Government launches consultation into transparency of land control

18 August 2020

The Ministry of Housing, Communities and Local Government published a call for evidence into Land Ownership, “Transparency and Competition: A call for evidence on data on land control”, on 6 August 2020.

This note provides a Q&A an on the key issues arising from the announcement of the consultation. The full documentation from Government is available here.

What is the purpose of the call for evidence?

The Government is seeking to improve transparency of contractual arrangements that are used in the buying and selling of property and to gain a “better understanding of the sort of arrangements that exist”. It is concerned with rights of pre-emption, options and conditional contracts and the culmination of this consultation will amount to an exercise in “who has options over what”?

The consultation document (correctly) states that, where a piece of land is registered, not all interests relating to it are necessarily clearly recorded on its title. It uses as an example an option entered into between a developer and landowner. Depending on how that contract has or has not been protected the existence of the option might be invisible on the face of the title register.

It is the Government’s opinion that the disclosure of land ownership in the context of options and pre-emptions is of legitimate public interest on grounds of accountability, including that:

  • local authorities should have visibility of land holding within their borough and how quickly it is being brought to market; and
  • the general public should have an informed role in community development and should be able to identify parties with intentions to develop or those who are “stalling” development (i.e. by land banking) in their locality.
What are the issues the consultation seeks to address?

The Government has identified what it calls two “significant dis-benefits to the public” arising from the lack of information available on contractual control interests. It considers these to be:

  • inability for communities to ascertain the “likely path” of development in their community; and
  • a barrier to entry for smaller developers and a reduction in competition and “market efficiency.”

Reference is made to a number of studies carried out between 2004-08 which considered the use of “contractual controls in the development process.” Although these studies concluded that such contracts facilitated development by allowing experienced house builders to bring forward land, the common factor cited amongst all studies was the lack of data and records of such contracts and agreements.

In keeping with the proposals in the white paper Planning for the Future (published on 6 August 2020) the Government is seeking to improve competition in the housing market through increased transparency of land ownership. The Government has identified that the current system is too opaque for SME builders to properly operate in (e.g. it creates difficulty in identifying viable sites and the ownership/land interests therein).

The consultation paper also identifies the benefit to developers who often have options over land in the same Growth Area which together form a strategic site. A study for the Government concluded that the resulting consortia are effectively “working in the dark” as there is no transparency or consistency between the different options in land that are held and developers are therefore missing opportunities for costs sharing (i.e. the promotion costs of the whole scheme).

What are the key proposals?

The Government notes that even though conditional contracts, options and rights of pre-emption may secure some degree of protection by notice being entered on the relevant title register this is not mandatory. Furthermore, in the case of unilateral notices, only limited information about the transaction for which protection is being sought needs to be provided to the Land Registry and no copies of the document need be submitted (no copy is therefore available for public perusal). As a result, the Land Registry is unable to provide accurate data identifying the number of titles affected by contractual control arrangements.

The Government has therefore proposed the creation of a new contractual controls dataset. This data would be collected by requiring, through Land Registry protocols, the noting of options, pre-emptions and long-term conditional contracts relating to the development of land. This noting would be by way of Agreed Notice only and through extending the data requirements attached to that application process.

The proposals also include plans to require all legal entities who are beneficiaries of contractual control interests to provide a 20-digit alpha-numeric Legal Entity Identifier (LEI). The LEI would be unique to each legal entity and would enable related legal entities (subsidiary/parent companies) to be more easily identified and grouped, therefore providing insight into which companies may be influencing particular local markets.

Is it proposed that noting will be mandatory?

No. The Government acknowledges that the majority of these contractual arrangements are, in practice, already protected by notice and does not intend to mandate the noting of these interests at the Land Registry – instead relying on beneficiaries’ self-motivation to protect their own interests. However, the consultation does seek views as to whether or not beneficiaries of contractual control interests should be placed under a duty to certify that all relevant interests have been noted.

Since the requirements are not mandatory beneficiaries would need to assess the cost/benefit of obtaining the protection that can be gained by noting their interest on the title register and the administrative burden of providing the additional details. The protection afforded by a notice is limited, it is not a guarantee that the interest the notice protects is valid and it is possible to remove a notice from the title register. However, it is likely to remain the preferred course of action given that it does offer a degree of protection and the provision of enhanced detail will likely result in relatively minimal additional work and legal cost (the assumption here being that all details will simply be input into a single Land Registry form).

By way of alternative, the Government anticipates that parties might “forgo the protection of a notice and seek to protect their interests by way of a restriction” and is seeking view on various options to address this risk. For example, excluding contractual control interests from the category of interests capable of protection by restriction or compelling applicants to obtain an Agreed Notice prior to submitting an application for a restriction.

It is unclear how the enhanced disclosure requirements will interact with exempt information forms which are often submitted alongside applications for registration where the applicant wishes to exempt sensitive commercial (or other) information from disclosure on the title register.

Will any arrangement be exempted?

Yes. It is intended that the enhanced Agreed Notice requirements will not apply to controlling interest arrangements over unregistered land. Options held by individuals for the acquisition of a lease or property for residential/domestic use, statutory and testamentary options will also be exempt (provided, in the first case, that the option is not dependent on a condition that requires planning permission). However, the extent of the exemption is a matter subject to consultation.

What enhanced details will need to be provided?

The consultation seeks views on how granular the detail that is to be provided should be. The Government suggests that parties might be required to provide details of the contractual conditions (i.e. conditional on planning), type of planning permission required (i.e. outline or full), use type (i.e. residential, commercial or mixed), the number of units (for residential and commercial use) and the square footage (in the case of office development). The consultation seeks views as to whether such details should be included on the title register or in the new contractual controls data set (which is to be public).

Beneficiaries may be concerned about providing broader and/or more granular level of detail since the nature of option and pre-emption arrangements is often highly commercially sensitive and the privacy afforded by the unilateral notice procedure is relied on for this reason (a copy of the relevant document does not need to be submitted to the Land Registry with a unilateral notice application). It is one thing to provide parties’ details and the date and duration of an interest but it is another to require details of the conditionality/commercial requirements agreed between the parties.

Full details of the proposed requirements broken down by type of contractual interest can be found at Annex A of the consultation document (p27).

When will enhanced details need to be provided?

The additional details will need to be submitted to the Land Registry at the same time as the application is made to note the relevant interest. Any ongoing requirements to update details, for example on variation or assignment of the relevant contract, is the subject of consultation. This question extends to treatment of existing entries on title and whether or not a requirement to update details in those cases would also be triggered by variation/assignment. The Government has acknowledged that it would be unduly burdensome to require retrospective provision of enhanced details for all currently held and noted interests.

What will the enhanced data be used for?

The collating of this additional information will, according to Government proposals, allow:

  • local authorities to immediately understand who controls land in their borough;
  • the Government to identify a “sound evidence base from which to identity inefficiencies in the land market”; and
  • the levelling of the playing field for residential construction through the reduction in costs of identifying viable sites (facilitated by PropTech tools and applications).

The Government intends to publish a contractual control interests dataset which will be freely and publicly available. However, it is intended that certain additional data collected is to be made available only for official purposes relating to, for example, law enforcement and financial stability.

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