Real State Law in the UK (1)

These are the highlights if you want to know the essential of Real State Law in the UK.  This entry was drafted by  McCarthy Denning Law Firm for”E-IURE COMPENDIUM” 2018. Link to e-IURE Network.

This collaboration is a brief step-by-step guidance. In no case it can be considered as legal advice. If you want -or need – legal advice, ask for a lawyer or a law firm. In that case “McCarthy Denning” is an excellent option in the United Kingdom.

1.- Types of Ownership

For the purposes of this section, the UK is understood to be England, Wales and Northern Ireland with the exclusion of Scotland.  Scotland has a different system of land ownership.

A few words about terminology may help.  Both the words “land” and “property” mean real estate.  The word “premises” may also be used.  This has the same meaning as “land” and “property” but is most commonly used to describe land or property included in a lease.

There are three types of ownership in the UK.  They are freehold, leasehold and commonhold.

Freehold is absolute, unlimited ownership.  The owner of a freehold has no landlord and can do whatever he likes with his property subject to the general law of the land and subject to any restrictions placed on the property.

Freehold ownership is most common for residential houses, large estates and investment property.

Leasehold ownership is where land is held by one person (called the tenant) from another person (called the landlord) for a limited period of time on the terms of an agreement (called a lease).  Most business premises in the UK are occupied under leases.  Residential flats (apartments) are also mostly occupied under leases.  A tenant under a lease will pay a rent to the landlord.  The lease will last for a limited amount of time.  The lease document itself will contain rights and obligations both for the landlord and the tenant and numerous restrictions on what the tenant can and cannot do with the property.  Modern commercial leases are long, complex documents which require legal advice.  Some leases are extremely long (say 999 years) and these are sometimes referred to as virtual freeholds although that is not strictly a legal term.  There are legal reasons why sellers will sometimes prefer to grant extremely long leases or virtual freeholds rather than selling s freehold.

The third form of ownership is commonhold which has been introduced recently.  This new system of ownership was designed primarily for blocks of residential flats and other developments with lots of units.  At the time of publication, the use of this new system of ownership is very rare.

Properties can be owned in a number of different ways, including by individuals, companies, general partnerships, limited liability partnerships, charities and trusts.  Professional advice should always be sought on the most efficient way of owning property in the United Kingdom and the tax implications of any option.

2.- Land Registry

There is a computerised register of land in the UK maintained by a government agency called the Land Registry.  The register is computerised and accessible via the internet.  The register is maintained by a number of district land registries located throughout the country.  At the moment, not all land in the country is registered but the vast majority is, especially in urban areas.  The government is also committed to introducing a system whereby land can be transferred electronically.    At present, this system is not possible even though the actual process of registration of land is often now carried out electronically.

All registered land has its own “title number” and plan which identifies the land in question.  The entries which appear on the register against a particular title number are matters affecting the title to properties and definitive proof of ownership. There are certain rights and obligations (called overriding interests) which are not noted on the register of title.  Overriding interests include matters such as rights of way where there might for example be a footpath crossing a property but no express registered right on the title.  Many, but not all such rights and obligations, will be apparent by a proper inspection of the land in question or by making enquiries of the current land owner/occupier.

3.-Transfer and Contract

Generally, land can only be transferred by deed.  A deed is a document usually prepared by a lawyer which is signed and witnessed and brought into effect in a particular way.  This process does not require a notary.  In order for a transfer of registered land to be effective, it must be completed by registration at the Land Registry.  This cannot be done unless the relevant tax (Stamp Duty Land Tax) has been paid on the documents.  This is commented on further below.

It is important to understand in the United Kingdom that verbal agreements in relation to land and even some written agreements are not legally binding.  There is usually a period after terms have been agreed during which either party can decide not to proceed if they want.  It is usually only when contracts “have been exchanged” that a binding obligation arises and invariably time and costs have to be incurred before that stage is reached.

4.-Mortgages And Charges

If money is borrowed to assist with the purchase of land in the UK, the lender will invariably take a mortgage or a charge over the land in question.  A commercial mortgage will normally involve two key documents.  The first is a loan agreement which can be in the form of a formal agreement or a letter (sometimes called an offer or  facility letter).  The second document is the mortgage itself which creates the security over the land and is registered at the Land Registry.

The lender who takes a mortgage is called a mortgagee or chargee.  The mortgagee’s main rights are as follows:-

• to be repaid the loan plus interest and costs.
• if the borrower defaults, to take possession of the mortgaged property and to sell it to repay his loan. It is not always necessary for a mortgagee to obtain a court order before taking possession or selling the mortgaged property.
• to appoint a receiver to manage and if necessary sell the property.
• to prevent a sale of the property if he is not repaid.

In practice, the mortgage or charge is now the only recognised formal, fixed security taken over land in the UK.  Businesses may also be asked to provide floating charges in favour of institutional lenders.  These floating charges claim all the assets of the business (by way of a document called a Debenture) but only restrict dealings with those assets if the borrower is in default.

5.-Restrictions on Acquisition

There are no restrictions on foreign ownership of UK property but the way in which property ownership is structured is critical and different types of ownership have different implications – including practical, fiscal and regulatory and professional advice should always be obtained.  Any new person or body acquiring property  in the United Kingdom will have to provide identification evidence and comply with the increasingly complex due diligence requirements imposed by the  money laundering regulations.