Introduction
Established in 1862 Her Majesty’s Land Registry (the “Land Registry”) is a non-ministerial department, Executive Agency and Trading Fund. Its main function is to keep a register of ownership of and interests in both freehold and leasehold land in England and Wales and any related charges. The Land Register holds over 24 million titles of land. Due to a statutory requirement to keep the Land Register updated, the Land Registry provides a state-backed guarantee to title and the accuracy of the information which it holds. Therefore, if loss is suffered by anyone because of an error or omission in the Land Register by fault of the Land Registry, compensation will be awarded.
Having operated as a Trading Fund since 1993, the Land Registry is required by statute to ensure that its income from fees covers all of its expenditure. Fee levels are set by Parliament. Over recent years income has been higher than expenditure and surplus revenue has been returned to Government. For example, in 2014/15 revenue was in excess of £297 million and the Land Registry paid over £119 million in dividends. An increase in housing market activity has been the driving force for this increase in income. Land Registry fees are fixed so when there is an increase in transactions more income is generated but because the prices of fees do not rise there is a surplus.
The Consultation
Following the Chancellor’s announcement in the 2015 Autumn Statement that Government intended to consult on moving the Land Registry into the private sector in order sell up to £5 billion worth of assets by March 2020, the Government published its consultation paper in March 2016 Consultation on moving Land Registry operations to the private sector. It sets out the view that there is no compelling reason why the Land Registry should be kept in public ownership and that by moving it to private ownership receipts from the sale could be used to reduce public debt or fund other public spending. The Government believes that the Land Registry needs to further modernise the services it offers to deliver the standard of service expected and that further investment is needed to ensure technology is in place to minimise the risk of property registration fraud.
Two preconditions to any change in ownership have been established:-
1. any change must at the very least ensure continuity of level of service, if not improve the services offered, in order to support the property market and the Government’s commitment to build one million more homes by 2020; and
2. any change must be achievable in the short term – by 2017 – as continued uncertainty is not in the interest of the public nor the organisation.
Therefore, following a change in ownership, a number of current protections would remain unchanged:-
1. the Land Register would remain in public ownership, that is, owned by the Crown and managed within Government;
2. key performance indicators would be set by Government to keep up current standards of service;
3. the existence of a state-backed guarantee would not be affected and customers will still have access to compensation where they are not at fault for mistakes made; and
4. fees would be set by Parliament under a contract-based approach whereas under a regulator-based approach fees would be controlled by the regulator.
As seen in point four above, there are two options proposed by the Government for the privatisation of the Land Registry.
Model 1 – Privatisation with a contract between Government and a private operator
Under this model the Land Register would remain with Government but rights to use the information held within it, existing employees and tangible assets of the Land Registry would be transferred to a private sector operator, known as NewCo, in which investors would buy shares. The sale of shares would then lead to a receipt for Government and the economic benefits and risks of ownership would be transferred to the private sector.
A contract would set out the quality of service NewCo is to deliver to the customer and penalties for failing to do so. A detailed contract would provide greater certainty to investors by specifying what NewCo would need to achieve, KPI’s and termination provisions and rights for both Government and NewCo.
The Government would actively manage and supervise the contract by having a group of individuals within Government with contract management expertise and an understanding of land registration that would have responsibility for the ongoing relationship between the Government and NewCo.
This model is the preferred option because it is considered to be an effective and affordable option as to the management of a long-term contract with specified service levels. In addition, it is considered to be achievable by 2017, therefore limiting any uncertainty on behalf of investors and the general public.
Model 2 – Privatisation with independent economic regulator
Under this model an existing regulator or a new independent regulator would be established to provide regulatory oversight and review. A licence would be granted by the regulator, on behalf of the Government, to NewCo for the provision of land registry services. Prices and standards would be set by the regulator to ensure that users are protected and the needs of customers are met. However, a regulatory model is more costly than the preferred option outlined above as any changes will need to be consulted on and it would take more time to establish a trusted regulator with a track record of good decision making which potential investors can rely on.
Reaction to the Consultation
A number of concerns have been raised following the consultation, namely in relation to the integrity and independence of the Land Registry and the risk to the property market and wider economy should the Land Registry be privatised when long-term consequences are unknown.
Many believe that the Land Registry, being objective, impartial and accurate, attracts investment to the UK and this will be jeopardised if sufficient safeguards are not in place following privatisation.
To date, no decision has been made and an online petition to stop the privatisation currently has over 300,000 signatures.