Development finance is more available than ever. As a consequence, the classic large house purchase with conversion to flats or extension coupled with a small floor plan re-jig to create more flats is a common vision by investors and small to medium size builders.

So there we have easiest model ever; extend the building (up or backward, take your pick) pinch a bit from each existing property and 3 flats becomes 5. As advisors to various lenders, many specialists in the buoyant short term funding/development sector, we see this scheme repeatedly. A Deed of Variation is typically the document prepared for consideration. On the face of it that would make sense. They are after all only varying the existing leases to reduce the floor space.

Unfortunately a signification number of borrower’s solicitors don’t seem to appreciate that the Land Registry stance on receipt of a deed to “vary” any material or salient part of the lease (of which the “Demise” is without question one) is treated as a surrender and re-grant. The old title number is closed and new one allocated. The threat therefore is that the lender’s security is inadvertently “lost” during this surrender and re-grant process.

Fortunately a Land Registry requisition is normally raised to this effect so the disaster is often averted albeit not before a perplexed frown followed by some head scratching on the part of the solicitor presenting the application.

A Deed of Substituted Security is needed to successfully port the Lender’s security from the existing title number to the new one. Making the Lender party to the Deed of Variation could also achieve the same outcome, although the delay’s arising from having a deed circulated to 3 different parties for execution then rears its head. A Deed of Substituted Security is a short, simply and easily created document that fully protects the Lender’s Security and leaves the owner/Borrower to vary their leases as first intended.

Why am I writing this? I see an unfortunate number of cases where I am presented with a Deed of Variation to approve and have to explain to my opposite number that this is insufficient. They tell me I am wrong and tell their client I am wrong. The Borrower complains to the Lender, the Lender queries with me if I am in fact correct but my position remains unchanged. Historically I would spend several days, weeks even arguing over on why the deed for the Deed of Substituted Security is fully merited. Recently however in case involving 5 flats all being varied to create a further 3 my resolve folded and I issued the Borrower’s Solicitor with his consent to dealing certificate (to the variations) conditional on the Land Registry NOT  closing the title and allocating a new title number. The transaction was completed by the Borrower’s solicitor and his client promptly complained to my Lender client at the wasted time, delays and additional cost all created by my unhelpful and seemingly “wrong” stance.

Last week I received a surprisingly short email from the borrower’s solicitor simply asking me to “help them by addressing a Land Registry requisition”.  It read:

“Your proposed application will trigger surrender and re-grant and the allocation of a new title number. The certificate from Lightfoots was conditional upon this not happening. As such the terms of the consent have not been met. Should you wish to preserve the existence of the legal dated xxxx in favour of [lender], a Deed of Substituted Security will be required”.

Cue article drafting and ever so slightly wry smile…


Contact Joe on 01844 268 304 for further information.

Please note that the information in this article is not designed to provide legal or other advice or create a solicitor - client relationship. No liability is accepted for any loss caused in reliance upon its content and you should not take or refrain from taking action based upon the same.