancel other entries if:

• it is clear to us that the charge has priority to the interest which is the subject of the entry⁷, or
  
• there is a successful application for cancellation or removal etc of the entry.

⁷ The sale will override all rights over which the charge has priority: s.104(1), LPA 1925.

The following sections explain the most common types of entries which may appear in the register and when an application for cancellation or removal etc is required.

3.2.2 Other registered charges

The transfer overrides any inferior registered charges. The priority of registered charges as between themselves is determined by the order in which they are entered in the register, subject to any entry in the register to the contrary⁸.

⁸ S.48(1), LRA 2002; r.101, LRR 2003.

We will notify inferior registered chargees when we cancel entries relating to their charge on registration of a transfer under a power of sale.

Where another registered charge has priority, you will have to lodge a discharge from the lender for the charge or confirm that the transfer is being made subject to the other charge.

3.2.3 Registered easements

We will not automatically cancel a notice in respect of an easement that has been substantively registered. If an application for cancellation is made in form CN1, we will first determine whether the easement was registered before 11 April 2005. Before that date, we registered easements affecting land subject to a registered charge only if we were satisfied that the chargee consented to the easement, so notices in respect of such easements will not normally be cancelled. On 11 April 2005 our practice changed. Since then, where a chargee of the servient land does not join in the deed or consent to its creation, the easement can be registered but the following note is added to the entry in respect of the easement in the title to the dominant land:

“NOTE: The consent of the proprietor of the charge dated …. in favour of …. affecting title(s) …. was not produced on registration and the rights …. may be overridden in the event of the exercise of the power of sale.”

If there is no such note in respect of one of these more recent easements, we are unlikely to cancel the notice. If there is such a note, we will serve notice of the application for cancellation on the registered proprietor of the title to the dominant land. The notice in respect of the easement will be cancelled if we receive no objection to the application and there is no evidence of the chargee having consented to the granting of the easement.

3.2.4 Noted charges

If a notice was entered in the register in respect of another charge after the registration of the transferor’s charge, we will generally cancel the notice automatically on registering the transfer. If the notice is a unilateral notice we will notify the beneficiary that we have cancelled the notice. If the notice is an agreed notice in respect of a charge that is dated prior to the date on which the transferor’s charge was registered we will check that the charge was not previously protected by a unilateral notice; if it was, it may have priority over the registered charge, in which case the notice will not be cancelled automatically.

We will not automatically cancel notices in respect of charges where the notice has been entered before the registration of the transferor’s charge. An application in form CN1 (for a charge protected by an agreed notice) or form UN4 (for a charge protected by a unilateral notice) must be lodged.

3.2.5 Noted estate contracts⁹

A purchaser from the chargee will be bound by an estate contract where the contract preceded the charge and was noted before the charge was registered, so we will not automatically remove the notice on registering the transfer.

Nor will we automatically remove the notice on registering the transfer where the contract preceded the charge but was not noted until after the charge was registered. An application in form CN1 (for an estate contract protected by an agreed notice) or form UN4 (for an estate contract protected by a unilateral notice) must be lodged; this is in case the estate contract was protected on registration of the charge as an overriding interest (by actual occupation) or by an entry in the register (subsequently cancelled).

Where the charge preceded the contract, a purchaser from the chargee will not normally be bound. We will usually cancel the notice automatically on registering the transfer provided there is a written statement, in the additional provisions panel of the transfer or separately, from the registered chargee, signed on its behalf by an authorised officer or by its conveyancer, confirming that it was not party to the noted contract, and did not consent to or adopt it and is not otherwise bound by it. Where the estate contract is an agreement for a lease, the registered chargee will not be able to make this statement if the lease is effective under s.99, LPA 1925.

⁹ For further information, see Practice Bulletin 14 – Transfers by registered chargees under their power of sale and alteration of the register in respect of noted estate contracts.

3.2.6 Notices under the Matrimonial Homes Acts 1967/1983 or the Family Law Act 1996

We will cancel these automatically provided the notice was either entered after the charge under which the power of sale is being exercised or the home rights were postponed to it. We will notify the person with the benefit of the rights that their notice has been cancelled.

3.2.7 Other rights protected by an agreed or unilateral notice

We will not automatically cancel any such notices on registering the transfer, even if they are dated after the registration of the transferor’s charge. An application for their cancellation needs to be made in form CN1 or form UN4.

3.2.8 Restrictions

Where there is a restriction in the register, there are two issues that arise, namely:

(i) does the restriction “bite” and, if it does, has it been complied with?

(ii) should the restriction be removed from the register on registration of the transfer (whether or not it bit)?

The first issue depends, of course, on the wording of the restriction. In particular, many restrictions only prevent the registration of dispositions by the proprietor of the registered estate, and a transfer under the power of sale is a disposition by the chargee.

Turning to the second issue, the following standard form restrictions will be cancelled automatically on registration of the transfer, regardless of when they were registered, because they are then superfluous entries¹⁰.

• Form A – Restriction on disposition by a sole proprietor.
• Form B – Dispositions by trustees – certificate required.
• Form C – Dispositions by personal representatives – certificate required.
• Form E – Non-exempt charity – certificate required.

¹⁰ The registrar can alter the register for the purpose of removing a superfluous entry: Schedule 4, paragraph 5(d), LRA 2002.

Provided the charge under which the power of sale is being exercised had overreaching effect or was created before the trust to which the restriction relates, we will also cancel the following types of restriction (and inform the restrictioner of this) regardless of when they were registered¹¹.

• Form J – Trustee in bankruptcy and beneficial interest – certificate required.
• Form K – Charging order affecting beneficial interest - certificate required.
• Form JJ – Statutory charge of beneficial interest in favour of the Legal Aid Agency.
• Form MM – Interest in beneficial joint tenancy subject to a charge under s.22(1) of the Health and Social Services and Social Security Adjudications Act 1983.

¹¹ The registrar must cancel a restriction entered for the purpose of protecting an interest, right or claim under a trust of land if they are satisfied that the registered estate is no longer subject to that trust of land: r.99, LRR 2003.

The general position in other cases is that it will be necessary to apply for the cancellation or withdrawal of the restriction using the appropriate RX form. In particular, a restriction in the register for a leasehold estate requiring a certificate from the landlord or management company confirming compliance with a leasehold covenant will not be cancelled automatically, even where the restriction post-dates the registration of the charge; the covenant is likely to bind the transferee¹².

¹² Ss. 3 and 28(6), Landlord and Tenant (Covenants) Act 1995.

3.2.9 Cautions in the proprietorship register

Such a caution will not operate where the transfer is under the power of sale because it is not a dealing by the proprietor of the registered estate. Furthermore, it is our practice to remove automatically any caution in the proprietorship register, whether the caution was registered before or after the charge under which the power of sale is being exercised, unless the caution is in respect of home rights which arose under the Matrimonial Homes Acts 1967, in which case the caution will be removed automatically only if it was registered after the charge or has been postponed to it.

3.2.10 Encumbrances against the charge

3.2.10.1 Restrictions against the charge

Any restriction against the charge must either be complied with or an application made in form RX3 for its cancellation or form RX4 for its withdrawal. It is possible for a restriction to affect dispositions by a chargee even if the restriction is in the proprietorship register.

3.2.10.2 Caution against dealings with the charge

Where such a caution appears in the charges register, and the cautioner does not apply to withdraw the caution in form WCT, we will serve notice on the cautioner, who may object to the registration of the transfer¹³.

¹³ A notice of deposit of charge certificate continues to operate as such a caution: Schedule 12, paragraph 3, LRA 2002.

4 Registration of a transfer where the charge has not been completed by registration: charge created by deed expressed to be by way of legal mortgage

If the charge of the registered estate is by deed expressed to be by way of legal mortgage but is not completed by registration¹⁴, the chargee still has a statutory power of sale; the sale will override all rights over which the charge has priority; and the transfer will be of the registered estate¹⁵.

¹⁴ A charge over registered land which is a local land charge may be realised only if the title to the charge is registered – s.55, LRA 2002.

¹⁵ Swift 1^st Limited v Colin [2011] EWHC 2410 (Ch).

4.1 Requirements for registration

You must lodge the original or a certified copy of the charge deed unless a copy is held by Land Registry, in which case please state the title number under which it is held.

We will also need to be satisfied that the lender is the current owner of the charge. We will accept either a certificate by the lender named in the charge confirming that it remains the owner of the charge and entitled to exercise the power of sale, or, if the lender in the transfer is different, documentary evidence of the transfer of the ownership of the charge to the lender exercising the power of sale.

The transfer under the power of sale must be in form TR2 or TP2, depending on whether the sale is of the whole or part only of the borrower’s registered title¹⁶, and must be executed by the chargee.

 ¹⁶ R.58 and Schedule 3, LRR 2003.

The transfer operates to release the land from the charge. A separate discharge for the charge is therefore not required.

The transfer etc must be lodged with a completed form AP1 and, where this is required, a stamp duty land tax certificate.

We will serve notice of the application on:

• the registered proprietor of the estate and the transferor, regardless of whether the application was lodged by a conveyance or non-conveyancer
• any other chargees whose charges are registered or noted, regardless of the date these other charges were registered or noted, unless a form DS1 or other discharge is lodged in respect of their charge and the discharge application has been made by a conveyancer.

4.2 Cancellation of entries in the register

On registration of the transfer we will cancel the entry in the proprietorship register, which gives the proprietor’s details, and the other entries that would normally fall on registering a transfer for valuable consideration – in particular, a Form A restriction, a price paid entry, and entries in respect of personal or indemnity covenants.

 We will only cancel other entries if:

• it is clear to us that the charge has priority to the interest which is the subject of the entry, or
• there is a successful application for cancellation or removal etc of the entry.

In determining priority, it may well be relevant whether the transferor’s charge is noted – but not always. Assume that charge A (created by an individual) in the following scenarios is the transferor’s charge.

Scenario 1

2 May 2011                      Charge A created

5 August 2011                  Charge B created

10 August 2011                Charge B completed by registration

Charge B has priority¹⁷.

¹⁷ S.29(1), LRA 2002.

Contrast this with the situation where the transferor’s charge, charge A, is noted.

Scenario 2

2 May 2011                      Charge A created

19 May 2011                     Charge A noted

5 August 2011                  Charge B created

10 August 2011                Charge B completed by registration

Charge A has priority¹⁸.

¹⁸ S.29(1) and (2)(a)(i), LRA 2002.

However, it is only relevant whether the transferor’s charge is noted if the other entry is in respect of a subsequent disposition for valuable consideration that is then completed by registration, as in scenarios 1 and 2. If the other entry is in respect of an earlier disposition then it does not make any difference whether the transferor’s charge is noted.

Scenario 3

6 January 2011                 Charge C created

2 May 2011                      Charge A created

19 May 2011                     Charge A noted

Charge C has priority regardless of whether charge A is noted on 19 May 2011: s.28, LRA 2002.
If an existing restriction is not being cancelled you will need to consider its effect on any new disposition to be registered, such as any new charge accompanying the transfer under power of sale. 

5 Registration of a transfer where the charge has not been completed by registration: charge created by order under s.90, LPA 1925

 Under this provision, the court may make an order creating a legal charge, normally to allow for the enforcement of a charging order against the registered estate. The charge takes the form of a demise for a term of years: usually 3,000 years if a freehold estate has been charged or, if a leasehold estate has been charged, for one day less than the original term granted by the lease. If a legal charge has been created on leasehold land, the term of the demise must not extend beyond the term granted in the lease.

If the s.90 charge is registered, we will proceed with an application to register a transfer by a charge in the same way as if the transfer were under any other registered charge. This section is concerned with transfers by s.90 chargees where the charge has not been completed by registration.

The registered estate can effectively be transferred under the power of sale without the s.90 mortgage being registered first. This is because the mortgage is to be treated as being a mortgage by deed. Under s.90(1), LPA 1925 “the court may .… create and vest in the mortgagee a legal term of years absolute to enable him to carry out the sale .… in like manner as if the mortgage had been created by deed by way of legal mortgage pursuant to this Act ….”.

5.1 Requirements for registration

Where the power of sale derives from an order of the court under s.90, LPA 1925, you must lodge a copy of the order sealed by the court.

The transfer must be in form TR2 or TP2 depending on whether the sale is of the whole or part only of the borrower’s registered title¹⁹ and must be executed by the chargee.

¹⁹ R.58 and Schedule 1, LRR 2003.

The transfer operates to release the land from the charge. A separate discharge for the charge is therefore not required.

The transfer must be lodged with a completed form AP1 and, where this is required, a stamp duty land tax certificate.

5.2 Cancellation of entries in the register

On registration of the transfer we will cancel the first entry in the proprietorship register, which gives the proprietor’s details, and the other entries that would normally fall on registering a transfer for valuable consideration – in particular, a Form A restriction, a price paid entry, and entries in respect of personal or indemnity covenants.

We will cancel all entries relating to the charging order or other form of equitable charge.

We will only cancel other entries if:

• it is clear to us that the charge has priority to the interest which is the subject of the entry²⁰, or
  
• there is a successful application for cancellation or removal etc of the entry.

²⁰ In determining priority, account will need to be taken of the wording in s.90(1) (“without prejudice to any encumbrance having priority to the equitable mortgage”) and of ss. 28 and 29, LRA 2002.

If an existing restriction is not being cancelled you will need to consider its effect on any new disposition to be registered,  such as any new charge accompanying the transfer under power of sale. 

6 Fees

A scale 1 fee is payable on the value of the consideration for the transfer. 

7 Enquiries and comments

If you have a particular concern that is not covered by this guide, please contact Land Registry – see Contact details. If the problem is particularly complex, it may be better if you make your enquiry in writing at the Land Registry office that will process your application.

If you have any comments or suggestions about our guides, please send them to:

Central Operations Group
Land Registry
Trafalgar House
1 Bedford Park
Croydon
CR0 2AQ
(DX 8888 Croydon 3)