When buying commercial property, it is important to carry out due diligence so that you are fully aware of any issues affecting the property before agreeing to purchase. There are some searches that should be done before a buyer commits to a contract for sale, and others which may be useful depending on the circumstances.
It is the buyer’s responsibility to investigate the property that it is proposing to buy. One of the most important searches is a title search, which our commercial property solicitors will discuss in more detail in this article.
Contents:
- What is a title search?
- When should you conduct a title search?
- How title searches protect commercial property buyers
- Do title deeds prove ownership?
- What does a title search involve?
- How to interpret the title search results
- What should you do if the report identifies a defective title?
- How long does a title search take?
- How much does a title search cost?
- Summary
What is a title search?
A title search is the investigation of a title to a property. This is usually provided by the seller as part of the contract pack on the sale of freehold or leasehold property. Most properties are registered with the Land Registry and the title search will include official copies of the register, the title plan and any documents referred to on the register. Some properties which haven’t changed hands for many years remain unregistered, and the seller will usually provide an epitome of title, accompanied by documents listed in the epitome.
The title search will provide information on:
- who owns the property
- the extent of it
- the price paid (if recorded)
- whether it benefits from any rights
- whether it is subject to third party interests like mortgages, rights or covenants, and
- any leases (if applicable)
A Land Registry index map search is often useful as part of title investigations, as it may disclose other entries and interests that cause problems or at least require further investigation.
When should you conduct a title search?
It is wise to investigate the title at the earliest opportunity as part of the buying process so that if any issues are highlighted which require further investigations or enquiries, applications, or insurance, they can be dealt with as soon as possible, and in any event before exchange of contracts takes place. Title problems can cause lengthy delays or can lead to a buyer withdrawing from a sale. If unsatisfactory matters are not dealt with prior to exchange of contracts, a buyer is usually prevented from going back to the seller after committing to the contract.
Title searches are also carried out as part of taking on a commercial lease. The tenant will want to be assured of the landlord’s title as well as matters which may benefit or burden a property, which would also then impact on what the tenant may do with the property.
How title searches protect commercial property buyers
A title search can help to protect the buyer's investment by uncovering any problems with the property's title. It will also allow the buyer to understand the extent of the title, and whether the property benefits from all necessary rights, such as a right to access the property if the property does not adjoin the adopted highway.
Potential issues may include:
- liens – generally a type of security interest arising by operation of law and which may rank ahead of other security in some cases
- easements – such as an adjoining property benefiting from a right of way over an area within the property that the buyer may want to develop
- restrictive covenants – such as a covenant which may prevent the buyer’s intended use of the property
A title search can also help to ensure that the buyer is getting clear title to the property. For example, a seller would be expected to pay off any mortgages or other financial charges registered against the title, on or before completion of a sale.
Do title deeds prove ownership?
The title deeds usually confirm the details of the legal owner, but a seller may be entitled to sell the property in some other capacity, such as a trustee in bankruptcy, personal representative (on a death), as trustee on behalf of others or as an attorney, and their details may not appear on the title. They would have to provide other evidence of their power to sell the property.
What does a title search involve?
For a registered title the official copies are split into sections:
- Header – this section provides details such as the title number and the date of the official copies
- Property register – this section describes the land and gives details of rights which benefit it. It will also confirm whether it is a freehold or leasehold title and give details of the relevant lease (if it is leasehold)
- Proprietorship register - This section states the class of title (with ‘absolute’ title being the best class of title), the name of the legal owner and contains any entries which affect the right of disposal. Sometimes there are restrictions which require a letter of consent or a certificate from a third party to enable a sale to proceed
- Charges register – This section will list any mortgages, other financial charges, notices and covenants affecting the land
For unregistered land, the epitome of title should cover the above sections, but will be covered in various documents provided with the epitome.
How to interpret the title search results
A commercial property solicitor is qualified to interpret the results of the title search and they have the expertise to advise on potential issues and appropriate actions to ensure a clear and marketable title. They will do this as part of the conveyancing matter, along with obtaining other searches and often acting on behalf of any lender at the same time.
As part of title investigations, it is useful to note that:
- often the official copies of the register only provide basic details, which refer to another deed or document for the detail
- the title plan usually only shows the approximate boundaries of the title and cannot be relied on for accuracy
- certain unregistered interests will be binding on the property owner, regardless of notice – these are not apparent from the title search and require other investigations
- the sale may only relate to a smaller parcel of land within the title, and only some of the title entries may apply to that parcel of land
Once a title investigation is complete, the commercial property solicitor will prepare a report on title and report to the lender. Any issues will need to be resolved or dealt with in the contract or other appropriate document.
What should you do if the report identifies a defective title?
Here are some of the common issues revealed on a title search, which require further action:
- Outstanding financial charges and liabilities – the buyer’s solicitor will ensure the seller commits to paying off anything owed to a third party on or before completion, so that the property is no longer used as security and so that the buyer does not inadvertently become liable for any debts of the seller after completion
- Boundary disputes which are often complex and uncertain as to their outcome - Land Registry has a ‘general boundary rule’, but they will still try to show the land and its boundaries as accurately as possible. If the plan does not appear to clearly show the extent of a property, there are various options which can be lengthy and costly, such as an application for a boundary determination, a boundary agreement, a transfer of land, or litigation. It is better for any disputes to be settled before a sale takes place
- Title discrepancies and correcting errors on the title register – there is an application process to Land Registry for alteration or rectification, which. An example would be omitting an entry for a right of way from the register
- Breach of restrictive covenants – if the current or intended use could breach a covenant, there are options available to deal with that, all involving time and expense, such as negotiating the release of the covenant or easement, applying to the Upper Tribunal (Lands Chamber) for an order to discharge or modify the covenant, or indemnity insurance (which is usually the quickest and least expensive option)
Some title entries may also affect the market value of the property and may also need to be referred to any lender and valuer or surveyor.
How long does a title search take?
As a general estimate, it can take between 4 to 6 weeks from applying for searches (on receipt of the contract pack) to the exchange of contracts. The title search and investigation are a key part of the commercial property purchase process. The length of time this element takes is very much dependant upon the nature of the matter, the complexity of the title and associated documents, and any further actions or investigations required to ensure a clear and marketable title.
How much does a title search cost?
The seller will usually cover the cost of purchasing official copies of the register, title plan and associated documents from Land Registry. A buyer will be charged fees for their commercial property solicitor to act for them, including the report and advice, usually based on their hourly rate (plus VAT).
Summary
The expertise and advice of your commercial property solicitor will prove invaluable when purchasing or leasing a commercial property.
Once you have digested their report on the title and other matters, you will be able to consider whether any issues can be overcome to your satisfaction. Provided that the property will still meet your needs and that your lender will still commit to their offer, you will be ready to move towards completion of your purchase or lease.
