Registering a form J Restriction
February 2006
Introduction
i What is the trustee’s interest in a property?
The trustee does not have an interest in the legal estate of a jointly owned property but in the proceeds of its sale. Thus, it is a bankrupt's share of the surplus remaining, after deducting the balance due to all mortgagees from the value of the property.
ii Why can’t a bankruptcy restriction be registered?
The reason a bankruptcy restriction cannot be registered is that the legal title is not vested in the bankrupt alone but in the joint proprietors and as a result the legal title does not vest in the trustee of the bankrupt’s estate. The joint legal title is not severable and consequently does not form part of the bankrupt’s estate. The reason for this is that Bankruptcy Law provides that the trustee can obtain no better title than the bankrupt him/herself had. Even if all joint owners are bankrupt, it will only be their beneficial interests and not their legal title that vests in the trustee. The bankrupt’s beneficial interest is in the proceeds of the sale. The Chief Land Registrar is not concerned with the beneficial interest in a property (which is severable).
iii What is "beneficial interest"?
A beneficial interest is the share in a property to which an individual is entitled. It is an equitable interest and unlike a legal interest is severable. Beneficial interest may arise as a result of a person’s financial contributions to the purchase of a property. The calculation of an individual’s beneficial interest can be quite complicated as there are various factors to take into consideration. For instance, the legal owners may not necessarily be the same as the beneficial owners.
It is important to understand the concept of both legal and beneficial ownership. For example, a house in joint names, purchased 3 years before bankruptcy, paid for entirely with monies from the husband’s business account. The wife does not contribute any monies. Although they are joint legal owners, it could be proved that the bankrupt is the sole beneficial owner as the wife cannot claim to have made any financial contributions towards the property purchase and any transfer of an interest in the property would be void under the provisions of The Insolvency Act 1986. Under normal circumstances, where spouses/civil partners contribute something towards the property, even though it is not in exact equal proportions, they may be regarded as joint beneficial owners as well as joint legal owners.
iv Why does the official receiver register a Form J Restriction?
The Land Registry will not register a bankruptcy restriction against any jointly owned land in which the bankrupt has an interest, even where all the owners are subject to bankruptcy proceedings. To protect his/her interest in a property that is jointly owned, the official receiver must lodge a Form J Restriction at the Land Registry. Prior to 13 October 2003, the official receiver would lodge a caution against dealings at the Land Registry to secure his/her interest in a property. Under the Land Registration Act 2002 (LRA2002) cautions against dealings were abolished and replaced with Form J Restrictions.
v What is the effect of registering a Form J restriction?
Generally, a Form J restriction has the same effect as the old caution against dealings. A Form J restriction is entered on the Proprietorship Register as a warning of the official receiver’s interest to anyone having possible dealings with that property. A Form J restriction has only a limited effect as it does not prevent dealings with the property. To fully protect the official receiver’s interest all known mortgagees and charge-holders must be informed of the insolvency order.
If an attempt were made to sell the property, the prospective purchaser would normally obtain an office copy of the Register of Title. This would show all the entries made against the land, including any restriction(s) lodged by the official receiver or any other trustee/liquidator. To ensure that the vendor has obtained what is known as good legal title to the land, the purchaser will normally require the vendor to obtain the consent of the cautioner to withdraw his caution. The official receiver then has the opportunity to consider the appropriate action.
vi Notice to mortgagees and charge-holders
The official receiver must ensure that all mortgagees and charge-holders are notified of the insolvency as soon as possible after the bankruptcy order has been made. They are also sent a questionnaire to complete regarding the type of mortgage held, amount outstanding, whether any security is held, etc. This information is significant, as the official receiver needs to determine whether there is any equity in the property and also ascertain whether there is any collateral security, such as endowment policies that may also need protecting.
In all cases where the official receiver becomes trustee, form MP3 must be sent to all mortgagees and charge-holders, asking them to note the OR's interest in a property which forms part of the bankruptcy estate and requiring them to account to him/her if they realise their securities, or if any other action is taken against the property. All recipients of the notice are required to return a duly signed copy of the notice, by way of acknowledgement of receipt.
vii Land Registry Form RX1
Land Registry form RX1 is used to register a Form J Restriction. When completing this form, the official receiver must provide evidence that he/she has sufficient interest in the property which is capable of being registered by the Chief Land Registrar. Rule 93(j) of the Land Registration Rules 2003 recognises a trustee in bankruptcy as having what is known as sufficient interest in the property. The information required to show the nature of the official receiver's interest is available in the Procedure part step 8 c also in Technical Manual Chapter 50 part 7(paragraph 50.79). The appropriate text should be inserted in part 13 of Land Registry form RX1.
There is a fee payable to the Land Registry for registering a Form J restriction and this should be charged to the appropriate estate. The amount payable is prescribed by the Land Registration Fees Order.
viii What is a Form A restriction?
A Form A restriction is equivalent to the old joint proprietorship registration (pre LRA2002). The official receiver should ask the Land Registry to enter a Form A restriction at the same time as registering a Form J restriction. Land Registry form RX1 is used for this purpose and must be accompanied by a copy of the bankruptcy order. When entered on the register this implies that the joint tenancy has been severed. It also means that should one of the joint-owners die, the rule of survivorship whereby the surviving member automatically receives the deceased’s share, would not apply. There is no fee payable for the registration.
ix Search of Index of Proprietors’ names
Under the Land Registration Rules 2003, the official receiver may apply for a search of the Index of Proprietors’ names in respect of an individual specified in the application. Form PN1 should be used for this purpose (accompanied by Form CIT) and an appropriate fee is payable for each name searched. The search will reveal registered land or charges in which the bankrupt or company appears to have sole or joint interest. If copies of the Register of Title are required an additional fee is payable.
Where the official receiver is using this facility to identify any property that may be jointly owned by a bankrupt, the name of any spouse or civil partner if known, should be included on the application. Form PN1 should clearly show the official receiver’s case reference number and telephone number of the case officer to be contacted by HM Land Registry in the event of any query. In matters where the search is to be limited to counties served by only one District Registry, the form should be sent to that specific Land Registry. In all other cases, the form should be sent to HM Land Registry, 32 Lincoln’s Inn Fields, London, EC2A 3PH.
In exceptional cases, a search of the LCD at Plymouth may be used using Land Registry Form K15. This should not be carried out as a matter of routine and only in rare events for example, in a non-surrender where the search may reveal an asset of the insolvent and/or possibly the current whereabouts of a company director or bankrupt.
x Quoting PRU as the default address on Land Registry forms
When producing the Land Registry forms, PRU’s address of PO Box 10089 Birmingham should be used as the default address instead of the local office. Although PRU will be disbanded after 31 March 2006 this practice should be continued and RTLU Midlands will forward any subsequent Land Registry correspondence to the appropriate office dealing with the case. This covers the problem of dealing with properties in matters where the official receiver has re-located some years after the original restriction was lodged and a re-direction of mail is no longer effective.
xi How does the OR deal with property in Scotland?
Where a bankrupt jointly owns a property situated in Scotland, the OR should initially have the bankruptcy order noted in Scotland. This is done by making a written request enclosing a copy of the bankruptcy order, to the Petition Department of the Court of Session in Edinburgh. The noted bankruptcy order together with evidence of the official receiver’s appointment as trustee, should be lodged with the Keeper of the Registers of Scotland with a request that it be entered on the Register of Inhibitions. This should alert any person who attempts to purchase or lend on the land that the official receiver has an interest. In addition, the official receiver should also write to the bankrupt informing him/her that the official receiver must be informed in writing, should there be any attempt to deal with the land.
The normal procedure of notifying all mortgagees of the bankruptcy order should also be followed (form MP2) and where the official receiver is trustee notice to account (form MP3) must also be served.
xii Registration of a Form J Restriction in company cases
The official receiver will only wish to register a Form J restriction in company cases where a property is jointly owned by the company and others.
xiii Civil Partnership Act 2004 (CPA)
The CPA came into force on 5 December 2005 and allowed civil partnerships to be formed in the UK from 21 December 2005.The introduction of the CPA gave same-sex couples the ability to obtain legal recognition for their relationship. Although civil partners have much the same rights and obligations as spouses, civil partnership is a new legal relationship, exclusively for same-sex couples and is distinct from marriage. A civil partnership is formed when the proposed civil partners sign relevant documents in the presence of a registration officer and two witnesses. Generally, the civil partner of a bankrupt will have the same rights and obligations as a bankrupt’s spouse.
Where can I find out more?
Technical Manual
Chapter 50 - Dealings with the Land Registry
Chapter 33 - Bankrupt's interest in the family home
Land Registration Act 2002
Land Registration Rules 2003
Insolvency Act 1986
Section 283 Definition of bankrupt’s estate
Section 426 Co-operation between courts exercising jurisdiction in relation to Insolvency- Enforcement in other parts of the UK(Scot)
Technical Notices:
T24/03: Chapter 50: Dealings with the Land Registry
T20/05: Civil Partnership Act 2004
Management Notice: M2/02- Change of procedure to cautions lodged with the Land Registry
OROS Bulletin June 2005 paragraph 14: Disbandment of PRU
LOIS workbook: The bankrupt's home
"The Informer" Issue 37: December 1996- Item 15: Registration of cautions against dealings in land in Scotland
Land Registry website http://www.landreg.gov.uk/
Forms to be used:
Land Registry forms
RX1 Application to enter a restriction
RX4 Application to withdraw a Form J Restriction
CIT Application in connection with court proceedings, insolvency and tax liability
CT1 Application against first registration
OC1 Application for official copies of register/plan
OC2 Application for official documents
PIC Application for a personal inspection
HC1 Application for historical copies of the register or title/plan
PN1 Application for a search in the Index of Proprietors’ Names
AP1 Application to change the register
Doc 1 Forms
MP1 Mortgaged Property (1) - Letter sent to the bankrupt and/or co-owner of a property inviting an offer to purchase the bankrupt's interest in that property from the official receiver
MP2 Mortgaged Property (2) - Letter to mortgage lender seeking information about the mortgage
MP3 Mortgaged Property (3) - Letter to a mortgagee asking them to note the OR's interest in a property which forms part of the bankruptcy estate
MP6 Mortgaged Property (6) - A form specified by TLT Solicitors who act for official receivers in the transfer of the OR's interest in jointly owned properties under an agreement between that firm and The Insolvency Service
Click HERE to view the Flowchart for Registering a 'Form J Restriction'
Procedure
1 Receive instructions from examiner to deal with jointly owned property. Enter full details of the property on screen 700 (LOIS) including whether the property is freehold (REAL) or leasehold (LSE) and a short description of it e.g. 3 bed terrace. If the property qualifies as the bankrupt's family home it must be recorded here on LOIS. For more information on what may be regarded as the family home please refer to the Case Help Manual: The Family Home. There is also a LOIS workbook: The Bankrupt's Home available through OROS website which explains the input required on LOIS and the relevant screens. NB. The relevant information concerning the property and joint ownership details must also be entered on Assets & Liabilities, screen 15.
2 Obtain an office copy of the register from the Land Registry using the system preferred by your local office, i.e. by sending Land Registry forms OC1 accompanied by form CIT or alternatively request by telephone.
3 Send form MP2, letter to mortgage lender seeking information about the mortgage. (DO73).
4 If the OR is to be trustee, send 2 copies of form MP3, letter to a mortgagee asking them to note the OR's interest in a property which forms part of the bankruptcy estate. A copy of which is signed by the mortgagee and returned to the official receiver. Also send form MP1, letter sent to the bankrupt and/or co-owner of a property inviting an offer to purchase the bankrupt's interest in that property from the official receiver as appropriate.
When the office copy received from Land Registry
5 Confirm ownership is correct (proprietorship register). If not, refer to B1/ examiner.
6 Check charges register with bankrupt’s list of mortgagees and charge-holders. If there are any additional mortgagees or charge-holders, repeat step 3 and where appropriate, step 4.
When replies received from all known mortgagees and charge-holders
7 If there are any endowment or other insurance policies connected to the mortgage, prepare and send forms NTASS, a letter to the assurance company informing them of the bankruptcy order and seeking information about life policies held by the bankrupt. Please ensure that the schedule to accompany the letter is attached. (DO73).
When all replies received
8 Prepare a Form J Restriction by completing form RX1 online at the Land Registry’s website http://www.landreg.gov.uk You will need the following information:
1. On (date) a bankruptcy order was made against (name of bankrupt) in the (court details). I am trustee of the bankrupt’s estate.
2. The bankrupt is one of the registered proprietors of the land in title number (xxx) and at the date of the bankruptcy order the bankrupt had a beneficial interest in the proceeds of the sale of the land.
3. The bankrupt’s beneficial interest forms part of the bankrupt’s estate and has been vested in me under section 306 of the Insolvency Act 1986.
9 When completed, print the document and pass to AOR/OR for signing, enclosing:
10 When Form RX1 has been signed and returned to you, prepare form LRCLET, on LOIS (DO73) a letter to the Land Registry enclosing the Form J Restriction.
11 Attach form LRCLET to signed form RX1 and pass to the cashier for sending to the Land Registry with the appropriate payment. Ensure that a copy of the bankruptcy order is also enclosed.
12 Await acknowledgement from the Land Registry confirming that the Form J restriction has been lodged. Where this has not been received, prepare 2 copies of form LRCLET, selecting the option for the letter to be a reminder to the Land Registry to lodge a Form J Restriction.