An unsecured creditor, such as a credit card company or utility company, or a local authority may, if the debtor owns property, obtain a charging order against that property. If that happens, the creditor’s interest may be noted on the title to the property. If the debtor is the sole owner it should be registered as a charge (either a legal or an equitable charge). In that case, it will need to be repaid when the property is remortgaged or sold, otherwise the new lender will not get a first charge (in the case of a remortgage) or the buyer will be subject to it (in the case of a sale).
Jointly Owned Property – form K restriction
If the debtor owns the property with someone else a charge cannot be registered and instead a restriction in standard form K may be added to the proprietorship register of the title, which will appear as follows:
No disposition of the registered estate, other than a disposition by the proprietor of any registered charge registered before the entry of this restriction is to be registered without a certificate signed by the applicant for registration or their conveyancer that written notice of the disposition was given to [name of person with the benefit of the charging order] at [address for service], being the person with the benefit of [an interim or a final] charging order on the beneficial interest of {name of judgment debtor} made by the {name of court} on [date] (Court reference {insert reference}).
The restriction catches both sales/purchases and remortgages and the purpose of it is firstly to put a new lender on notice that part of the equity in the property is charged to someone else (so that they will not have a charge over it) and secondly to ensure that the person with the benefit receives notice if the property is remortgaged or sold, so that they can pursue the debtor for any cash generated as a result of the sale/remortgage.
Removing a form K Restriction on Sale
In order to comply with the restriction the purchaser’s conveyancer (or the purchasers themselves) simply need to provide a certificate to H M Land Registry confirming that notice was served on the restrictionor at the address given in the restriction. To do that, he or she will need confirmation from the seller’s conveyancer that the notice has been served.
A form K restriction is a “trust restriction”, so as long as the purchase price is paid to at least two trustees (i.e. there are two or more sellers or if there is one seller a second trustee is appointed), HMLR should remove it automatically when the registration application is submitted.
Risks of Proceeding Without an RX4 for a Charging Order (Form K) Restriction
When an application to register a transfer of a title which contains a charging order restriction and there are at least two transferors HMLR will check if it has received the appropriate certificate of compliance. If it has, it will serve notice on the beneficiary of the restriction confirming its intention to remove it. The beneficiaries may object. If they do, HMLR will assess whether the objection has any merit. If they consider it to be completely groundless they will dismiss it. Otherwise they may refer the parties to arbitration or else refer the matter to the tribunal.
It is not clear in what circumstances HMLR might choose not to dismiss an objection, however it would not be necessary for the restrictionor to prove their case, only to show that the objection was not baseless. If HMLR do not dismiss the application then this will at best lead to a significant delay and at worst, could mean that the buyer ends up taking subject to the charging order.
The risk here is probably quite small, however the consequences if it does go wrong are dire therefore given that in most cases the seller will need to pay the debt anyway, a buyer should insist on production by the seller’s conveyancer of an RX4 signed by the restrictionor.
