It looks like the ‘For sale’ boards are going back up at Land Registry. For the second time in four years, the Department of Business, Innovation and Skills (BIS) is proposing that the Registry’s operations should be sold off into the private sector. On 24 March, BIS launched a consultation on its new proposals, with responses to be received by 26 May.1 These proposals could affect your work fundamentally if you practise in any area of law which uses Land Registry, including family and probate as well as conveyancing, so it is well worth having a look at them now.
It did not escape attention that 24 March was the day before the long Easter weekend: Estate Agent Today announced ‘Government sneaks out consultation on Land Registry privatisation’ , and calculated that five per cent of the consultation time had elapsed by the start of the first working day after the consultation was launched.2 2 Time is of the essence for anyone who wants to consider and respond to the new proposals. With that in mind, here is a summary of the essential elements.
The basic proposal is that the Crown would continue to own the Land Register, together with the planned new Local Land Charges (LLC) Register, the Bankruptcy Register and the Agricultural Credits Register, and the data in the Registers would continue to be Crown copyright.
All of Land Registry’s other functions would be transferred to a new private company, called ‘NewCo’ in the consultation document. NewCo would have exclusive rights to use the information held within the Registers, and would acquire the existing workforce.
Land Registry plays a fundamental part in the UK economy because it is, in general, seen as reliable, efficient and above all impartial
BIS’s preferred model is that NewCo would be a limited company in which ‘the investor would buy shares’ (para 68). This could mean that the shares will be traded on the open market, although it could equally mean private equity funding. Either way, on the preferred model, NewCo will be privately owned. The consequence would be that private investors alone would control a company which would have monopoly access to all Land Register data, and monopoly power over what goes onto the Register (para 68).
BIS acknowledges that the government could retain some shares in NewCo and/or could pass some ownership on to the workforce; however, it is clearly stated preference is that the state should own no shares in NewCo.
At the front and centre of BIS’s objectives in putting forward the proposal is that of ‘maximis[ing] upfront proceeds for the Exchequer’ (para 41(1)) . This objective is explicitly linked to the chancellor of the exchequer’s autumn 2015 statement, in which the government proposed £5bn of corporate and asset sales by March 2020 in order to pay down the national debt.
The benefits to the Treasury are said to be twofold. First, NewCo’s investors will pay a large capital sum to the Treasury to operate and Registry: there are already reports that one private equity company is preparing a substantial bid.3 3 Second, BIS’s case is that a private company has greater freedom to develop profitable new areas of business, as well as deeper pockets to finance them, than are available to the state-owned Registry. A share of those new profits would be paid back to the Treasury.
This profit-making objective is the crucial difference from the 2014 proposals, which were more broadly focused towards increased efficiency and greater capital investment, particularly in IT. These are still objectives of the new plan, but the return of money to the exchequer is the definitive factor.
As far as NewCo’s day-to-day operations are concerned, there would be a service contract between the government and NewCo, which would be managed by a group inside the government ‘with appropriate contract management expertise and understanding of land registration’ , although BIS does not expect this group to be ‘either large or costly’ (para 74). The service contract would include performance monitoring; and would set targets and payment terms; ‘gain-sharing’ or clawback provisions for the government; and provide for ‘step-in’ rights if there were service failures. Crucially, the contract would oblige NewCo to generate new data-based commercial services and generate profit from them, some of which it would pay to the Treasury.
From the start of NewCo’s operations, all first-instance registration decisions, including those where there is, for example, a conflict between plans or an adverse possession claim, would be taken by a private sector employee. This proposal has predictably caused some alarm, as it did in 2014. The right to take a registration dispute to the Property Tribunal or the High Court would, however. remain in place.
All of this is to be achieved within a very tight timescale. The target for agreement of the service contract is some time during 2017, and the intention is that private sector operations would begin in that year. It is said that continuing uncertainty is not in the interests of the Registry, its clients or workforce, and risks ‘investor fatigue’ (para 40). One suspects that property professionals are not going to see these as very convincing reasons for such haste.
As to end-user costs , BIS’s proposal on fees is that it would be business as usual, namely, that the business secretary should continue to fix the appropriate fees in fee orders, which are then approved by parliament. However, at present, the business secretary fixes fees only in respect of the ‘core statutory’ functions, such as registration and inspection of the Register (para 52). The question of whether NewCo will be able to fix its own fees for the supply of non-statutory data is left unaddressed, but the intention is probably that NewCo would have considerable freedom, because the key part of the business case for NewCo is that it can make profits.
Some of the most important sections of the consultation are the ones which are the lightest on detail. The principle of the state-backed guarantee of title, by which compensation is payable to anyone who has suffered a loss by reason of a mistake in the Register, would remain in place. Presumably, a NewCo employee would decide in the future whether compensation is payable, and if so how much is to be paid; however, it is not at all clear who would be paying.
NewCo would have monopoly rights to data which we are all obliged to give it as a matter of law. The possibilities for a private company, particularly a private equity company with significant ties to capital elsewhere in the world, to abuse its position are obvious, and are not limited to high fees. Red flags are also being raised about the government’s commitment to free and open access to Land Registry data, and whether this is likely to conflict with NewCo’s business model.
BIS’s position - that the public’s interest will be safeguarded by the Competition and Markets Authority (as far as monopoly is concerned) and by the Data Protection Act 1998 (in respect of the misuse of, or access to, data) – will probably be seen as inadequate.
Towards its end, the consultation document puts forward a number of alternatives to the basic NewCo proposal, including one option in which a new regulator – a sort of ‘OFLAND’ – would be created to licence NewCo and set fees. However, in one shape or other, the NewCo system is said by BIS to be only viable way forward.
In 2014, 91% of respondents to the consultation (including the Law Society) did not agree that Land Registry would carry out its functions better via ‘a more delivery-focused organisation at arm’s length from government’ , and 89% said that they would not be comfortable with non-civil servants processing Land Registry information, even if this was done within a framework set out by the Chief Land Registrar in a service contract.4 4 On those points, nothing has changed between 2014 and 2016, and the early signs are that the 2016 proposal is also going to face considerable opposition.
It is clear that these new proposals have caused deep disquiet among property professionals. Land Registry plays a fundamental part in the UK economy because it is, in general, seen as reliable, efficient and above all impartial.
However, it probably needs very significant capital investment in the age of ‘digital by default’ , and at present central government is clearly not prepared to make that investment (para 30). The result is a stark conflict about its future: should it be a public service or an income generator? Only one thing is predictable: the responses to the consultation are going to be very interesting.
1 Consultation on moving Land Registry operations to the private sector, available here
2 Available here
3 See here
4 Introduction of a Land Registry service delivery company: government response para 30, available here