1 Introduction
1.1 Who should read this practice note?
Solicitors dealing with conveyancing matters for buyers, sellers and lenders.
Top of page
1.2 What is the issue?
From 3 August 2009, Land Registry (LR) will introduce 'early completion'. The early completion policy will apply to any situation involving a discharge of whole and another application. This new process relates to the procedure for, and the order in which LR will process multiple applications including discharge of a seller's charge.
Applications containing such multiple requests will be treated as separate applications. For example this means that where applications to discharge a seller's charge, transfer title to the buyer, then register the buyer's charge are made together, but evidence of discharge does not accompany the application and has not already been received by LR, LR will complete registration of the other applications, where possible.
This will leave the entries relating to existing charge(s) subsisting in the register. A transfer to a buyer and the buyer's charge might be registered before a seller's charge is removed from the title. Early completion may apply regardless of the method of discharge being used by the seller's lender.
Crucially, LR early completion does not mean legal or physical completion of the transaction. It simply means acceleration of when LR will make the first changes to the register in connection with the applications received. This practice note gives advice on:
- how early completion will operate
- handling applications where the registered proprietor's charge contains a restriction
- how to proceed with the different applications
- undertakings
- discharges
- identification
- fees.
Top of page
2 The Established Procedure on sale
LR currently treat applications to discharge the seller's charge, transfer to the buyer and add the buyer's charge as linked and conditional upon each other. They are dealt with in that order.
So until evidence of discharge of the seller's charge is available to LR and has been registered, all of the applications are held over, except where the discharge takes place by ED or eDS1.
LR allow applications like this to be held over several times, awaiting proof of satisfaction of a charge if you do all of the following:
- make a request for an extension of time
- keep LR informed as to progress
- show that you are actively pursuing the matter
- show that the lender is causing the delay
LR consider requests for further extensions of time beyond an initial 20 business day period on their merits. Such extensions are granted largely when LR think it is realistic that the discharge will be produced in a reasonable time.
The applications to discharge, transfer and charge are likely to be cancelled, if:
- it appears unlikely that the discharge will be produced in a reasonable time
- you are not able to explain the reason for the delay or what is being done to obtain proof of satisfaction of the charge.
Provided that LR receive your application before 3 August 2009 it will be processed under the established procedure; LR will requisition for a discharge if this is not lodged before or with the application.
Top of page
3 Early completion from 3 August 2009
Early completion will apply when you make an application to register (for example, for a sale remortgage or lease) that accompanies an application to discharge an existing charge of whole, and proof of satisfaction of that charge does not accompany or precede the application.
When you make an application like this, LR will reject the application for discharge, but will complete the other applications, where possible. The entries relating to the existing charge will be left on the register until LR receive proof of satisfaction of repayment of the mortgage.
How LR deal with the application will depend upon whether or not a restriction is registered in favour of the existing chargee.
Top of page
3.1 Sellers' charges without restrictions
Early completion will operate immediately where the seller's charge does not contain matters on which requisitions need to be raised. The registrations will happen in the order that complete applications are received by LR, subject to the effect of any priority search. Complete applications are those that are ready to be processed with no documents missing or to follow.
If there are matters on which requisitions need to be raised LR will include a reminder about the missing discharge in their requisition but the missing discharge will not be a point on which a requisition is raised.
This may result in the transfer and the new charge being registered without the prior charge being removed.
Top of page
3.2 Sellers' charges containing a restriction
When acting for a buyer, you should establish any relevant restrictions early in the transaction from the proprietorship register. This is prudent because the content of the restriction on the register will determine how LR will apply the new policy.
Restrictions in favour of a proprietor's chargees may prevent the registration of any further charge or in most cases of any disposition without the chargee's written consent. In such cases, the LR will requisition for either:
- proof of satisfaction of the charge
- evidence of compliance with the restriction.
If the lender does not provide evidence of the discharge within twenty business days, you will not be able to address the requisition within that time. In these circumstances, the LR will allow a further twenty business day extension if you do all of the following:
- make a written request for the extension
- demonstrate that you are actively pursuing the matter
- show that the existing lender is causing the delay.
LR has not given further formal guidance on these requirements. We assume that they will operate as before 3 August 2009 if you are unable to satisfy the requisition within the time limit.
LR will cancel both your application for discharge and applications to register the transfer and charge, where there is a restriction against the registration of any disposition. This time limit is up to forty business days if you have successfully applied for an extension. At the expiration of the time limit the application will be cancelled. LR will allow less time for satisfying any requisitions under early completion.
It may be of some benefit to make an additional priority search immediately prior to legal completion to extend the initial time available within which to obtain the evidence of discharge.
In the rarer case of a restriction only against the registration of charges, LR will complete the registration of the transfer, and cancel the application for discharge, which will leave the existing charge entries on the register. LR will also cancel the application for the new charge. The face of the register will then show the buyer as registered proprietor and the seller's lender as the mortgagee.
Top of page
3.3 If your application is cancelled
As now, if your application is cancelled, you might lose priority for the application, unless you re-submit it within the priority period and it is subsequently registered.
Unless the further application is made within any existing priority period, priority for the interest will be lost if there is any competing application and/or search made before you made a further application to register the disposition, or received a further clear search. Making a further search will give you a new priority period, not extend the original one. The new search cannot act retrospectively and attach itself to the substantive application already lodged.
As is the case currently, the application will be subject to any other application or search made in respect of the property before your new search takes effect. If, for example, a further search is made at the time an extension is requested, whilst it will remain in the LR day list for thirty business days, it will not provide protection for the pending application. The application will have priority by virtue of it having been lodged at LR and entered in the day list. This means that from day thirty, when your search expires, to day 40, when your extension expires, the application will have priority by virtue of its entry in the day list and not by virtue of your search.
The new search may provide priority for any renewed application but this will depend on whether any other search and/or applications have been lodged before the search is received by LR.
Where there is a restriction and either early completion has been applied or LR has cancelled applications because of failure to satisfy a requisition, any official search protecting the cancelled application will remain in effect until its expiry.
Read LR matrix explaining the position (PDF 19kb)
Top of page
3.4 Following the first part of the registration process
To avoid early completion leaving sellers' or outgoing charges on the register for a long time after completion of other parts of the registration, you should do both of the following:
- Check the Registration Completion Sheet (RCS) letter you receive from LR to understand the status of the registration and to establish whether you should make further applications to conclude the necessary registration, particularly in relation to cancelling the seller's charge.
- Establish office procedures to monitor the status of recently made and completed applications.
LR will make it very clear on the RCS where registration has been completed on the basis of early completion, and what other steps should be taken depending on the nature of the application. LR is currently developing the proposed wording.
Top of page
3.5 The further application for registration of the discharge
3.5.1 Discharge by DS1
Where you are awaiting a paper DS1 you should make your subsequent application for registration of the discharge when you receive the DS1 from the seller's lender or seller's solicitor.
3.5.2 Discharge by Electronic Notification of Discharge (END)
ENDs do not incorporate an application to register, so you will need to establish if the END is available before making your second application in form AP1 or DS2E for the charge entries to be cancelled.
Lenders should notify the seller's solicitor, who will usually be redeeming the seller's charge, when they have sent an END to LR. The seller's solicitors in most cases will not be making application to redeem the seller's charge. You, the buyer's solicitor, will usually be making this application. This is why it is important that the sellers' solicitors immediately pass such information or notification as they receive from the lender to you. Some lenders, in relation to some electronic methods of discharge, provide no further notification following the redemption statement.
You can make a day list enquiry of LR to find out if an END transmitted by the lender is awaiting registration or view the register to find out whether the charge has been removed electronically.
Alternatively you can phone the relevant local LR office to establish that :
- the charge entries have been cancelled following receipt of an ED or e-DS1
- an END, ED or e-DS1 has been received, or
- no END, ED or e-DS1 has been received.
This is a free service.
You can also contact LR telephone services centre to make an END enquiry. Call 0844 892 0307 for properties in England and 0844 892 0308 for properties in Wales and for the Welsh speaking service.
3.5.3 Restrictions against the registration of charges
In the case of a restriction against the registration of charges rather than against any disposition, LR will register the transfer and then requisition as set out in 3.2 above. If LR then receive the discharge LR will register this and subsequently register the buyer's charge which will be part of the application they are already holding provided that time limits have not been exceeded and the application has not been cancelled. This applies to discharges by both DS1 and END.
3.5.4 Discharge by ED and E-DS1
Both of these kinds of electronic discharge incorporate an application to LR to discharge the charge. You therefore do not need to make any further application to LR to register the discharge but to comply with your obligations you do need to monitor the status of the original application.
Top of page
3.6 Title Information Documents (TIDs)
A TID will be issued as usual following completion of a registration. LR will issue the RCS and the TID which includes an official copy of the register.
LR will issue a TID and an official copy of the register after the subsequent application.
LR are considering the following issues:
- whether and how notification should be sent to you when a charge left on the register after early completion is subsequently discharged by an ED or a e-DS1.
- whether any such notification should also include an updated official copy of the register.
Top of page
3.7 Lenders' checking of the register
Lenders are likely to continue to make checks to establish when applications for registrations have been made following a purchase and whether they were they made within the priority period. Once early completion is introduced, lenders are likely to want to know whether they have a registered first charge and whether any former charges have been removed from the register. The fact that lenders may be carrying out these checks does not relieve you of your duty to the lender to make your own checks.
Top of page
4 Council of Mortgage Lenders (CML) Handbook
The CML Handbook states that on completion of the instructions in a retainer, the lender will require a fully enforceable first legal charge. The CML say this requirement remains unchanged by LR's early completion processes. The CML's view is that early completion is not an issue substantially affecting the current process. Accordingly they do not propose to amend the Handbook.
The CML states:
'The order of events may in some cases be reversed but the stages of the process remain exactly the same.
'Lenders regard completion as having taken place once the retainer is complied with. It is not relevant that the Land Registry has imposed an intervening stage in the transaction as this does not change the overall position'.
By 'completion', the CML means completion of the instructions from a lender, not legal or physical completion.
In connection with the CML Handbook LR states that:
'Completing the applications to register the transfer and new charge subject to the existing charge would not appear to affect the obligations of any party in relation to that existing charge. If the existing charge has been repaid then the requirement on the lender to provide evidence of proof of satisfaction of that charge will remain. The obligation of the seller's conveyancer arising from any undertaking given to the buyer's conveyancer in relation to the charge will not change.
'Early completion will not prevent the new charge taking effect as a first legal charge; it can never become a first charge until the existing charge is discharged. This is so whether or not the new charge is entered in the register. The entry of the new charge under early completion simply protects the priority of that new charge as against any other interest whose priority is not protected at the time of registration.'
The CML states that the changes will not alter the requirements set out in paragraph 14.1.1.1 of the CML Lenders Handbook which require the conveyancer to register the mortgage as a first legal charge at the Land Registry. Lenders do not regard the retainer as being complied with until this is achieved.
By implication this suggests that lenders will not regard the temporary situation, of the buyer's mortgagee having a second mortgage whilst the seller's mortgage is awaiting discharge, as being in breach of the provisions of the CML Handbook. This is so because lenders will not regard completion as having taken place until the retainer has been completed by the lender being registered with a first legal charge. It is upon completion of, and not during, the retainer, that lenders require a first legal charge.
Top of page
5 Undertakings and assurances
Early completion is a policy change that does not directly affect the existing advice in the Conveyancing Handbook and Rule10 of the Code of Conduct in relation to undertakings.
The changes in practice arising from early completion may make you, as a buyer's solicitor, want to seek further assurances from the seller's solicitor. You may seek these by way of representations, contractual obligations and/or undertakings.
Where you seek a further or extended undertaking to meet the requirements of the early completion policy, the seller's solicitor will need to consider whether any such extended undertaking can properly be given. It may not be possible, or proper for the seller's solicitor to give such extended undertaking.
In order to attempt to meet the requirements of early completion you may instead seek pre-contract representations or warranties from the seller's solicitors that they will:
- pay over the money required to discharge the charge on completion
- press the lender for the discharge
- endeavour to obtain from the lender and will supply to the buyer information about the likely method of discharge to be used
- in the absence of DS1, DS3 or END notices continue to press for such information and supply such information as is available to them as to the status and likely issue time of the release
Note carefully that a 'representation' or 'warranty' to do something could well amount to an undertaking (see Solicitors Code of Conduct rule 10.05 and the associated guidance).
These assurances may assist in providing you with the necessary information to enable you to apply to the LR for extensions of time or to make further priority searches. However, even if the seller's solicitor provides full information this will not resolve the problem. If the discharge is not available within the extended time limits the application is likely to be rejected, but the information you receive may assist you in assessing the risk of this occurring in any transaction.
Making a further priority search does not guarantee protection. Making a further search will give you a new priority period; it will not extend the original one. The search result will be subject to any other application or search made in respect of the property before your new search takes effect. In these circumstances you will be acting in your clients' interest by requesting and obtaining such assurances from the seller's solicitor to ensure that priority for the buyer's registration of ownership and the lenders registration of charge is protected.
Solicitors acting for sellers can reasonably be expected to co-operate in affording such information and assurances as are reasonable as this will, in most cases, be in their own clients 'best interests.'
For further information on conveyancing undertakings to discharge mortgages see both:
- rule 10.05 of the Solicitors' Code of Conduct
- the Conveyancing Handbook, 19th edition. The relevant sections are section E.3, F.4 and the guidance on accepting undertakings after Patel v Daybells [2001] EWCA Civ 1229 in appendix IV.7
See also the SRA warning card on undertakings updated in April 2009.
This provides that 'you must ensure that your undertakings are specific, measurable, agreed, realistic and timed.'
Top of page
6 Discharges
Lenders may use any of a variety of methods available to them for effecting a discharge. This brings uncertainty because the nature of the form of discharge used affects the timing of the availability of the discharge for registration.
The discharge may be evidenced by a DS1, an ED, an END or an e-DS1.
A buyer's solicitor may attempt to establish from the seller's solicitor the nature of the discharge that will be used in the transaction. However this is unlikely to provide certainty as to the method that will ultimately be used.
The reasons for this are:
- The seller's solicitor may not know the form of discharge that the seller's lender is proposing to use until quite a late stage in the transaction.
- The nature of discharge may change during the course of a transaction. For example, some electronic methods of discharge revert to paper if they cannot be processed electronically for some reason.
In addition, some lenders:
- operate different methods of discharge for different members within the same group
- use multiple methods of discharge that change according to the nature of the mortgage product
Nonetheless as set out in paragraph 4 above it may assist you to request from the seller's solicitor information about the likely method of discharge to be used. It is factor that may help you to assess the risks.
From 27 July 2009, LR will make available an updated version of their Methods of Discharge Practice Guide - 31 Discharge of charges .
Top of page
7 Identification requirements (ID)
When making the second application to register the paper discharge of the seller's discharge you will not need to provide a new ID form if LR has retained form ID1 or ID2 in respect of the lender for a charge being discharged by a paper DS1. This is so long as the evidence of identity is no more than three months old at the time the further application is made after early completion.
You should add a note to panel 13 of form AP1 to refer LR to the ID form you have already provided.
This is only relevant where the solicitor is not representing the discharging lender. This should already have been established in replies to TA13 Completion arrangements and requisitions, if not earlier.
You may make provision in the contract for when evidence of identity becomes more than three months old, because it will be difficult to establish, in advance, cases in which evidence is likely to be or may be more than three months old. You can provide that such provisions do not merge on completion. See Standard Conditions of Sale (4th edition) condition 7.4.
This also applies to evidence of identity for the borrower or lender for a new charge in respect of which the LR has cancelled an application.
Top of page
8 Application of early completion
8.1 Transfers of Part
LR will not complete applications to register transfers of part on the basis of early completion but say they will keep the position under review. LR will requisition for a discharge of part if one is required and not lodged with an application to register a transfer of part. However LR will continue to operate the process as now without implementing early completion.
Top of page
8.2 Charges of Part
Early completion does not apply to applications that only comprise an application for a discharge of part of a charge to be registered.
Top of page
8.3 Remortgages
Early completion presents fewer concerns when applied to remortgages where the borrower in relation to the incoming and outgoing charges will be the same, as there will be no undertaking between sellers and buyers solicitors. However the status of the application needs to be monitored to ensure that the new lender obtains a first legal charge.
Top of page
8.4 Leases
LR states that it already applies a form of early completion when dealing with applications to register a dispositionary first lease where there is a charge registered against the landlord's title. Although the charge is not usually discharged when a lease is granted, the absence of the chargee's consent to the grant of a lease by the landlord does not prevent the lease from being registered with absolute title.
In relation to the transfer or assignment of leases subject to a mortgage, rather than the grant of a lease, early completion will apply as at 3 above.
Top of page
8.5 Discharges
Where the application to remove the registered charge is the only application made, and the evidence is not available to LR when the application is received LR will reject it as being substantially defective under rule 16(3) of the Land Registration Rules 2003, regardless of the method of discharge. This is because the new early completion procedures relate to applications to remove the entries relating to a registered charge where evidence of discharge is not supplied with, or prior to, the application. This is the only circumstance in which the LR will reject, rather than cancel an application.
See the following for further information:
Top of page
9 Fees
9.1 LR fees
No further fee is payable if you need to make a further application to remove the charge entries that remain after early completion. This remains true if your further application also includes the registration of a new charge rejected under early completion, provided that you lodge a copy of the Registration Completion Sheet (RCS) sent following completion of your original application.
Top of page
9.2 Your fees
When estimating your charges at the start of the retainer, you may wish to give advance notice of any additional work that you may have to carry out as a result of early completion. These may include likely additional LR fees, additional priority search fees and/or lodgement of restriction fees in addition to your professional charges as the operation of this policy is likely to involve you in spending additional time on each matter.
Top of page
10 More information
10.1 Professional conduct
The following sections of the Solicitors' Code of Conduct 2007 are relevant.
Top of page
10.2 Legal and other requirements
- Land Registration Amendment Rules 2008 (as amended) (LRR)
- Land Registration Act 2002 (as amended) (LRA) various but see sections 16, 27(2)(a) and (f)
- Land Registration Rules 2003 (as amended) (LRR) various but see rule 114 and 115
- Fraud Act 2006
- Money Laundering Regulations 2007
- Proceeds of Crime Act 2002 (as amended)
- CML Handbook
Top of page
10.3 Further products and support
10.3.1 Practice Advice Line
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays.
10.3.2 Other practice notes and Law Society materials
10.3.3 Law Society publications
10.3.4 Council of Mortgage Lenders
The CML is the trade association for the mortgage lending industry and represents first charge lenders. Not all lenders are members of the CML.
Top of page
10.4 Status of this practice note
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note contact the Law Society's Practice Advice Service.
Top of page
10.5 Terminology in this practice note
'Completion' - LR in the context of 'early completion' use this to mean acceleration of when they will make the first changes to the register in connection with the applications received.
'You' -the solicitor making the application to LR - the applicant's solicitor
'Charge' - may refer to more than one charge that is it includes first ,second and third charges
'Held over' - the process whereby LR puts incomplete applications to one side pending receipt of the information necessary to complete the application
'Registration Completion Sheet (RCS)' - the new form that LR will use in place of the completion of registration letter that accompanies an application completed on the basis of early completion.
'Title Information Document' (TID) - issued by LR following completion of an application for registration with an official copy of the register. The TID explains why the official copies have been issued.
Must - a specific requirement in the Solicitor's Code of Conduct or legislation. You must comply, unless there specific exemptions or defences provided for in the code of conduct or relevant legislation.
Should - good practice for most situations in the Law Society's view. If you do not follow this, you must be able to justify to oversight bodies why this is appropriate, either for your practice, or in the particular retainer.
May - a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.
Top of page
10.6 Acknowledgements
- Law Society Conveyancing and Land Law Committee
- Law Society E-Conveyancing Task Force
- Law Society Property Section
Top of page