RICS Responds to Land Registry Privatisation Proposals

In May the Government published proposals to privatise the Land Registry, even though a similar consultation only two years ago had resoundingly rejected such a move. Below we summarise the RICS’s response to the latest scheme.

The land and property transfer market in England & Wales adds approximately £8 billion to the Treasury’s coffers every year, one of the highest in the world and accounts for 4.2% of UK GDP. Understandably any change to how this important market operates needs to be thought through very carefully. Can privatisation really prove a better option than the status quo? What’s wrong with the present system? What are the risks in privatising such a traditionally core function of government?

The Government’s preferred proposal is to have a separate private company (NewCo) responsible for all of the Land Registry’s services but with a few individuals experienced in Land Registry matters remaining in Government for oversight. The state will act as guarantor, keeping of register/statutory data and basic fee setting.

Land Registry fees are charged on a not for profit basis and have remained broadly stable at a relatively low level within the context of the overall cost of a property transaction. To make privatisation attractive for a private investor they will want to be satisfied that the Land Registry can be run at a profit. “It seems inevitable”, says the RICS in its response to the proposals, “that fees will rise.”

The consultation highlights that its proposals will enable “best in class” knowledge to be brought into the Land Registry. RICS response is that the skills within Ordnance Survey, VOA and Land Registry are already best in class. They believe any private company would be very hard pushed (or find it impossible) to match those skills, although RICS observes that “it might be possible that another National Cadastre Agency such as the world renowned Dutch Kadastre might bid for and win the role of NewCo. This might be a good solution to this privatisation issue.”

The UK is built on individual private property rights as a basis for wealth creation and prosperity. RICS questions “the philosophy behind allowing a NewCo and private interest access to a process with such potential for fraud and corruption.” They add that “Land and Property is listed as the third most corrupt sector in the world by Transparency International and was again highlighted at the recent HM Gov sponsored anticorruption conference in London.”

Historic link

The Institution has stressed that it has a real link to the Land Registry, going right back to the founding of RICS in 1868, during the Victorian period of formalising, legalising and creating standards for the operation of the property sector. “We continue to have members working in Land Registry, members utilising Land Registry’s services and a role in providing the standards which are based on clear and transparent ownership and transference of property.”

Following responses from across the Institution’s various panels, forums and boards the “response was overwhelmingly against the concept of moving Land Registry into the private sector, based on the value of its work underpinning the whole property sector, as well as a registry that is driven by public duty and professional standards, rather than commercial opportunity and market advantage.”

There is considerable concern over details of the proposals and that a major opportunity for “agency integration” may be being missed. RICS points out that “integration has been taken on by several nations (the latest being Ireland with the formation of Tailte Eireann).” In the UK it would involve the integration of “Land Registry with Ordnance Survey and the Valuation Office to form one single point for all land and property transactions, registration, rating, mapping and taxation in England and Wales.” In this regard the UK is a “global anomaly” although Northern Ireland has already combined all three agencies into one Land and Property service.

Commenting that “the survey services of Land Registry (and staff) have already been transferred to Ordnance Survey” RICS concludes that “the UK has three of the best agencies of their kind in the world, and together they would be groundbreaking. This is also the model that is proposed within numerous DfID International Development aid projects (Legend), it is bizarre that the UK would instigate an initiative at home so at odds with its international knowledge projection.”

Inadvertent risk

RICS believes “that the Government’s proposals may inadvertently add a previously nonexisting element of ‘risk’ to the land and property transfer market and thereby undermine investor confidence. We would like clearer guarantees that the privatisation of the Land Registry (whilst providing short term revenue to Government) will not impact on long term viability of one of the world’s most active land and property markets.”

The key requirements repeated in the consultation are customer satisfaction levels and speed of service delivery. RICS acknowledges their importance, “but surely the imperative of ensuring that there is quality in legal terms in the service provided by the Land Registry is paramount. A private owner may not have the depth of expertise on technical points or properly support critical but none profit making areas. England & Wales has a multilayered and deeply rich history of land law which can have different nuances in some regions. This is a living, highly complex beast rather than a data house. As a consequence, trust and confidence in the operation of the Land Registry may be undermined and this will affect the trust and confidence that investors and homebuyers have in the land & property system in this country.”

Title insurance?

Although unmentioned in the consultation, “an introduction of a certain level of insecurity and risk may open the door to land & property ‘title’ insurance companies (such exist in some states in the USA) increasing the costs of transfer on land & property owners. This is surely not in the ‘public interest’ even if professional surveyors may stand to gain (title insurance pays the costs of surveyor’s fees in many states). Title insurance only occurs when an existing registry system is so inherently weak. . .”

Adjudication & dispute resolution

“It is crucial to appreciate the adjudicatory nature of the Land Registry’s work on registering title and guaranteeing land rights and the often complex issues that have to be dealt with”, says RICS. Land Registry’s experienced and professional staff (many legally trained) are key to this work.

Although the “consultation seeks to give some assurance about governmental interaction with the private owner of the Land Registry during dispute, very little detail is provided on the protections and contingency plans if the Government needs to step in.” RICS observes that “the ‘buck’ will always stop with the public purse in cases of title dispute and compensation.”

RICS concludes that the proposed NewCo is an “inadequate resource for what is a critically important role. Greater thought should be given to how the Government oversees the private company (NewCo) and more formalised structures and stringent arrangements (along with penalties) should be put in place in case of direct costs being transferred to land & property owners.”

Open data

The consultation suggests that the current Land Registry is not a suitable environment for the future. RICS agrees that it “should embrace the benefits of technology” but says that much has already been done like the electronic document registration system and opendata initiatives on house price information. This ‘price paid’ open data has enabled numerous downstream services such as Zoopla. Will a private company be equally willing to provide open data to a rapidly expanding market? If not, it could stymie a burgeoning UK property data startup investment.

RICS concludes that, “Land Registry is much more of a strategic national asset than just a data house and even though we fully agree with the opening of freely available datasets, which may run counter to the commercial wishes of NewCo.”

Link to Law Commission consultation

RICS queries how the consultation “connects with the Law Commission’s consultation on changes to the Land Registration Act. The Law Commission has produced an indepth analysis of the problems with the statutory regime. Any private owner would be obliged to adopt these findings and any legislatives changes even if they do not suit the commercial imperative.”

An area of great concern not touched upon within the consultation is how will the professions work with any NewCo? What will happen to the Rules Committee? And as legislative changes will be required, just what process of consultation will be used to ensure that professional institutions will be engaged?

RICS concludes that “the timetable for change is inadequate and should be reviewed. This is an important issue and a major change to the land & property market, 2017 is much too soon to be able to develop a coherent strategy for change.”

Questions, questions. . .

The government’s consultation document concludes by posing a series of questions to those responding to the consultation. The first is whether ownership of the Registers should remain in government, which RICS backs, observing that “This is critical for transparency, security and stability of the Register” adding that “The Land Registry is a ‘live’ entity and thousands of changes to title are recorded, be they major or minor, how will the NewCo operate on this basis when numerous elements will have to done in conjunction with the Government Land Registry function?”

What steps should the government take and what safeguards should it put in place to ensure continued and improved access to highquality and reliable Land Registry data? How could the government use this opportunity to improve the quality and accessibility of data produced by Land Registry for all sectors of the economy?

On what basis should the government manage the relationship with a privately owned Land Registry to ensure Land Registry meets, as far as is reasonable, the data quality and availability requirements of all stakeholders?

RICS believes that the questions are “overtly focused on ‘data’ issues rather than the true issues of security, transparency, impartiality and recourse during dispute. Data is much more freely available than perhaps the authors of the consultation realise. It does read like something from 2006 rather than 2016.”

RICS says that “Impartiality and the potential for conflict of interest arise within these questions. How will the NewCo ensure that its staff are properly trained and impartial? What professional staff focusing on exercising judgement on technical land registration issues where [are?] required. The exercise of judgement requires a high degree of impartiality as well as the necessary technical skills. Since the Land Registry will be owned by a private company, there may be circumstances where a conflict of interest may arise. For example, a decision may have to be made affecting land registration in relation to property owned by a company connected to the company owner of the Land Registry.”

On open data RICS poses the question, “will a private company be equally willing to provide Open Data to a rapidly expanding market? Probably not which again would introduce an element of risk, run completely counter the current HM Gov Open Data policy. . . There would need to be very strong safeguards to ensure Land Registry data remains Open.”

RICS also believes that “NewCo may underestimate the technical nature of land registration. It is multifaceted and deals with the complexity of citizens and their relations with private property rights it is not merely an administrative exercise that can be improved by the better use of technology.”

RICS is also “concerned about adequate safeguards on data protection and the protection of individual rights either of access or of not having their data sold to third parties.”

The potential for international involvement by Land Registry is also touched on in RICS’s response pointing out that they have already worked with the Land Registry in other jurisdictions. “Land Registry International has a strong reputation and is much sought after for advice and expertise. This attractiveness from other jurisdictions is based on the reputation of Land Registry itself and its current processes. . . we are not sure that a NewCo would be welcomed in the same manner.”

RICS also has concerns about possible abuse of a monopoly position. “We have concerns that an expansion of services on a commercial basis by the private company could adversely affect the focus on the core services of registration.”

“The interaction between the Government’s ownership of the registers and the private company’s operation of the Land Registry as a whole needs to better thought through. The emphasis on customer satisfaction levels and speed of delivery of core functions is misplaced.”

“We were very surprised to read that the private company may be paid less over time to deliver core statutory functions. Surely this would be a disincentive to improve service and delivery with a potential for any commercial loss to be passed directly onto the private property holder.”

Conclusions

“We are concerned about the implications of privatising the Land Registry in numerous terms as already stated. The lack of detail about how any NewCo would operate, in a commercial, judicial, legislative and dispute resolution, capacity only heightens that concern. We would again highlight that the NewCo will operate in a ‘monopoly’ position and in light of this and the above we would strongly suggest that the timetable for change is inadequate and should be reviewed. This is an important issue and a major change to the land & property market, 2017 is much too soon to be able to develop a coherent strategy for change” adding that “proposals insufficiently emphasise the integrity of the register, confidentiality, stability and the reputation of land registration.”

This article was published in Geomatics World July/August 2016