LEGAL CHANGE

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The Regime and how charge documents interact with it

1. The Regime

A general summary overview of the Regime is set out below. When assessing the impact of the regime on any given contract or charge, the underlying legislation should be consulted in more detail and appropriate professional advice obtained. HM Land Registry has also issued a practice guide and examples of common scenarios which the Regime affects.

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CONTRACTUAL CONTROL RIGHTS NOTIFICATION REGIME – OVERVIEW

Which rights are caught?	Criteria for in-scope rights	Exemptions	Notification
Options to transfer or grant a 15 year minimum lease in respect of, ‘qualifying estate’	Under a written contract	Rights which in their totality last for less than 18 months	By right holder within 60 days at HM Land Registry – this will be through a conveyancer via digital channels
Conditional right to require the transfer of or grant of a 15 year minimum lease in respect of, ‘qualifying estate’	A ‘qualifying estate‘ = registered freehold land/ registered lease with a minimum of 15 years to run on the date the contractual control right is created or conferred	A right contained in a contract which is held exclusively for purposes that do not relate to future development resulting in the provision of any house(s)/flat(s) or building where the floorspace created is 100 square metres or more	Rights created on/after 8 June 2026 and before 6 April 2027 – notify before 6 October 2027
Pre-emption right to transfer or grant a 15 year minimum lease in respect of, ‘qualifying estate’	For the purposes of an ‘undertaking’ – e.g. businesses, charities, similar organisations	Rights necessary or incidental to security for a loan, financial instrument or obligation to pay consideration to a former owner of the relevant land	Must be notified in order to register corresponding notice/restriction
Right to direct the proprietor to dispose of or grant a 15 year minimum lease in respect of ‘qualifying estate’ to, either a third party, or to a third party or the right holder	Generally enforceable against the registered proprietor (including someone entitled to be registered), although certain rights granted by others are also caught when an application is made for a notice or restriction in respect of a relevant right	Some specified section 106 agreement rights	Non-notification without reasonable excuse = a criminal offence
Note: Amendments, variations and assignments of the above rights may trigger additional reporting events	Includes rights created on/after 8 June 2026, but note that rights created before 8 June 2026 may come into scope if they are assigned or varied.	Contracts for national security/defence

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2. How charge documents interact with the Regime

Chargeholders will first need to establish whether they have an in scope contractual control right within their security or wider transaction documents. Charge documents which neither create nor assign contractual control rights over a qualifying estate, will be out of scope.

However, where a charge document creates security over registered freehold or leasehold land or contractual rights, security enforcement rights are the main rights that could come within the scope of the Regime, because they typically allow for the charged property to be sold or leased in order to recover payment of the secured debt.

The Regime carves out:

• rights ‘necessary or incidental to’ security for loans, financial instruments or contractual obligations to pay consideration to a former owner of the land affected by the underlying right (e.g. overage);
• rights granted by the proprietor of a qualifying estate to direct or request that that proprietor enter into a relevant disposition of that estate to a third party, or to a third party or the rights holder and which is necessary or incidental to the provision of a loan or financial instrument.

The main type of rights this exclusion covers are enforcement rights in charge documents supporting lending arrangements. Depending on the complexity of a lending arrangement, other transaction documents may potentially include relevant rights.

Of key importance, chargeholders should be aware that:

• not all security may necessarily be granted in support of a ‘loan’ , ‘financial instrument’ or overage type payment; and
• irrespective of whether they create security over land, charge or debenture documents may also create assignments by way of security over contractual rights which relate to land – which may in turn, create an in-scope assignment of an in-scope right under the Regime – which needs to be notified.
• where chargeholders sell on their debt, any assignment of their existing security might trigger a notification requirement.

When assessing the Regime’s impact, each of these strands should be assessed separately.

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Could my security be caught?

Based on the above, there will be two key questions for chargeholders to ask themselves where security is taken over land and/or contractual rights relating to land:

1. Does my security secure liabilities/obligations which do not arise under a loan, ‘financial instrument’, or overage type arrangement?
2. Irrespective of which obligations/liabilities my security secures, does my charge document contain any assignment of contractual rights which are within the scope of the Regime?

We will take each of these in turn.

Question 1: Does my security secure liabilities/obligations which do not arise under a loan, ‘financial instrument’, or overage type arrangement?

A number of considerations arise here.

Loans and overage

It should be relatively easy to spot where a charge secures obligations/liabilities under a loan agreement, or in relation to overage or other consideration to a former owner of the land over which the security has been taken.

‘Financial instruments’

Ascertaining whether a charge document secures liability under a ‘financial instrument’ is less clear, because ‘financial instrument‘ is not defined under the relevant legislation. Whilst there is an argument that an agreement which documents a financial arrangement other than a loan is a ‘financial instrument’, the legislation doesn’t say that.

Furthermore, security may be granted to support obligations under a corporate guarantee given by a third party to a loan financing, which raises the question of whether a ‘guarantee‘ is a ‘financial instrument‘ for the purposes of the security exemption under the Regime.

Financial arrangements vs. other commercial transactions

Where the underlying transaction is a loan or other financing arrangement, it is arguable that an enforcement right under a charge granted in support of such a corporate guarantee is ‘a right necessary or incidental to security for a loan or financial instrument‘, because the security is indirectly securing monies on a ‘loan or financial arrangement’ type transaction – and monies owing on that transaction might be recouped via that guarantee. However, this is not completely clear in the legislation.

Furthermore, what if the guarantee doesn’t support a loan or financial arrangement? Or the security is granted to support a non-financing transaction? Is for example, a debenture which secures deferred consideration under a share sale & purchase agreement or another type of commercial contract unrelated to land, ‘security for a financial instrument’? It is not entirely clear.

One could query why the exemption is expressed to refer to ‘security for a loan or financial instrument‘ rather than ‘any security‘ – but on a practical level, given this is a grey area, where there is any doubt as to whether the nature of the underlying security falls within the exemption, having up front conversations with HM Land Registry well ahead of potential notification windows expiring may assist. However, ultimately the legislation (and the courts’ interpretation of it) will prevail and if in doubt, precautionary notification may be the safest option.

Other factors to consider

Further considerations here include:

• Length of enforcement right: The Regime generally excludes rights which in their totality are less than 18 months. However, even where the underlying payment obligation secured by a charge is payable within 18 months of the date of creation of the security, that will not necessarily mean that control under an enforcement right lasts less than 18 months, as for example, actual enforcement of that right may take place after a scheduled payment date.

• What if my security is not registered at HM Land Registry? The Regime does not distinguish between security registered at Companies House or HM Land Registry. For example, a fixed charge over land contained in a debenture may not be registered at HM Land Registry for a number of reasons, but whether or not security is registered at HM Land Registry, notice of contractual rights to HM Land Registry may still need to be given if the security document contains a contractual control right that is not otherwise exempt.

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Question 2: Does my charge document contain any assignment of contractual rights which are within the scope of the Regime?

The legislation distinguishes between:

• underlying contractual control rights; and
• assignments of those contractual control rights.

When examining the impact of the regime, a chargeholder should look at each separately – i.e. its own rights under its own documentation and any rights it takes security over.

Security assignments and ‘ability to enforce’

In charge documents containing an assignment of contractual rights, the assignment is usually expressed to be ‘by way of security‘.

However, the legislation does not distinguish between a security assignment and a non-security assignment and:

• where a right is a contractual control right at the time of assignment; or
• a right has previously been subject to a notification under the Regime and has been assigned,

the ‘grantee‘ of that right must notify HM Land Registry.

The legislation defines ‘grantee‘ as the person entitled to enforce the contractual control right (or for certain rights, the person entitled to make the relevant direction or request regarding the relevant qualifying estate).

Where the creation of the contractual control right is followed shortly by the creation of a reportable security assignment, HM Land Registry guidance suggests that the chargor could notify the underlying right and assignment together. Ultimately, responsibility should be assessed by identifying the ‘grantee‘ and its reporting obligations, rather than by reference to the timing alone.

Where a chargeholder assigns the benefit of its security (for example under an onward sale arrangement or debt transfer) a separate assessment of whether the chargeholder or assignee is responsible for notification should be made.

An assignment notification assessment should be made irrespective of whether the underlying security falls within the exemption for security enforcement rights previously discussed, because even if an enforcement right is exempt, any underlying contractual control right assigned under a charge (e.g. an option) is a distinct and separate right to any right created in the underlying charge document.

Therefore, it cannot be said with any certainty, that the obligation to notify an assignment is nullified by the security exemption discussed earlier.

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Key takeaways for chargeholders and those acquiring existing security

• Check what your security secures: Where security does not directly secure loan or overage type exposure, closer assessment is needed.
• Check whether you have security over land: Where security is taken over ‘qualifying estate’ (see table above), enforcement rights could fall within the Regime. Always bear in mind that debenture type security usually includes a fixed charge over land even if that debenture hasn’t been registered at HM Land Registry.
• Check for security assignments: Security documents should in any event be checked for assignments of contractual rights – in the absence of due diligence, representations may be needed from chargors to tell you whether you are taking an assignment of any in scope rights.
• Insolvency processes: Any dealings of secured assets in an insolvency process should be considered to check whether they fall within the scope of the Regime.
• Security releases: These may contain re-assignments of in-scope rights and notification assessments may be needed.
• Grey areas: If you are unsure, seek professional advice or further guidance from HM Land Registry, albeit precautionary notifications may be safest if in doubt.
• Changes: Keep an eye on further HM Land Registry updates to its practice guide.
• Other requirements: The Regime has other requirements – in particular, on notification of variations to and the complete or partial determination, expiry or exercise of, in scope contractual control rights which also need to be considered.

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Conclusions

The Regime forms part of the UK Government’s aim to to improve transparency over who has a stake in land development, support more efficient and fairer land market operation and help local authorities and communities understand who controls land in their area.

Whilst the Regime excludes the need for chargeholders to make notifications of enforcement and other rights in some circumstances, it does not provide a ‘carte-blanche’ for chargeholders to ignore the Regime.

Security, related assignments and related agreements should be assessed on a case by case basis.

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