UK: CLLS publishes the Eighth Edition of the Certificate of Title - Key takeaways for Lenders

The Eighth Edition reflects the market position on what lenders expect to see in a certificate of title. The changes are positive and more for the borrower’s lawyers (who usually prepare the COT) to be aware of so they make the necessary disclosures against the revised schedules.

Here are our Top Five Takeaways for Lenders to note:

• Liability cap - the liability cap wording is now included in the Certificate (previously the CLLS had suggested wording in the guidance notes but it was not included in the Certificate as standard). The wording can still be negotiated though, depending on the lender’s position, either to remove the cap altogether or to agree a level of the cap that would cover the full amount of the loan, plus interest and charges.

• Valuer - all references to the Valuer and the report provider having sent the Certificate to the Valuer for “sign off” have been removed as in practice it’s the Lender or the Lender’s lawyers who liaise with the Valuer and not the Borrower’s lawyers who in most cases prepare the Certificate.  Most facility agreements will still include a requirement for the Valuer to sign off on the Certificate and any other property reports (such as Lender’s Overview Report) as a condition precedent.

• Construction - the Certificate now requires the report provider to disclose any construction works carried out at the Property in the last 12 years (previously only 6 years). The 12-year period reflects the usual liability period under a collateral warranty. That said, lenders may not require fresh collateral warranties for works carried out more than 6 years ago and the sensible approach in such a scenario would be to just take security over the Borrower’s existing warranties.

• Searches – environmental and flood searches, coal mining and chancel repair searches are no longer listed as the standard searches relevant to all properties.

1. • Environmental and Flood Searches have not been included since practice differs as to who does the search. It is also worth checking if the Valuer has carried out a desktop environmental search (which it usually does) because then the Borrower does not need to incur the additional cost of carrying this out twice.

   • Coal mining should still be carried out if the Property is in a coal mining area but a disclosure should be included as “other relevant search”.

   • Chancel Repair searches are no longer listed as it is questionable whether this search still needs to be carried on the basis that any potential liability should now be registered on the title to a Property, and so disclosed in the Title section of the Certificate (Schedule 2).

• Residential and mixed-use buildings – the Certificate introduces for the first time a new section including statements about the Property being a residential and/or mixed use building. The statements seek to establish whether the relevant legislation relating to any of the Tenant’s rights of first refusal, collective enfranchisement and right to manage applies.

When should the Eighth Edition be used?

The Eighth Edition was published in early May 2023 so should be used now instead of the Seventh Edition.

That said, we are working on a number of transactions where the Seventh Edition is still being used because it was started before the Eighth Edition was published or a previous Certificate based on the Seventh Edition is being updated for a refinance and, the lenders are sensibly not asking the report providers to “reinvent the wheel”. In the latter scenario, we are just asking for confirmation in the front end of the Certificate that the Eighth Edition has been considered and any relevant new disclosures are provided.

Thanks to the Committee at the CLLS for this much awaited revised edition and we understand the CLLS welcomes any feedback.

Authored by Paula Inglis and Karolina Stein.