Land Registration – More Changes On The Horizon For Secured Lenders?

On 24 July 2018 the Law Commission made 53 recommendations for reform of the Land Registration Act 2002 ("LRA 2002") in a long-awaited report which runs to 587 pages1.

This article highlights the recommendations likely to be of most interest to real estate financiers.

Tacking further advances

Tacking is a useful device which enables a lender to add (or "tack") a further advance to an original secured loan, such that the further advance enjoys the same priority as the original loan. Absent the ability to "tack" the further advance to a lender's existing security, a subsequent charge would have priority over it.

Under section 49 of the LRA 2002 a further advance made by the proprietor of a registered charge can take priority over a subsequent charge if one of the conditions specified in section 49 is satisfied. However, the fact that the LRA 2002 only permits tacking by "the proprietor of a registered charge" has long caused concern in the syndicated loans market as the lenders who advance the monies will not be the proprietor of the registered charge. Instead, in a syndicated loan structure the proprietor of the registered charge will be a security trustee who holds the benefit of the security on trust for the syndicate of lenders from time to time.

Recognising this concern the Law Commission has delivered some good news for the syndicated lending market. Its report recommends extension of the existing tacking provisions to enable the tacking of further advances by beneficiaries of an express trust of a registered charge.

However, so far as tacking is concerned, it is not all good news. Although consultees had favoured clarification of the meaning of "further advances" the Law Commission stopped short of making any recommendations for change because it considered that any definition of further advances has implications beyond mortgages over registered land. However, it did provide its view that if a loan provides for advances to be made in instalments, payment of an instalment would amount to a "further advance" under the LRA 2002 (and therefore be capable of being "tacked" to an existing registered charge for priority purposes).

The Law Commission also decided not to make any recommendations in relation to the following tacking-related issues on the basis they would be better addressed within a wider project relating to mortgages.

The fact that the LRA 2002 provides that an obligation to make further advances must exist at the time the...