Consultation on moving Land Registry operations to the private sector a BPF response

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1 Introduction 1. The BPF represents the commercial real estate sector an industry with a market value of 1,662bn which contributed more than 94bn to the economy in We promote the interests of those with a stake in the UK built environment, and our membership comprises a broad range of owners, managers and developers of real estate as well as those who support them. Their investments help drive the UK's economic success, provide essential infrastructure, and create great places where people can live, work and relax. 2. We welcome the opportunity to comment on the government s proposals to move the operations of the Land Registry to the private sector. Our key points are set out below, while Appendix 1 contains more detailed comments on selected questions in the consultation paper. Executive summary 3. The UK commercial real estate (CRE) market is one of the most attractive in the world, as well as one of the most transparent and liquid. This is of huge benefit to the UK as it means capital from all over the world ends up invested in our town and cities, funding development and regeneration projects up and down the country. 4. One of the main reasons that overseas investors choose to invest in UK CRE is the strength and certainty of legal title to property. Investors can be confident that they own their assets and that if for whatever reason there has been an error in registering their title then they will receive adequate compensation. 5. The strength and security of legal title is also hugely important to organisations that lend to real estate investors. Without such security banks and other lenders would be unwilling to provide capital for investing and developing property and this would make the job of renewing our urban environment considerably more difficult and expensive. 6. The effective maintenance of the Land Register is therefore critical to the UK s CRE market running smoothly and continuing to attract high levels of overseas investment. Any changes to the way that it is managed need to be very carefully considered in order to not cause uncertainty or concern for those involved in CRE transactions. 7. We make the following key points regarding the proposals set out in the consultation paper: 7.1. The state-backed guarantee of ownership is critical and should be retained under all circumstances. We would also support ownership of the Registers remaining in government as these should be seen to be ultimately held by an independent and impartial entity rather than by one with commercial aims. We agree with the level of data provision proposed by government Good service quality facilitates CRE investment and should be encouraged. Sadly, the past few years have seen a noticeable drop in service quality levels at the Land Registry, which is unsurprising given the collapse in numbers employed by the organisation. Additional investment is urgently needed.

2 7.3. The benefits of private sector ownership are hard to gauge, particularly as there is such little detail in the consultation paper regarding the basis on which a new owner would be paid. There are also a number of risks involved in an organisational change of that magnitude. If privatisation goes ahead, there must be a clear focus on service quality and strong incentives for the operator to invest in this area In-house legal expertise must be retained. One of the most important functions of the Land Registry, and one that is not mentioned in the consultation paper, is to make legal judgements on the validity of transactions. It currently uses its deep legal expertise and certain discretionary powers to make decisions on title registration that would otherwise need to be taken by the courts. This speeds up property transactions and ensures that the real estate market functions smoothly. This function must be safeguarded for the future The interests of the Land Registry and of its customers must be as closely aligned as possible. Regardless of whether it is publicly or privately owned, we would like to see formal mechanisms for stakeholders to monitor performance and provide constructive criticism and feedback to the organisation. 8. We remain at your disposal should you wish to discuss the comments in this in more detail. Ion Fletcher Director of Policy (Finance) British Property Federation St Albans House Haymarket London SW1Y 4QX ionfletcher@bpf.org.uk

3 Appendix 1 detailed comments on selected consultation questions Q1 Do you agree that the ownership of the Registers should remain in government? Yes. Certainty of property title is a fundamental element of the UK s real estate market s success; indeed this strength of legal title to property is one of the main factors driving overseas investors to put their money into our towns and cities. We would not want to see this strength compromised and are concerned that this may happen (or at least be perceived to happen) if the Registers themselves are sold into private hands. Q2 What steps should government take and what safeguards should it put in place to ensure continued and improved access to high-quality and reliable Land Registry data? We welcome the government s commitment to maintaining current open data products on the same or better basis as at present and to release still more open data where this supports public policy goals. This can probably be achieved through the inclusion of provisions in the terms of the contract entered into with Newco that require it to continue to make such data publicly available. Q3 How could government use this opportunity to improve the quality and accessibility of data produced by Land Registry for all sectors of the economy? The Government's open data platform suggests that more data should be released by Government departments and agencies, and in such forms that permit their findings to be processed and analysed. Most importantly in the advent of larger processing power and distributed computing, it should allow for separate and larger data sets to be compared. Insights afforded by such practices and discovery may lead to improvements in private sector practices, government efficiencies and new interventions to tackle policy problems. For example, in France and Germany, governments are progressing standards for Building Passports, which are intended to draw in all relevant information held on government databases pertaining to an individual building. Such information could be invaluable for property owners not only in maintaining properties, particularly with the advent of Building Information Modelling, but would also smooth property transactions. While their adoption in the UK would bear much closer inspection, the point stands that such novel practices could be prevented if there is under-investment in the infrastructure that supports the Land Registry or Newco. Q4 On what basis should government manage the relationship with a privately owned Land Registry to ensure Land Registry meets, as far as is reasonable, the data quality requirements of all stakeholders? As noted in our to Q2, the requirement of Newco to share data and the conditions under which it should do so should be enshrined in the service delivery contract entered into with government. At the very least, the contract should provide for the same level of data sharing and data quality as is currently available. However, there is ultimately a certain tension between the socially desirable aim of increasing public access to the data held by the Land Registry and the commercial imperative that any private sector operator of the Land Registry will face to maximise the profits they derive from that data. Given that Land Register is ultimately a part

4 of the UK real estate market s infrastructure, it feels to us that the socially desirable goal should take precedence. Q5 Do you agree that the suggested safeguards should be included in any model? Security and certainty of title is critical if the real estate market is to work smoothly and effectively. It is one of the main reasons why the UK s commercial real estate market is so attractive to overseas investors, whose capital is then put to use in maintaining and regenerating our towns and cities. This creates great places where people want to live and work and encourages further investment in infrastructure. Accordingly, we support the notion that certain safeguards must remain in place if the Land Registry s operations are transferred to the private sector. The safeguards that we feel are particularly important are: State backed guarantee of ownership from an investor s point of view it is of huge comfort to know that they will be compensated if a mistake has been made in registering the title of their real estate investment. The guarantee is tremendously important in encouraging investment into the UK and its loss would have a significant impact on the UK s attractiveness to investors. Service quality investment is further facilitated where the process of transferring title is quick, simple and accurate. Historically the Land Registry has provided a speedy service to customers, although there appears to have been a marked deterioration in service quality over the past few years, coinciding with a sharp fall in the number of people employed by the Land Registry. The resulting delays cause frustration and add cost to transactions, ultimately making it more difficult to invest in the UK. Register ownership as noted in our to Q1 above, we feel that ownership of the Registers should continue to sit with government. It is important that these critical records of title are owned and seen to be owned by an impartial and independent entity rather than one with commercial goals. Q6 Are there any other safeguards that you think should be included? Retention of legal expertise The consultation paper focuses very heavily on the operational side of the Land Registry s activities; registering and transferring title a mainly administrative procedure. However, little is said about the potentially hugely significant quasi-legal judgement calls that the Land Registry makes on a daily basis. It will sometimes be unclear whether or not a property transaction is valid under UK land law not necessarily because the transaction is crooked or fraudulent, but because the law itself is unclear. In these circumstances the Land Registry has to make a judgement as to whether or not to effect a transfer of title, based on its interpretation of the facts of each case, its legal expertise and long experience of real estate transactions. The Land Registry has discretions that can allow it to keep land in productive use, or bring land back into productive use, by curing a minor technical defect that has prevented investors from investing in that land. Others allow the land registry to streamline the land transfer process, or deal with issues that were not envisaged when the Act was passed, or do justice in a non-standard case.

5 Exercising this discretion often reduces uncertainty for those involved in the transaction and gives investors confidence to proceed in cases where delays might otherwise arise or a transaction not take place at all. In short, these judgements play a huge role in keeping the real estate market functioning properly. However, every time the Land Registry relies on its discretion there is a small risk that registering the transaction could ultimately lead to a claim on the on the Land Registry indemnity (i.e. on the state-back guarantee). If a private sector operator were to take a more cautious approach (perhaps for fear of triggering an indemnity payment if that had any bearing on its own remuneration) and refuse to register transactions whose legal status is uncertain, investors objectives will not be carried into effect. Affected properties may be unsalable until a work-around is put in place and this could mean that certain transactions will, in practical terms, become impossible. Investment would stall and the UK s reputation as an easy place to invest in real estate could suffer. Ultimately, this could result in less global capital finding its way into our towns and cities. It is therefore critical that the Land Registry whatever its future retains the necessary legal expertise to take a view on land law matters and the incentive to exercise its discretion to deal appropriately with unusual or legally uncertain transactions. Stakeholder engagement We would also welcome a mechanism that allows stakeholders and users of the Land Registry (or its successor Newco) to provide feedback and constructive criticism. There is benefit in aligning the interests of the Land Registry with those of its users as this ultimately facilitates CRE transactions and investment into the UK s urban environment. Q7 Do you agree with the preferred option? The importance of investment Assuming that the state backed guarantee of ownership remains in place and that the Registers continue to be owned by government, the most important thing that our members would like to see from the Land Registry (or its successor Newco) is quick and accurate service delivery. Title transfers and registrations should take place promptly and should be effected accurately. In theory, this level of service could be provided by either the public or private sector and we have no principled view as to whether it should be one or the other. It merely relies on there being sufficient resources of sufficient quality to carry out what is required. Our members feel that until relatively recently this was in fact the case. However, as the consultation paper illustrates, employee numbers have fallen dramatically since 2010 and there has been a noticeable impact on the quality of service experienced by our members. The question is thus whether a transfer to the private sector would attract additional investment into the Land Registry. We would expect a private sector owner to make cost and productivity efficiencies where possible and these may free up capital for investment in better services. However, the consultation paper makes clear that significant costs have already been cut and a business transformation programme is underway. It is therefore unclear whether a private sector owner would find much additional scope for efficiencies and therefore whether service quality would improve under new ownership. The consultation paper says very little about the basis on which the new owner would be paid so it is hard to gauge what incentives a new owner might have to invest in speedier and more accurate delivery.

6 In summary, we would support the proposed transfer of the Land Registry if it would result in more investment in service quality, but we don t see that this would automatically follow. As a result, the contract between government and the new owner should focus heavily on service quality and provide strong incentives for the new owner to invest in this area. Other considerations Further considerations regarding a transfer to private ownership include: Regardless of the significant change that the Land Registry has experienced over the past few years, moving from the public to the private sector is likely to be a big cultural shift for the organisation and this may have an impact on the conditions and morale of those working there. At the very least we can foresee a transitional period of uncertainty and are concerned that this may be reflected in a further deterioration to service quality. There is a potential conflicts of interest risk if Newco s owner is an organisation with property investment interests somewhere in the group. The risk may be mitigated through the use of Chinese walls but this not may be enough as it is critical that whoever manages the Registers is seen to be truly independent from the real estate market. Q8 What are your reasons for your answer to question 7? Explanations provided in our to Q7. Q9 Do you think an alternative model would be better and why? Without more detail regarding the incentives that would exist for the new operator to invest in service delivery, to retain the Land Registry s legal expertise or to exercise its discretionary powers, it is hard to comment on whether moving the Land Registry s operations to the private sector would be a desirable outcome. Given how important security of title and the management of the Registers are to the functioning of the UK s property market, we would recommend that the government proceeds with caution in making any changes to the way that these services are carried out. We feel uncomfortable with the government s proposed 2017 deadline to transferring the Land Registry s operations to the private sector as this may not allow sufficient time to ensure that any agreement between the government and a new operator works in the best interests of the UK s property market and economy.