Chancel repair changes

Chancel repair liability is an ancient and nebulous liability which is attached to land in parts of England and Wales. The liability derives from land historically owned by the rector of a church (Church of England or in Wales) before the Reformation. It is not possible to deduce liability or risk on the basis of proximity to a church, and the liability may not be apparent from an examination of the title deeds.

Many landowners are unaware that their land carries the liability, and solicitors have for years faced the difficulty of discovering a liability for which the records are known to be incomplete.

Even when undertaking a full search, the result may prove inconclusive. In recent years, solicitors have relied on area-based ‘screening searches’, supported by an insurance policy if the land searched is considered at risk of potential liability.

Chancel repair liability (along with other rights) lost its status of an overriding interest under schedules 1 and 3 to the Land Registration Act 2002 at midnight on 12 October 2013, and has now entered new territory, with fresh challenges to its continuing endurance. However, practitioners should be aware that it has not been extinguished, and you will continue to encounter it.

In registered land, the key provision of the Land Registration Act 2002 (LRA 2002) with regard to overriding interests is section 29, which states that a purchaser for valuable consideration, who completes their purchase by registration, will take the land subject to registered charges, notices and overriding interests which are contained in schedule 3 to the act.

For unregistered land, the key provision is section 11 of the LRA 2002, which states that, on first registration with absolute title, the buyer will take the land subject to entries on the register (a caution against first registration) and overriding interests which are contained in schedule 1 to the act. Most dealings with unregistered land will now give rise to compulsory first registration.

The changes

Since October 2013, the position has been ambiguous and without precedent. The fundamental issue is that chancel repair liability, if unregistered, does not simply become void. It may lose priority over a new registered purchaser for value, but the effect that loss of priority has in practice, and to what extent, if any, has yet to be tested.

Land Registry is at the forefront of responding to the changes. It has published guidance on how it now intends to deal with applications by parochial church councils (PCCs) for unilateral notices to protect chancel repair liability; essentially, Land Registry will continue to enter notices on the register, even for purchases which complete and are registered after the 12 October threshold.

If contracts are exchanged, the position at this stage of the conveyancing transaction is that, while parties are contractually bound to buy and sell, the legal title has yet to transfer from seller to buyer. If a PCC applies to register a notice protecting their claim under chancel repair liability between exchange and completion, it does so while the current owner retains legal title, and before the operation of sections 29 or 11 of the LRA 2002.

For registered land, it is possible that an official search with priority was secured prior to exchange, to protect against this eventuality, but it is uncertain that this will actually displace the PCC’s claim. Land Registry states that it intends to register the transfer and the notice at the same time.

The issue is complex. If the PCC’s application is postponed due to the official search with priority being secured in favour of the buyer / transferee (and lender if applicable), so that technically the notice is not placed on the register until after the operation of section 29, there are three potential arguments:

1. The PCC has lost priority against the buyer (and lender), but not against a future owner, and therefore the notice is a valid entry on the title.

2. The PCC has not lost priority, because it made its application before the operation of section 29; the processing of its application was simply delayed due to the official search. The notice on the title is valid and binding on the buyer, lender and future owners.

3. The PCC has lost priority against the buyer (and lender). However, it is uncertain whether this ‘cleans’ the title, and therefore prevents a PCC making a claim against a future owner or lender. It is also unclear whether it makes a difference if that future owner is a purchaser for valuable consideration or not. A notice is to be placed on the register until there is clarity regarding the legal position.

A notice on the register is not confirmation of validity or priority. Land Registry does not investigate or require evidence when an application for a unilateral notice is made. It is the obligation of the applicant to ensure they have a valid interest. In each case, when an application is made it can be disputed, but if unresolved between the parties, the matter will be referred to the Land Registration Division of the Property Chamber, First-Tier Tribunal. The recent case of Nugent v Nugent [2013] EWHC 4095 (Ch) confirmed that the court also has jurisdiction to order the cancellation of a unilateral notice from a registered title.

It is inevitable that disputes will arise, and a clearer picture will hopefully emerge as to the legal position on chancel repair liability.

The above points concentrate on the position for the buyer, but, in every case, there is also a seller. Loss of status as an overriding interest has no effect on the liability of those who purchased their property before 12 October 2013.

If an owner receives a demand for payment from a PCC, the liability to pay is personal, and the obligation to pay the sum demanded will remain with the owner at the time of the demand, even if they later sell the property. If the owner is selling when they receive a demand and exchange of contracts has taken place, whether the seller can make any claim for indemnity from the buyer will depend on the terms of the contract.

The issue highlighted above centres around the principle of priority and its application. The Law Commission, the Law Society and Land Registry are aware of other concerns which could mean that the question of priority is irrelevant. A consideration of those concerns is outside the scope of this article, but it undoubtedly adds to the uncertainty surrounding chancel repair liability.

Responses in practice are likely to be disparate – the comments of members of the Property Section’s executive committee shown on these pages highlight this. The Law Society is aware of the problem chancel repair liability presents for its members, and has been engaged in responding to the issue long before the October 2013 threshold. Solicitors will find the Law Society’s guidance in the Conveyancing Handbook (Law Society Publishing).

Whatever response you choose, there are some basic points to address, as follows:

• Check the title deeds for any reference to or protection of the liability;
• If there is no such reference, consider if it is appropriate to perform a search and/or obtain insurance; and
• Keep track of any developments in the law or advice offered by the Law Society and Land Registry.

Jennifer Slade is senior lecturer in law at Northumbria University

• This is an edited version of an article first published in Property in Practice, the quarterly magazine of the Law Society’s Property Section – a community designed to help implement best practice. The Section covers everything from flood risk and conveyancing fraud to break clauses and capital allowances. Open to property solicitors, licensed conveyancers and trainees, benefits also include topical webinars and discounts off our annual conference. For more information and to subscribe, see the Law Society’s Property Section.