Registering a form J Restriction
January 2009
Introduction
1) 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, his or her interest is 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 and other charge-holders from the value of the property.
2) 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 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).
3) 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 or 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.
4) 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 or her interest in a property that is jointly owned, the official receiver (OR) 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 or her interest in a property. Under the Land Registration Act 2002 (LRA2002) cautions against dealings were abolished and replaced with Form J restrictions.
5) 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 or 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 or her caution or restriction. The official receiver then has the opportunity to consider the appropriate action.
6) 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 or 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.
Land Registry form RX1 is used to register a Form J restriction. When completing this form, the official receiver must provide evidence that he or she has sufficient interest in the property which is capable of being registered by the Chief Land Registrar. The Land Registration Rules recognise a trustee in bankruptcy as having sufficient interest in a property.
The Land Registration (Amendment) Rules 2008 came into force on 10 November 2008 and have introduced new versions of almost all HM Land Registry forms, including form RX1. Whilst Land Registry will accept applications for Form J restrictions on the old RX1 form until 9 February 2009, as the wording of the restriction has changed it is suggested that only the new Form RX1 should be used.
8) Completion of the HM Land Registry form RX1
(Amended July 2010)
A template copy of form RX1 has been downloaded as a word document and completed, for example purposes in blue text, with the information that HM Land Registry require to lodge a Form J restriction. The contents of this form have been agreed with HM Land Registry to avoid applications being rejected.
To view the proforma RX1 click HERE.
The wording of the restriction makes it clear that a restriction cannot prevent the registration of a disposition by a registered charge-holder whose charge was registered before the restriction.
It is important that the official receiver (or deputy) signs both panel 10 and panel 12 of 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 £50, as prescribed by the Land Registration Fees Order 2009.
If both joint owners of a property are bankrupt then the fee payable is still £50 (providing that both of the RX1 applications are lodged together). Further guidance on the required process is outlined HERE on the ORBS intranet site.
9) What is a Form A restriction?
The official receiver should ask the Land Registry to enter a Form A restriction at the same time as registering a Form J restriction and is to be detailed on the same form RX1. 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 of a Form A restriction.
10) 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 Land Charges Department 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.
11) Quoting the Midlands RTLU as the default address on Land Registry form RX1
(Amended July 2010)
When producing the Land Registry forms RX1, the Midlands RTLU address of PO Box 10089, Birmingham, B2 4WH should be used as the default address at Panel 9 instead of the local office address. Midlands RTLU 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. The local office address should be used at Panel 7 of the RX1 to avoid correspondence regarding the RX1 application being returned via the Midlands RTLU.
12) 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 or 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.
13) 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.
14) 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.
Notes
a If both joint tenants are bankrupt, two separate Form J restrictions must be registered. Where separate bankruptcy orders have been made against them two fees are payable but where one order has been made against them only one fee is payable.
b In cases where the mortgagee has obtained possession or is in the process of re-possessing the property, refer to the examiner, as it may no longer be necessary to lodge a Form J restriction.
Where can I find out more?
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)
The Land Registration Act 2002
The Land Registration Rules 2003
The Land Registration Fees Order 2006
The Land Registration (Amendment) Rules 2008
Technical Manual
Chapter 33 – Bankrupt’s interest in the family home
Chapter 50 – Dealings with the Land Registry
Technical Notices:
T20-05 – Civil Partnership Act 2004
T34-08 – Dealing with property in Scotland - making an application to the Court of Session to validate an insolvency order
Land Registry website
Registering a form J Restriction
Land Registry Practice Guide (LRPG) no 34 – Personal Insolvency
Land Registry Practice Guide (LRPG) no 35 – Corporate Insolvency
Forms to be used:
Land Registry forms
RX1 – Application to enter a restriction
CIT – Application in connection with court proceedings, insolvency and tax liability
K15 – Application for an official search (not applicable to registered land)
PN1 – Application for a search in the index of proprietors’ names
LOIS Document Production Forms
LRCLET – ‘Land Registry, caution letter’
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’
NTASS – ‘Notice to assurance company’
Click HERE to view the Flowchart for Registering a 'Form J Restriction'
Click HERE to view the template new (07/08) LR form RX1
Procedure
1 Receive instructions from examiner to deal with jointly owned property requiring an application to lodge a Form J restriction. Ensure full details of the property and its joint ownership are entered on LOIS, (CA15).
2 Obtain an office copy of the register from the Land Registry.
3 Send form MP2, letter to mortgagee lender (and other charge-holders) seeking information about the mortgage.
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 should be signed by the mortgagee and/or other charge-holder, and returned to the official receiver. Also send form MP1, letter 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.
5 When the office copy received from Land Registry confirm ownership is correct (proprietorship register). If not, refer to 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.
7 When replies are received from all known mortgagees and charge-holders, If there are any endowment or other insurance policies connected to the mortgage, prepare and send forms NTASS . This is 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.
8 Prepare a Form J restriction by completing and printing off form RX1 online at the Land Registry’s website http://www.landreg.gov.uk or onto a ‘saved copy’. See paragraph viii regarding the content of the new RX1 Form. Prior to applying ensure that the title number, the full address of the property and the joint tenant’s full name are to hand at this point.
9 When completed, pass to the official receiver (or deputy) 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 to record, and for forwarding to Land Registry with form J392 if paying by direct debit. If paying by cheque the cashier will forward papers to EAS who will raise the cheque and forward it with the application directly to LR. Ensure that the certified copy of the bankruptcy order and the copy of the no meetings notice are enclosed with any application.
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 of the application to lodge a Form J restriction, and forward a copy to the Land Registry.