Inclusion of a few words and phrases can ensure that the buyer gets the benefit of a few implied covenants under the Law of Property (Miscellaneous Provisions) Act 1994. The phrase, ‘the seller sells with a full title guarantee’ indicates that the buyer gets all the covenants implied under the Act. And if the seller includes the phrase, ‘the seller gives with limited title guarantee’, the buyer would get only a limited title guarantee. In some cases, the seller may also state that he does not give any guarantee.
When a contract does not mention anything about title guarantee, it indicates that SC 4.6.2 and SCPC 6.6.2 are applicable. These provide that the seller provides full title guarantee. Thus, if a seller does not wish to offer title guarantee, this will have to be included as a special condition in the contract where the above mentioned provisions will have to be amended. But implied covenants for title are implied into the transfer and not the contract. The only purpose of adding these provisions is to tell the buyer about covenants that will be included in the transfer.
Details of implied covenants
In the following paragraphs,
Disposition: means a transfer of land for value, gift, or grant of lease,
Seller: refers to a person who sells for consideration, gives away, or grants a lease,
Buyer: refers to a person who buys for value, is a donee, or receives a grant of lease.
With respect to both full and limited title guarantees, the following covenants are implied along with the transfer:
a) A covenant that the seller has the right to transfer the land as he wishes to. This also indicates a promise that he can do what he has promised to do in the disposition.
b) A covenant that the seller will do everything reasonable expected to transfer the title of the land intended to be transferred. Thus, if a clear title cannot be given, the seller would assist in perfecting the title at his own expenses. This includes, helping a buyer in applying for registration of title under the LRA 1925.
c) When the land is given away as leasehold, the seller impliedly guarantees that the lease subsists at the time of disposition and that no breach of covenant has taken place that makes the lease liable to forfeiture.
However, there is a major difference between giving a full and limited title guarantee:
a) With respect to full title guarantee, it is implied that the land is disposed from incumbrances other than those that the seller does not know about or could not have reasonably known about.
b) With respect to limited title guarantee, it is implied that the seller has not himself incumbered the land, nor is he aware of anyone who has done so since the last time the land was transferred for value. Thus, if a donee further disposes a land with limited title guarantee, the donee covenants that he has not incumbered the land, nor is he aware if the donor had done it.
Notes:
a) The seller shall not be in breach of implied covenants with respect to matters:
1) Where the transfer is itself made a subject. For instance, when a land is expressly transferred subject to a restrictive covenant that is contained in a deed dated 1st January 1950, the seller cannot be held liable with respect to that incumbrance.
2) Also when the buyer knows about the covenant at the time of transfer. Thus, when a buyer knew at the time of transfer that there existed an overriding interest, he cannot sue the seller for the overriding interest.
b) By inserting a clause in the transfer, the seller can always modify the effect of any covenants.
Drafting the Contract
At the time of drafting the contract, the conveyancing solicitor acting on behalf of the seller will have to determine from the seller if he intends to give, full or limited title, or shall not give any title at all. The seller’s decision would largely depend on the situation of the seller and the state of the land at the time of transfer. The seller’s conveyancing solicitor would have already investigated the title of the property intended to be sold, and if there exists a good title, there is no reason why the seller should refuse to promise a full guarantee.
When the seller agrees to a full title guarantee, the same should be indicated in the contract with the wordings, ‘the seller transfers to the buyer with full title guarantee’. By including this phrase, the seller also implies covenants for the title into the transfer.
When a seller does not have proper knowledge of the property intended to be transferred, it is safe to give a limited title guarantee. This is usually done, when trustees hold a property on trust for other people and when personal representatives sell a property to a third party.
The conveyancing solicitor acting for buyer and/or lender should check with the lender if he requires a full title guarantee. However, it is common practice for mortgagers to accept full title guarantee only.
When a seller has a questionable/no title to the land (for instance, property acquired by adverse possession) they would be obviously unwilling to give a full or limited title guarantee. Under such circumstances, a special condition is inserted so as to negate any inference of good title. It can also be given clearly on the front page of the contract. Such a practice is common when donors make a deed of gift of property or when a receiver/administrator sells assets of a bankrupt or insolvent seller. Although it is understood that lenders who sell under their power to sell can provide a limited guarantee to the title, it is common practice for them to give no title guarantee at all.
Assignment of a Lease
When the seller assigns a lease under full or limited guarantee, he promises that there has not been a breach of covenant and that there is nothing that would cause forfeiture of the lease. However, under SC 3.2.2 and SCPC 3.2.2, a lease is sold subject to a tenant’s covenant regarding the physical state of the property, thereby making it ‘less liable’ for forfeiture.
Grant of a Lease
A tenant taking long term residential lease pays a lot of money as premium, and would hence need a title guarantee. But such guarantees are not given in short-term lease. Covenants for the title are implied when landlords give full or limited title guarantee.
Photo courtesy: Infrogmation
