https://hmlandregistry.blog.gov.uk/2017/02/14/cancellation-of-leases/

Cancellation of leases

Assistant Land Registrar Tim Smithers summarises Land Registry's practice on cancellation of leases

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There are many circumstances in which leases may be determined, each requiring different evidence in order to close a leasehold title or cancel register entries relating to leases. Land Registry applications therefore require close attention to technical detail. Incorrect or incomplete applications create delay and a time cost for both Land Registry and property practitioners. A clear understanding of the technical aspects should reduce the need for requisitions, and thereby benefit both practitioners and their clients.

A lease may be protected in the register by substantive registration and/or by a notice on the reversionary title. This article considers situations in which leases may be determined, and summarises the minimum evidence Land Registry is likely to require to consider an application to close a leasehold title or cancel register entries relating to leases.

Rule 79 of the Land Registration Rules 2003 provides the statutory framework for closure and cancellation. This states that “an application to record in the register the determination of a registered estate must be accompanied by evidence to satisfy the registrar that the estate has determined”; and that if the registrar is so satisfied, they “must” close the registered title and cancel any notice in any other registered title relating to that estate. Closure of a registered leasehold title will automatically lead to the cancellation of any notice of the lease in any other registered title.

Expiry

A lease granted for a fixed period automatically ends when that period expires. However, legislation may extend the lease term. The Landlord and Tenant Act 1954 (LTA 1954) applies to most business leases (and part 1 may still apply to a long residential lease at a low rent). The Local Government Housing Act 1989 applies to many residential tenancies (in place of part 1 of the LTA 1954). The application must therefore include confirmation that such legislation does not affect the lease, or that the lease has determined in accordance with the relevant legislation. If the tenant has the benefit of an option to renew, evidence will be required that the option has not been and cannot be exercised.

Notice

A lease may contain a break clause, allowing either the landlord or tenant to serve notice to terminate it. The clause may contain pre-conditions which must be complied with for the notice to have effect. Evidence may include a statutory declaration or statement of truth attaching a copy of the notice served, detailing the method and date of service and demonstrating compliance with any pre-conditions. The application will also need to address any statutory tenure protection for tenants of residential and commercial premises, as described in the preceding paragraph.

Forfeiture

A lease will frequently include a provision enabling a landlord to initiate forfeiture of the lease (also called 're-entry') if a specified event occurs, such as non-payment of rent, breach of tenant covenants or the insolvency of a tenant or guarantor. Statutory protection for tenants overlays common law principles such as waiver of the right to forfeit. A landlord may initiate forfeiture by taking court proceedings, or by peaceable re-entry.

Where a landlord initiates possession proceedings, it is the service of the claim form which effects forfeiture (see Billson v Residential Apartments Ltd [1992] 1 A.C. 494 (HL)). However, the status of the lease is suspended until the order for possession is given, at which point forfeiture is effectively backdated to the date of service of the proceedings (see Ivory Gate v Spetale [1998] 2 EGLR 43 (CA)). Accordingly, a Land Registry application based on a court order must include all of the following.

  • The claim form stating the forfeiture event.
  • A certified copy of the court order directing forfeiture or ordering possession.
  • The sheriff’s return, or a statutory declaration or statement of truth proving the facts which are stated to amount to re-entry on a stated date.

An application based on peaceable re-entry should be accompanied by a statutory declaration or statement of truth addressing all the elements listed in box A.


Box A: Required elements for a statutory declaration or statement of truth where an application is based on peaceable re-entry

  1. Prove the facts which are stated to amount to re-entry on a stated date, including details of how re-entry was effected and by whom.
  1. If forfeiture is for non-payment of rent, establish:
  • the nature of the sums unpaid, and explain how they are 'rent'
  • whether a formal demand was required and, if so, demonstrate that demand was made
  • the amount and period of rent arrears, and confirmation that this was sufficient to trigger the proviso for re-entry.
  1. If forfeiture is for breach of covenant other than non-payment of rent, establish:
    • that the landlord served the requisite notice under section 146(1) of the Law of Property Act 1925 on the tenant on a stated date (if the lease is not registered, evidence must be lodged to show that the person served was the tenant)
    • if the breach is of a repairing covenant:
      • that the section 146 notice meets the service requirements of section 18(2) of the Landlord and Tenant Act 1927, and that reasonably sufficient time has elapsed to enable the repairs to be executed
      • in the case of a lease with three or more years unexpired at the date of the section 146 notice, that the section 146 notice contained the required statement (under section 1 of the Leasehold Property (Repairs) Act 1938) that the tenant was entitled to serve a counter-notice claiming the benefit of the Leasehold Property (Repairs) Act 1938, and the tenant did not do so
    • that the tenant failed to comply with the section 146 notice.

If an application based on peaceable re-entry relates to residential premises, the statutory declaration or statement of truth must address the relevant elements listed in box B.


Box B: Required elements for a statutory declaration where an application based on peaceable re-entry relates to residential premises

Establish that the following statutory provisions either do not apply or have been complied with (please refer to the legislation for the complete requirements).

  • Section 2 of the Protection from Eviction Act 1977

If the premises are let as a dwelling, establish either that no one was residing in the premises, or if someone was, that they were not lawfully residing there.

  • Section 81 of the Housing Act 1996, as amended by the Commonhold and Leasehold Reform Act 2002

If there are disputed arrears of service charges, forfeiture may not be initiated until the service charges have been determined by the appropriate tribunal or a court, and any right to appeal has lapsed or been abandoned.

  • The following provisions of the Commonhold and Leasehold Reform Act 2002 which relate to a long lease of a dwelling (as defined).
    • Section 166: a tenant is not liable to pay rent unless the landlord has given the tenant a notice specifying the amount of and date for payment.
    • Section 167: a landlord may not forfeit the lease for failure by the tenant to pay rent, service charge or administration charges, unless the amount exceeds a prescribed sum (currently £350), or has been unpaid for a period in excess of a prescribed period (currently three years).
    • Section 168: a landlord may not serve a section 146 notice for breach of a tenant’s covenant unless the tenant has admitted the breach, or 14 days has elapsed after the appropriate tribunal or a court has determined that the breach has occurred.

Note that an assured tenancy (including an assured shorthold tenancy) under the Housing Act 1988 cannot be determined by forfeiture.


If Land Registry is satisfied that the application may proceed, notice will usually be served on the registered proprietor (or tenant of an unregistered lease), any subtenant, and any respective chargees and caution beneficiaries.

The tenant and any person having an interest in the lease, such as a chargee or subtenant, may apply to court for relief from forfeiture. However, the fact that any party has applied for relief is unlikely to be a valid ground for objection to the Land Registry application. If a court orders relief (usually by reviving the original lease or the grant of a new lease), a new Land Registry application will be necessary.

Merger

Merger occurs where a tenant acquires the immediate reversionary estate. The lease is absorbed by the reversion, and determined. For merger to occur, the lease and the reversion must be in the same ownership, and held in the same capacity (so, for example, merger cannot occur where a lease is held as an absolute owner, but the reversion is held as a trustee). The person holding both estates must demonstrate an intention to merge, for example by the tenant applying for closure of the registered leasehold title or cancellation of the notice of the lease.

Beneficial easements granted in the determined lease, or otherwise benefitting the leasehold estate, may benefit the reversionary title following merger (see Wall v Collins [2007] EWCA Civ 444). Land Registry will not automatically enter the benefit of such easements in the reversionary title, so a specific application to do so would be necessary.

Express surrender

When a tenant surrenders a lease to their immediate landlord, who accepts the surrender, the lease is absorbed by the reversion, and so determined. The surrender must be by way of a deed. Form TR1 may be used, but is not essential. Evidence of the landlord’s consent must also be lodged, whether as a party to the deed or by separate letter.

Surrender by operation of law

Where there is no deed, surrender may occur as a result of the actions of the landlord and tenant. Rule 161 of the Land Registration Rules 2003 requires 'sufficient evidence of the disposition' to be lodged with the application. Accordingly, a statutory declaration or statement of truth will be required (including the elements set out in box C below), except where:

  • the landlord grants a new lease of the premises to the existing tenant, or
  • the application is made by or with the consent of the registered proprietors of both titles (so long as the leasehold title is registered with either absolute or good leasehold title).

Where these exceptions apply, Land Registry will require a letter (from either party’s conveyancer) confirming that no deed of surrender was entered into.


Box C: Required elements for a statutory declaration where an application is based on surrender by operation of law

  • Specify the consideration for the surrender (if any).
  • Confirm that no deed of surrender was entered into.
  • If the tenant was occupying the property and has given vacant possession to the landlord, describe when and how the premises were vacated and the keys returned to the landlord.
  • If an underlessee is occupying the property, provide evidence that the landlord is receiving the rent directly from that underlessee.

Disclaimer

When an individual becomes bankrupt or a company is being wound up, the trustee in bankruptcy or liquidator may disclaim onerous property by giving notice under section 315 or 178 of the Insolvency Act 1986, respectively.

When property belonging to a company immediately before its dissolution has vested as bona vacantia, the Treasury Solicitor (on behalf of the Crown), or the solicitor to the Duchy of Lancaster or to the Duchy of Cornwall (‘the Royal Duchies’), may disclaim onerous property by giving notice under section 656 of the Companies Act 1985 or section 1013 of the Companies Act 2006 (depending on the date the company was dissolved).

An application to close a registered leasehold title and/or cancel the notice of a lease on the landlord’s title following disclaimer by a trustee in bankruptcy or liquidator must be accompanied by an official copy of the notice of disclaimer (unless previously lodged under the Insolvency Rules 1986, as amended) and evidence of the bankruptcy or liquidation and of their appointment.

The disclaimer notice operates to determine the rights, interests and liabilities of the bankrupt and their estate, or of the company, in or in respect of the property disclaimed, but it does not affect the rights or liabilities of any other person (see sections 178(4) and 315(2) of the Insolvency Act 1986, section 657(4) of the Companies Act 1985, and section 1015 of the Companies Act 2006, and Hindcastle Ltd v Barbara Attenborough Associated Ltd and others [1996] 1 All ER 737). Accordingly, it will not be possible to close the registered leasehold title and/or cancel the notice of the lease on the landlord’s title in cases where there is a registered or noted charge or a sublease or some other encumbrance in the register entered before the date of disclaimer. In such cases, unless the application is accompanied by evidence of the release, determination or consent of any party with the benefit of a continuing interest, the title will be kept open and/or the notice retained, with appropriate entries noting the disclaimer.

Frustration

A lease may determine when the occurrence of an unforeseen event makes performance impracticable. These cases are rare, and Land Registry’s approach to an application is considered on its individual facts.

Enlargement

Where a tenant holds an unexpired residue of at least 200 years, and the original term was of at least 300 years, he may enlarge it by deed into a new freehold estate, under section 153 of the Law of Property Act 1925 (which includes other requirements). If the landlord’s title is registered, Land Registry’s practice is that it will not be closed, with the unusual outcome of two registered freehold estates in the same piece of land.

The practicalities

  • Use the correct application form – AP1, FR1 or CN1. CN1 is only ever required if the lease in question is not substantively registered.
  • Lodge the correct supporting documentation. In most cases, Land Registry will require a certified copy of the lease (or an explanation as to why it is not available), any deed which determines the lease, any notices served and a statutory declaration or statement of truth to confirm any circumstances which are not apparent from the submitted documents. Practice Guide 26: Leases – determination offers further information on the application process and information required.
  • Where a leasehold estate or a reversionary estate is unregistered, lodge appropriate documentary evidence to prove title.
  • Where a lease is determined by merger, surrender or disclaimer ensure that incumbrances are suitably discharged, withdrawn or cancelled. If determination is by notice, forfeiture or frustration – or in the case of an assured tenancy, an order for possession under the Housing Act 1998 – all incumbrances will normally end automatically with the determination of the lease. In the case of effluxion of time, all incumbrances other than any noted leases will normally end automatically.
  • Ensure the application addresses any subleases, including any statutory tenure protection.
  • Enclose the land transaction return certificate, or self-certificate, as appropriate
  • Although the facts underlying an application may be superficially similar to those in a reported case, they will never be identical. Accordingly, the fact a lease was found to have determined in one case does not necessarily mean that a similar application will proceed or that, if it does, any objection will be groundless.

Remember that this is a brief summary. Land Registry examines each application on its own merits and our practice guides contain a great deal more information. In every case, Land Registry must be satisfied that the application should proceed.

  • This article was first published in the December 2016 edition of Property in Practice, the magazine of the Law Society’s Property Section (www.lawsociety.org.uk/property).

Photo: © Mimadeo/Shutterstock.com

 

 

 

 

 

 

 

3 comments

  1. Comment by Carol Moscardini posted on

    The Management Co. as party in my tripartite underlease with Sup.Lease transferred to it via TR1 has defaulted on all the covenants. It petitioned me for bankruptcy (even though I was not bankrupt) for non-payment of service charge and Ground Rent. I was withholding payment because there was no evidence that s/c and GR paid to the Management Co./Landlord accounts since 2006. The case went before a District Judge who refused to reveal the grounds for the bankruptcy and I believe lease law was not her competence. I was evicted.

    The flat is held by Trustees in Bankruptcy. The Trustees demanded annual certified accounts for years 2014/2015 which evidence that monies due under the Lease is not paid into the Management Co./Landlord.

    Reading the above regarding cancellation of leases, it is apparent that the bankruptcy legal process not followed (and bankruptcy not allowable under the lease).

    Can I put a restriction to prevent sale of the flat ?

    Reply

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