Granting a lease or underlease - Deduction of title by the l...

Learning Outcomes

This article outlines the landlord’s deduction of title when granting a lease or underlease, including:

• Requirements of deduction of title on the grant of a lease or underlease, and its significance for the validity and priority of the tenant’s interest
• Deduction of title in registered land (official copies) versus unregistered land (epitome/abstract of title)
• Deduction of superior title on an underlease and the impact of headlease class of title
• Statutory rules on deduction of title and registration (LPA 1925 s44; LRA 2002), including triggers for first registration and registrable dispositions
• Legal versus equitable leases—formalities, protection, and implications for deduction of title and registration/priority
• Absolute leasehold title versus good leasehold title, when deduction of superior title is prudent or necessary, and title upgrading
• Practical issues affecting deduction of title and registration, including mortgagee consents, proprietorship restrictions, missing deeds, third-party burdens, and co-ownership

SQE1 Syllabus

For SQE1, you are required to understand the landlord’s deduction of title when granting a lease or underlease, with a focus on the following syllabus points:

• The landlord’s duty to deduce title when granting a lease or underlease
• Deduction of title in registered land (official copies of the register and title plan, and any filed documents)
• Deduction of title in unregistered land (epitome/abstract of title; good root; chain of title; stamping; Land Charges)
• Statutory framework governing deduction and registration (LPA 1925 s44; LRA 2002: registrable dispositions and classes of title)
• Legal vs equitable leases (formalities, protection, and priority)
• Classes of leasehold title (absolute vs good leasehold) and upgrading
• Mortgagee consent, proprietorship restrictions, co-ownership and overreaching, and indemnity insurance where documents are missing

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What documents must a landlord provide to deduce title when granting a lease of registered land?
2. How does the deduction of title differ for unregistered land?
3. What is the difference between absolute leasehold title and good leasehold title?
4. When might a lease be equitable rather than legal, and how does this affect title deduction?

Introduction

When a landlord grants a lease or underlease, they must demonstrate their authority to do so by deducing title. This proof satisfies the tenant (and any lender) that the landlord owns the estate out of which the lease will be granted and that the grant will not be invalidated or undermined by undisclosed defects, charges, or restrictions. The precise requirements depend on whether the land is registered or unregistered and on the nature of the lease (legal or equitable). Getting deduction of title right is central to ensuring the lease can be registered or protected, holds the desired class of title, and enjoys the intended priority.

Deduction of Title: Purpose and Overview

Deduction of title is the process by which the landlord demonstrates a legally sound right to grant the lease or underlease. In practice, this means producing either official copies (for registered land) or an epitome/abstract of title tracing ownership (for unregistered land), and dealing with related issues such as mortgagee consents and proprietorship restrictions. Good practice demands that any defects or burdens are identified early, disclosed appropriately, and remedied or mitigated (for example, by obtaining consents or arranging indemnity insurance) before completion.

Key Term: deduction of title
The process by which a landlord proves their legal right to grant a lease or underlease, typically by providing documentary evidence of ownership and authority.

Registered Land: Deduction of Title

For registered land, the landlord deduces title by supplying official copies of the register of title and the title plan from HM Land Registry. Where the register refers to filed documents (for example, transfers, leases, or deeds setting out covenants in full), official copies of those documents should also be provided.

Key Term: official copies
Certified copies of the register and title plan issued by HM Land Registry, providing conclusive evidence of the registered proprietor’s title.

It is good practice to review all sections of the register:

• The Property Register: confirms the estate held (freehold or leasehold), provides brief lease particulars if the landlord’s estate is leasehold, and shows any rights benefiting the land (for example, a right of way).
• The Proprietorship Register: identifies the registered proprietor(s), the class of title, and any restrictions (for example, a Form A restriction or a consent restriction linked to a mortgagee).
• The Charges Register: shows encumbrances burdening the land, such as mortgages, restrictive covenants, and leases granted out of the title.

Where the landlord intends to grant a registrable lease (typically more than seven years), the grant will be a registrable disposition. The tenant will need HM Land Registry to create a separate leasehold title upon registration. Any restrictions on the landlord’s title must be complied with prior to, or on, registration. For example, if the Charges Register shows a registered charge, lender consent may be necessary, and the Proprietorship Register may include a restriction preventing registration of a disposition without that consent.

Key Term: Form A restriction
A restriction that alerts the registrar that the proprietor holds as trustee. It prevents registration of a disposition by a sole proprietor under which capital money arises unless authorized by the court, or unless a second trustee or trust corporation is party so that overreaching can occur.

Granting an underlease raises a related deduction question: must the landlord deduce the superior title(s)? Where the headlease is registered with absolute leasehold title, strict deduction of the freehold is usually unnecessary (HM Land Registry will have been satisfied as to the landlord’s entitlement when registering the headlease), though in practice superior title is often inspected to identify the current head landlord and any relevant covenants or reservations. If the headlease is registered with good leasehold title, deduction of the freehold should be sought, because good leasehold title does not guarantee that the superior estate was validly able to grant the lease.

Where a premium is payable for the grant and a Form A restriction is on the landlord’s title, the grant may be a disposition “under which capital money arises.” In such a case, ensure either two trustees (or a trust corporation) receive the capital monies so that any beneficial interests are overreached, or obtain a court order authorizing registration.

Key Term: overriding interests
Interests that may bind a purchaser despite not appearing on the register (for example, rights of persons in actual occupation and certain legal easements). They are discovered through a combination of inspections, enquiries, and searches.

Worked Example 1.1

A tenant is taking a 12-year underlease. The immediate landlord’s headlease is registered only with good leasehold title. Should the tenant require deduction of the superior (freehold) title?

Answer:
Yes. Because good leasehold title does not guarantee the validity of the superior title or the power to grant the headlease, the tenant should require deduction of the freehold title. If possible, the landlord should consider upgrading the headlease to absolute leasehold title; otherwise, indemnity insurance may be needed.

Worked Example 1.2

A landlord proposes to grant a 20-year lease at a premium. The Proprietorship Register contains a Form A restriction. What must be done for registration of the lease to be completed?

Answer:
Either appoint a second trustee (or use a trust corporation) so that capital money is paid to at least two trustees and the restriction is satisfied by overreaching, or obtain a court order authorizing registration despite the restriction.

Worked Example 1.3

A landlord wishes to grant a 15-year lease of a shop. The title is registered with absolute title. What must the landlord provide to deduce title?

Answer:
The landlord must provide official copies of the register and title plan, showing they are the registered proprietor with absolute title. If there is a registered charge, the landlord must obtain the lender’s consent to the lease.

Unregistered Land: Deduction of Title

Where the land is unregistered, the landlord must provide an epitome or abstract of title, tracing ownership back at least 15 years from the date of the lease. This includes the good root of title and an unbroken chain of ownership, together with copies of all deeds and documents on which the title depends.

Key Term: epitome of title
A chronological list of title deeds and documents, with copies attached, evidencing ownership of unregistered land.

Key Term: good root of title
A document at least 15 years old that deals with the whole legal and equitable interest in the property, adequately describes the property, and does not cast doubt on the title. A conveyance on sale is usually preferred.

The buyer’s solicitor or the tenant’s solicitor reviews the epitome to ensure:

• There is a good root of title (often a conveyance on sale or legal mortgage) and a clear chain of subsequent ownership to the landlord.
• Deeds are properly executed and, where relevant, stamped (older deeds may show ad valorem stamps or certificates of value).
• Any mortgages are discharged or lender consent is obtained for the grant of the lease.
• There are no missing or defective documents, broken links in the chain, or undisclosed adverse burdens.
• Any transfers or events since 1 December 1990 (and, for gifts/assents, since 1 April 1998) that should have triggered first registration have been properly dealt with.

If the land should have been registered due to a registrable event (for example, a transfer for value post-1990), the prudent course is to require first registration before completion of the lease (this avoids complications on subsequent registration of the lease and clarifies class of title).

Worked Example 1.4

Unregistered land is proposed to be let under a 10-year lease. The last conveyance is dated 12 years ago, but there was a gift 6 years ago. How should the landlord deduce title?

Answer:
Provide an epitome starting with a good root at least 15 years old and an unbroken chain to the present, including the deed of gift. As gifts after 1 April 1998 can trigger compulsory first registration, check whether the gift should have led to first registration. If so, the landlord should apply for first registration before the lease is granted.

Worked Example 1.5

A landlord owns unregistered land and wants to grant a 10-year lease. The last conveyance is dated 20 years ago. What must the landlord provide?

Answer:
The landlord must provide an epitome of title starting with a good root of title at least 15 years old, showing an unbroken chain of ownership to the present. All relevant deeds and supporting documents must be included.

Legal and Equitable Leases

A lease is legal if it complies with statutory formalities: it must be granted by deed if the term exceeds three years, and it must take effect in possession. Leases not granted by deed or failing other formalities can take effect as equitable leases where there is a valid contract complying with Law of Property (Miscellaneous Provisions) Act 1989 s2.

Short leases (three years or less) may be created orally (parol) under LPA 1925 s54(2) if they take effect in possession at best rent without fine. However, such leases are not registrable dispositions in their own right.

Key Term: legal lease
A lease that satisfies all statutory requirements, including being granted by deed, for a term exceeding three years, and taking effect in possession.

Key Term: equitable lease
A lease that does not meet all legal formalities but is enforceable in equity, usually arising from a valid contract to grant a lease.

For registered land, a legal lease of more than seven years must be completed by registration as a separate leasehold title. Legal leases of seven years or less are overriding interests rather than registrable dispositions, though easements within them may require registration for the benefit/burden to be recognized in law. Equitable leases should be protected by entry of a notice on the landlord’s registered title; otherwise, they risk losing priority against subsequent registrable dispositions for value. In unregistered land, equitable leases are protected by registering a Class C(iv) land charge; unprotected equitable interests risk being defeated by a purchaser of a legal estate for value without notice.

Worked Example 1.6

A landlord emails agreed lease terms for a 5-year tenancy. There is a signed heads of terms but no deed. What kind of interest arises and how should it be protected?

Answer:
Absent a deed, the arrangement is likely an equitable lease if there is a valid written contract complying with LP(MP)A 1989 s2 (signed by both parties containing all agreed terms). In registered land, protect by entering a notice on the landlord’s title. In unregistered land, protect by registering a Class C(iv) land charge. Without protection, priority may be lost to later registrable dispositions for value.

Worked Example 1.7

A landlord agrees in writing (not by deed) to grant a 7-year lease, and the tenant takes possession and pays rent. What is the status of the lease?

Answer:
The lease is equitable, as it was not granted by deed. The tenant has an equitable lease, which may be enforceable in equity but is not a legal estate.

Title Classes: Absolute and Good Leasehold Title

Leasehold titles may be registered with different classes. Absolute leasehold title is the strongest class, confirming both the lease’s validity and the superior estate’s title. Good leasehold title confirms only that the lease appears valid; it does not guarantee the landlord’s superior title.

Key Term: absolute leasehold title
The best class of leasehold title, guaranteeing both the lease and the landlord’s title to the superior estate.

Key Term: good leasehold title
A class of title confirming the validity of the lease, but not guaranteeing the landlord’s title to the superior estate.

If a lease is registered with good leasehold title because the landlord could not produce evidence of the superior title, the tenant remains exposed if later defects are discovered in the landlord’s title. That can deter lenders and affect marketability. Where practicable, seek deduction of the superior title to enable registration with absolute leasehold title or apply to upgrade the class of title if evidence becomes available. HM Land Registry may upgrade titles where satisfied as to the superior title’s validity.

Exam Warning

If a lease is registered with good leasehold title only, the tenant’s interest is not guaranteed against defects in the landlord’s superior title. This may affect the lease’s value and marketability.

Practical Issues in Deduction of Title

Robust title investigation by solicitors includes reviewing documents supplied by the landlord, confirming powers to grant the lease, and ensuring all necessary consents are obtained. Typical practical issues include:

• Mortgagee consent and consent-type restrictions: A registered charge often means lender consent is required to grant a lease; the Proprietorship Register may include a restriction stating no disposition may be registered without the mortgagee’s written consent. Obtain consent before completion.
• Co-ownership and overreaching: Where a landlord holds as sole trustee and a premium is paid on grant, a Form A restriction will prevent registration unless capital money is paid to two trustees or a trust corporation, enabling overreaching of beneficial interests.
• Missing deeds or incomplete chains (unregistered land): Attempt to locate missing documents; if not feasible, consider defective title indemnity insurance to protect the tenant and any lender against specific risks (for example, missing link deed or absent covenant).
• Third-party burdens: Restrictive covenants, easements, and rentcharges must be identified and assessed. Some burdens may constrain use; some easements should be registered to ensure they take effect in law.
• Triggers for first registration: If the epitome reveals transactions that should have led to registration (transfers for value after 1 December 1990; gifts/assents after 1 April 1998), require first registration to regularize title and clarify class of title before the grant.

Where indemnity insurance is considered, remember that arranging or advising on insurance is a regulated activity. Firms should ensure they are authorized by the FCA or fall within the “professional firms exemption” before arranging such policies.

Worked Example 1.8

A landlord intends to grant a 10-year lease of registered land. Official copies show a registered charge and a restriction requiring lender consent to dispositions. What must be done?

Answer:
Obtain the lender’s written consent prior to completion. The restriction will block registration of the lease unless the consent is lodged; failing to secure consent may also put the landlord in breach of the mortgage terms.

Worked Example 1.9

A landlord’s title to unregistered land is missing a deed from 18 years ago. What should the landlord’s solicitor do?

Answer:
The solicitor should try to locate the missing deed. If it cannot be found, they may recommend indemnity insurance to protect the tenant against possible claims.

Key Point Checklist

This article has covered the following key knowledge points:

• Deduction of title assures the tenant that the landlord has the legal power to grant the lease or underlease and that no undisclosed defects or burdens will undermine it
• Registered land: deduce title by official copies of the register and title plan, plus copies of any filed documents referenced on the register
• Unregistered land: deduce title by epitome or abstract of title starting with a good root (at least 15 years old), showing an unbroken chain to the present
• Legal leases (over 3 years) must be by deed; short leases can be oral under LPA s54(2); otherwise an equitable lease may arise via a valid contract
• Registrable dispositions include legal leases over seven years; ensure compliance with restrictions, lender consents, and overreaching where necessary
• Absolute leasehold title guarantees the superior title; good leasehold title does not—seek deduction of superior title and consider upgrading where feasible
• Practical issues: mortgagee consent restrictions, Form A restrictions, missing deeds, third-party burdens, and first registration triggers; use indemnity insurance appropriately and lawfully

Key Terms and Concepts

• deduction of title
• official copies
• epitome of title
• good root of title
• legal lease
• equitable lease
• absolute leasehold title
• good leasehold title
• Form A restriction
• overriding interests