If you are selling your commercial property, you should expect your buyer to carry out extensive due diligence before exchanging contracts. It is not unusual for that exercise to reveal some issues on the title, which could delay the transaction, cause your buyer to reduce their offer, or even walk away. The good news is that your solicitor will have a range of options to resolve most problems.
‘Preparation is key to a smooth commercial property sale,’ according to Peter Heasley, a solicitor in the commercial property team with Ingram Winter Green Solicitors. ‘If you work with your solicitor to anticipate potential problems, you can be on the way to solving them before your buyer has even picked them up.’
Peter provides an overview of the most common title issues and possible solutions.
Proving you own the property
The first thing your buyer will want to know is that you actually own the property. If you bought it in the last year or so, you may not yet be formally registered at HM Land Registry as the legal owner. This is a growing problem, as the Land Registry is taking a long time to complete registrations and has a backlog. This should not mean that you are stuck with the property until your registration is complete.
If you are entitled to be registered as the owner, you have all the rights to dispose of the property that you would have if your registration had been completed. However, your purchaser might be nervous about completing on this basis. Your solicitor can apply to the Land Registry to expedite your registration if it is holding up your sale and include wording in the contract to give the buyer some comfort that you will deal quickly with any issues raised during the registration process.
If you cannot prove your title to the whole of the site, your solicitor will check to see whether you can apply to be registered as owner on the basis of 10 or more years of occupation. If that is not possible, there is usually the option of buying title indemnity insurance which, depending on the policy wording, should cover losses if someone challenges your title to that area.
Missing documents
It is common to find that documents referred to on the registered title are missing, for example deeds containing obligations or rights. Understandably, a buyer will be reluctant to take on unknown liabilities. If the Land Registry does not have copies, your solicitor may be able to locate them by contacting solicitors who acted in relation to the property in the past.
If documents have been lost and there are people who can explain how this happened, your solicitor may be able to recreate the title using statutory declarations, which tell the story of the property. If all else fails, the answer may be title indemnity insurance, to cover losses if an unknown covenant or obligation is enforced.
Consents and certificates
Another common problem is that there is a restriction on the registered title which means that your buyer will need consent, or a certificate from someone else, before they can be registered as the new owner. They will expect you to produce this on completion. If the person who needs to give the consent or certificate can be easily identified and contacted, your solicitor will want to get the paperwork organised well in advance. Problems arise where a restriction requires consent or a certificate from a named person who has died or can no longer be traced; or a company which no longer exists. Here, your solicitor may be able to get the Land Registry to cancel or modify the restriction, but you will need to provide evidence that you have done what you can to identify the relevant person or company and to do whatever the restriction required.
Restrictive covenants
Your commercial property may be subject to restrictive covenants that limit the ways it can be used. If a restrictive covenant will prevent your buyer’s intended use, there are three options:
- If you know who has the benefit of the covenant, you could negotiate a release. This would make the position clear but will cost you money.
- If the covenant is obsolete or is preventing a reasonable use and no longer offers a practical benefit, your solicitor can apply to have it modified or removed. Again, this will give you certainty but will cost money in compensation.
- Title indemnity insurance could be a cost-effective solution, especially if the covenant was imposed many years ago.
Easements
Problems with easements fall into two categories:
- Necessary rights may not have been formally granted or documented. This is a complex area of law, but your solicitor will be able to advise you on whether you can claim easements by prescription (long use) or if any can be implied, especially where your property was originally part of a larger plot. Failing that, negotiating with your neighbour or insurance could be the answer.
- A neighbour could be acquiring an easement over your property, for example a right of way or a right to light through a newly installed window. Properly worded signs will help to prevent any rights being acquired and you may be able to interrupt any existing use by a neighbour. As a last resort, you may have to negotiate a release. Your solicitor can explain the best approach.
Points to note about title insurance
As we have seen title indemnity insurance is often a quick and cost-effective way to deal with title problems, but there are some important points to bear in mind. You must be open with the insurer and give them the most accurate picture you can of the situation. If you are considering taking out insurance you should not approach your neighbour to negotiate, in case this alerts them to their rights, as many insurers will not offer cover in this situation.
You should also think about who needs to be covered by the policy. It should include future owners, otherwise it will not satisfy your buyer. You can keep the premium down if you are realistic about how much cover you need to compensate for the most likely losses. It is easy to assume it should cover the full price/market value but in reality it is unlikely to cost that much to settle a claim if a neighbour comes forward. This very much depends on the facts, particularly how your buyer’s planned use could be affected, so your solicitor will discuss this with you in detail.
How we can help
If you are selling a commercial property, your buyer will be focused on how they plan to use it for their business in the future. Legal problems in relation to the title could get in the way of a smooth sale, so our team of commercial property experts is here to help you solve them. For further information, please contact Peter Heasley in the commercial property team on 020 7845 7400 or email peterheasley@iwg.co.uk. Ingram Winter Green has offices in London.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.