Restrictions are entries in the Proprietorship Register of the Register of Title which prevent registration of a disposition, or a particular category of disposition, unless a particular requirement or set of requirements is/are complied with. They protect a variety of interests, such as third party beneficial interests like interests under trusts or individuals / companies needing to ensure incoming owners enter into covenants or statutory rights such as the Official Receiver's entitlement to a bankrupt's estate, amongst others.
How to approach a restriction;
Model form restrictions and how to deal with them;
Time Limits on Restrictions;
Removing Restrictions;
Modifying / disapplying restrictions;
Registering Restrictions;
How to approach a restriction
Use our Restriction Checker Tool to find out exactly what you need to to do to comply with/remove any standard form restriction.
When faced with a restriction, you should ask yourself the following questions:
- Does it "bite"? - in other words, will it need to be complied within order to register the particular disposition? Some restrictions only relate to charges, others only to transfers or to leases. Note that "disposition" relates to all types of dispositions. Even if it doesn't bite, you should consider whether your buyer and/or lender client will be able to comply in the event of sale or remortgage.
- If it bites, what do you need to do to achieve compliance and can you be certain that that is within your control?
- Is a certificate of compliance required and if so can you/someone in your firm give the certificate? Remember that where a certificate of compliance is to be given by conveyancer, it must be signed by an individual who is a conveyancer as defined by the Legal Services Act 2007, i.e. a solicitor, licensed conveyancer or CILEX Lawyer (a CILEX Fellow is not a conveyancer). It cannot be be signed in the name of the firm.
- If you cannot give the certificate, who can? Has that person/entity confirmed what their requirements and fees are and can you satisfy those requirements? Remember that if a certificate is required from a corporate entity it must be signed by an officer of the company.
- Is it intended to bind future owners? If not, can you be sure that it will be removed? See the section on Removing Restrictions for a more detailed discussion.
It is vital to be satisfied before exchange of contracts/completion of a remortgage that you ensure you will be in a position on completion to comply with or remove all restrictions on the title. Bear in mind that HMLR can only consider the restriction itself and not the surrounding circumstances, so that even where it might seem that a particular restriction is no longer relevant, or not relevant to a particular situation, it will still need to be strictly complied with. An example might be where the restriction catches all dispositions and requires a certificate to confirm that some assignment provisions in a lease have been complied with but the transaction is a remortgage. HMLR will still require a certificate even though the assignment provisions do not apply to charges.
Model form restrictions and how to deal with them
In order to create consistency an avoid rogue restrictions that cannot be complied with, the Land Registration Rules 2003 introduced a series of model forms, which are now the only forms that HMLR will accept. They are identified by letters. We will go through those here and look at what they are typically used for and how to deal with them. There are still lots of historic restrictions in existence that pre-date these model forms which need to be considered on their individual merits.
Form A Restriction
"No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court."
Sometimes referred to as a sole proprietor restriction or tenants in common restriction, the form A prevents a property from being transferred for money or money's worth, or being mortgaged, by a single registered proprietor. It indicates that the proprietors hold the property on trust. That might be for themselves or on behalf of third party beneficiaries. The identity of the beneficiaries will not be evident form the restriction. It will be added to the register automatically by HMLR where the proprietors elect to hold as tenants in common (by checking either the 2nd or third box in panel 10 of the TR1 or panel 11 of the TP1). It will also be added if a joint tenancy is severed, either expressly or by operation of law. Use the search box to find more information on joint tenancies and tenancies in common or visit the Joint Tenants / Tenants in Common page.
The form A is one of a category of restrictions called trust restrictions and in common with other trust restrictions it will, with some exceptions, be removed automatically following a disposition for value by at least two trustees (i.e. two proprietors). That is because of the operation of overreaching, whereby, when the purchase price is paid over to two or more trustees the beneficial interests behind the trust detach from the property and attach to the proceeds of sale.
The situations where the form A restriction will not be automatically removed (and will need to be dealt with) are:
- Sale by a sole registered proprietor;
- Transfers of equity;
- Transfers for no consideration (deeds of gift).;
- Sale by joint proprietors - one is attorney for the other;
Sale by a sole registered proprietor (2 or more proprietors on the register but all but one are deceased)
Where there were originally multiple proprietors, but only one survives, he or she must either arrange to cancel the restriction or else appoint an additional trustee to join in the transfer, before being able to sell (or simultaneously with sale). That is because for overreaching, where the beneficial interests detach from the property and attach to the proceeds of sale so that a buyer need not be concerned with those interests (s27 Law of Property Act 1925), to operate the purchase price must be paid to at least two trustees.
Legal estate does not vest in deceased's PRs
A joint tenancy of a legal estate cannot be severed so as to create a tenancy in common (s1(6) and s36(2) Law of Property Act 1925), so that even where the property is held as tenants in common, the legal title is still held as joint tenants and so on the death of a joint owner, his or her share of the legal estate passes to the survivor(s), with only his/her share of the equitable estate passing to his/her PRs. As it is only the owners of the legal estate (who are the trustees) that can sign a transfer or other deed affecting the title, the deceased's PRs have no standing to sell, mortgage or gift the property.
Appointing an additional trustee
In exercise of powers contained in s36(6) Trustee Act 1925, the current trustee(s) can appoint another person to act as trustee together with themselves. If they do so and if the purchase price is paid to or at the direction of both the survivor and the new trustee then the result will be that any beneficial interests will be overreached. The appointment is typically made in the transfer deed (panel 11 of a TR1 or panel 12 of a TP1) using the following form of words "[name of surviving trustee] in exercise of [his/her] statutory powers contained is s36(6) Trustee Act 1925 and in order to give a good receipt for the purchase price hereby appoints [name of trustee] to be a trustee of the Property together with [himself/herself]" (though this can be done in a separate deed of appointment). The trustee should be named as a Transferor along with the surviving owner and he or she should sign as a Transferor.
Before appointing a trustee it is essential to establish who, other than the surviving proprietor, has a beneficial interest in the property and to contact them with a view to agreeing how much of the sales proceeds they are to receive.
Any adult (other than one of the purchasers) may be appointed to act as trustee but they are equally responsible along with the surviving owner for ensuring that the the proceeds of sale are distributed correctly and are liable for any failure, so it makes sense where possible to appoint a PR of the beneficiary as thy would be entitled to receive the beneficiaries share of the proceeds anyway. The office of trustee can be quite onerous, as the individual is accepting an onerous liability but has nothing to gain. A conveyancer for a seller therefore should be not be acting for the trustee also, as this would be a conflict. Instead, the conveyance should write to the proposed trustee, with a copy of the transfer but with a recommendation that he/she seeks independent legal advice. Subscribers can use our Letter Generator tool to create a suitable letter. If the trustee chooses not to then he/she will need to provide a form ID1 to comply with rule 17 ID requirements.
Application to Cancel a Form A Restriction
It may be that the whole of the beneficial interest vests in the sole surviving tenant in common (for example if the deceased's share has been left to them in their wills or passed to them via the rules of intestacy). If so then, whilst appointing a trustee would still be effective in dealing with the restriction, it may be more appropriate to apply to cancel it using form RX3 with a completed form ST5 as supporting evidence. Form RX3 should be completed by the applicant's conveyancer (the applicant being the surviving tenant in common) and signed either by the applicant or their conveyancer. The ST5 must be completed by by the person(s) actually making the statement. In order to apply for cancellation the surviving proprietor must know for sure why the restriction was first entered and how the trust came to an end. For help completing these forms (and links to download them) visit our Completing Land Registry Forms guide.
Transfers of Equity
Transfer of equity is the term used for a transfer which results in one or more of the initial proprietors remaining on the title following completion. Depending on how many transferors there are and whether they are remaining on the title or being removed, and whether there is any consideration, the form A restriction may or may not bite and even if it does not, the restriction may not automatically be removed.
Transferors who are also Transferees
Although all transferors count for the purposes of the restriction, so that if there are at least 2 the restriction will not prevent registration because it is not a "disposition by a sole proprietor", only those transferors who are not remaining on the title (i.e. they are not also transferees) count for for the purpose of overreaching, meaning that even if there are two or more transferors yo should not assume that the restriction will be removed.
Consideration
The form A restriction is only concerned with transactions under which "capital money arises", so a transfer for no money or nothing of money's worth with not be caught by the restriction. Equally the restriction will not be removed as a result of such a transaction, since overreaching requires proceeds to be paid to two or more trustees. That cannot happen if there is none. Consideration does not have to be in the form of cash and typically on a transfer of equity where there is an existing mortgage the incoming/remaining remaining owner(s) will be assuming the debt in place of the outgoing owner(s), either by remortgaging or by the outgoing owners being released from their liability, if the existing mortgage is continuing. In that situation the consideration is treated as being equal to the proportion of that debt for which the outgoing owner(s) were liable. Their liability is apportioned on the basis of of the share of the equity they are entitled to immediately before the transaction. If they are receiving cash as well, the consideration is the sum of the cash and debt.
Transfer of Equity - 2 (or more) to 1
If there are 3 or more proprietors at the outset and only one will remain on the register following completion (and if consideration is paid), then the restriction will not bite and HMLR will automatically remove it following registration of the transfer. If there are two proprietors at the outset then whilst the transfer will be registered, the restriction will not be removed automatically and if the transferee is the sole beneficial owner, an application out to be made to cancel it, so as to avoid complications on a future disposition. In any event, if the transaction includes a remortgage it will need to be cancelled in order to register the lender's charge - as the creation of the charge will be a disposition by a sole proprietor and would otherwise be caught by the form A restriction.
Transfer of Equity - 1 to 2 (or more)
If there is one registered proprietor at the outset, who will remain on the title with others being added, then either an additional trustee (who cannot be one of the transferees) will need to be added or else an application will need to be made to cancel the restriction, unless the transfer is not for consideration. If there is no consideration then the transfer (and any charge made by the transferees) will be registered but the restriction will remain on the register.
Transfer of Equity - 2 (or more) to 2 (or more)
If there are two proprietors at the outset and one will be remaining on the register with others added, the restriction will not bite in respect of the transfer or in respect of any charge the transferees subsequently enter into but the restriction will remain. If at least 2 of the original proprietors are being removed from the title then, provided there is consideration, the restriction will be removed automatically.
Transfers for no Consideration (Deeds of Gift)
Irrespective of the number of transferors (or transferees), where there is no consideration paid on the transfer (including no assumption of mortgage debt), the restriction will neither bite nor be automatically removed.
Transfers by Joint Proprietors - One is Attorney for the Other
Where one of two proprietors has power of attorney for the other, he/she may execute the transfer deed both in their personal capacity and as attorney for the other. Whilst that would not be a disposition by a sole proprietor, because where a proprietor acts by their attorney, the transferor is still a party to the transfer, HMLR do not treat this as paying the proceeds to two trustees therefore there will be no overreaching and the form A restriction will remain.
The following flow chart will help you decide what you need to do in a given situation: Form A restriction flowchart
Form B Restriction
"No {disposition or specify type of disposition} by the proprietors of the registered estate is to be registered unless one or more of them makes a statutory declaration or statement of truth, or their conveyancer gives a certificate, that the {disposition or specify type of disposition} is in accordance with {specify the disposition creating the trust} or some variation thereof referred to in the declaration, statement or certificate."
This restriction should be added to the register where the property is held by the proprietors on trust and the document that creates the trust restricts the trustees' powers to dispose of the property in some way. The emphasis is added here because conveyancers sometimes misunderstand and add it whenever there is a a trust deed in place.
As it is a trust restriction, so long as the transfer is by at least two registered proprietors (who are not also transferees) and it is made for valuable consideration it will be removed automatically but unlike a form A it will need to be complied with first.
Complying with a form B restriction
As is evident from the wording o the restriction, either the proprietors will need to supply a statutory declaration or statement of truth, or else a conveyancer will need to give a certificate.
Statement of Truth/Statutory Declaration
A statement of truth has the same effect as a statutory declaration but is simpler for the proprietors because it does not need to be signed in front of a solicitor. It is therefore preferable to use it in lieu of a stat dec unless there are particular circumstances tat render it inappropriate. The following form of words is suggested:
"
STATEMENT OF TRUTH RE FORM RESTRICTION
I/We {inset name(s) of proprietor(s)} hereby confirm that the {transfer/charge/easement} dated {date of disposition} in favour of {transferee/chargee/dominant owner} is in accordance with the {declaration of trust/trust deed etc} dated {date of instrument creating trust} and made between {parties to trust instrument}
I/We believe that the facts and matters contained in this statement are true
Signature(s) ………………………. ………………………….
Date: Date:
NB. If you dishonestly enter information or make a statement that you know is, or might be, untrue or misleading, and intend by doing so to make a gain for yourself or another person, or to cause loss or the risk of loss to another person, you may commit the offence of fraud under section 1 of the Fraud Act 2006, the maximum penalty for which is 10 years’ imprisonment or an unlimited fine, or both."
Of course a person should only make this statement, or any statement of truth, if they know it to be true, which means they will need to be familiar with the contents of the trust deed. Although Land Registry do not retain copies of such documents (and often never have sight of them in the first place) the proprietors should have been parties to it and should have their copies. Anyone who does not have a copy should be cautious about relying on anything presented to them by someone else.
Conveyancer Certificate
A conveyancer should be very wary of giving a certificate unless he/she (or their firm) drafted the original trust instrument as otherwise they have no way of being sure that the document presented by their client is the one referred to in the restriction and it is no defence to to an action by the SRA or a disappointed beneficiary to say they were misled by their client, who may have impure motives or simply be mistaken.
Cancelling a form B Restriction
Cancellation can be very difficult. an application to withdraw (using form RX4) cannot succeed because there is no named beneficiary. To prove a person is a beneficiary you would need to prove that the trust instrument which names them is genuine, and if you can do that you can comply - unless the intention to enter into a non-compliant disposition and all the beneficiaries are in agreement. there are a number of reasons why a form B restriction may no longer be required and it might be appropriate to cancel it.
Form B Restriction Registered in Error
Form B restrictions are often registered in error. Ordinarily, where a property is held on trust the trustees have all of the powers of absolute owners (so that they do not need to consult or consider the beneficiaries when dealing with the property). This includes where there is a separate trust deed in place which dictates how the proceeds of sale should be split and includes rules detailing what should happen when one or the other wants to sell. If the trustees do have all the powers of absolute owners, there is no requirement for a form B restriction and adding one unnecessarily can cause difficulties when it comes to selling or mortgaging in future. Only where some provision of the trust instrument means they have to consult the beneficiaries before disposing of the property, or else they can only enter into certain types of dispositions or dispose on certain terms should it be added (and in that case it must be added).
If this has happened then an application on form RX3 supported by a statement of truth from one or more of the proprietors and perhaps a certificate from the conveyancer that acted in the acquisition and inadvertently registered the form B restriction may suffice, but bear in mind Land Registry has discretion on what evidence to accept so that the cancellation application will need to be submitted and assessed by HMLR before it is safe to proceed wih a transaction.
Beneficiaries Wish too Proceed Otherwise than in Accordance With the Trust Instrument
