A certificate of title (also known as a certificate on title) is a particular species of report on title.
When solicitors are instructed to investigate title to land (for instance, when land is being acquired or offered up as security), they will write a report on title for their client, which sets out the findings of the investigation. Those findings will include, for example, details of any rights of which the land has the benefit and any charges, easements or other third-party interests or potential interests that burden the land.
The process of title investigation is also known as legal due diligence. See Real estate in corporate transactions—overview for further information.
On occasions, solicitors will be instructed by their client to write a report on title for someone other than the client itself, for instance for a mortgage lender or a buyer of shares in a company that owns the land, or in connection with a company flotation or a tender transaction where there are a number of bidders.
Such a report addressed to a third party is usually termed a certificate of title. This is more formal terminology suitable for the more formal circumstances that give rise to the certificate.
There is usually no contract between the solicitors giving the certificate and the third-party recipient. However, if the givers of the certificate fail in their duty of reasonable care and skill in its preparation, they can (if not in contract) be sued by the third party for the tort of negligence.
Why are certificates of title used?
Why would a buyer of land or shares, or a mortgage lender, or some other third party, ever be willing to accept a certificate of title in respect of the relevant land from someone else's solicitors?
The answer is that it may not always make sense for the third party to go to the expense of appointing their own solicitors to investigate and report on title. If someone else's solicitors happen to be carrying out full due diligence on behalf of their client, they may as well be asked, in addition, to produce a certificate for the third party. In general, the certificate ought to be cheaper and easier to produce than for a duplicate due diligence exercise to be carried out by the third party's own solicitors.
Standard forms of certificate of title
The legal profession has produced various standard forms of certificate of title.
Such uniformity can help streamline transactions. For instance, it reduces the time taken up by preliminary negotiations over the precise wording of the certificate in any particular transaction. It will reduce the time taken by the recipients' professional advisers in interpreting the certificate. It will also reduce the preparation time taken by the solicitors giving the certificate, because their task is mainly limited to making any qualifications (reporting by exception) that may be needed, in respect of the subject property, to the generic statements contained in the standard certificate.
Chief among the standard forms (for commercial transactions) is the City of London Law Society's (CLLS) Long Form Certificate of Title (7th edition 2016). A number of Scottish firms have collaborated in producing a certificate equivalent to the CLLS Certificate for use in Scotland. See: Property Standardisation Group Certificate of Title.
For commercial properties held under a rack rent lease with no material capital value, the most appropriate standard form of certificate is the CLLS Short Form Report on Title (currently in its 3rd edition—available at CLLS—Certificate of Title and related documents).
This short form certificate is also intended to be used in relation to straightforward owner-occupied leasehold and freehold properties that do have a capital value. But practitioners rarely use the short form for such properties, preferring, instead, to stick with the long form in all such circumstances.
The CLLS has also provided a CLLS Certificate of Title 7th edition 2016 Update wrapper for report on title for use where eg a property has been purchased and the purchaser's solicitors prepared a report on title in relation to the acquisition of the property addressed to the purchaser. Within a short period of time after the purchase, the purchaser wants to re-finance the property and the lender requires a certificate. In such a scenario there may be good sense in re-issuing the report to the lender but since a certificate is required, the front end must 'wrap' around the report and certain additional confirmations have to be given by the certifier to ensure the funder ends up with the equivalent of a certificate.
There is also a standard form of certificate for use in residential transactions. This is the Law Society and Council of Mortgage Lenders approved certificate of title (previously called a Rule 6(3) certificate). See the next section for details.
Are the standard forms compulsory?
In no circumstances is it compulsory to use either the short form or the long form CLLS certificates referred to above. Rather, they (the long form, at least) have somehow acquired general acceptability among lawyers and lenders, through widespread use, as the industry-standard form.
Although no longer the case, there used to be a requirement that particular forms of certificate of title needed formal approval from the Law Society before they could be used in secured lending transactions (ie where the borrower's solicitor addresses a certificate of title to the lender).
Under the SRA Code of Conduct 2011 there was one exception to this for residential mortgage lending where the borrower's solicitor was also acting for the lender. Indicative Behaviour 3.7 (IB 3.7) in the SRA Code of Conduct 2011 sanctioned acting for both lender and borrower on the grant of a mortgage only where:
the mortgage was a standard mortgage (ie one provided in the normal course of the lender's activities, where a significant part of the lender's activities consisted of lending and the mortgage was on standard terms) of property to be used as the borrower's private residence and
the solicitor was satisfied that it was reasonable and in the clients' best interests for the solicitor to act for both parties and
the certificate of title required by the lender was in the form approved by the Law Society and the Co...