As a part of the pre-contract searches, a company search is also made and information thus obtained is updated.
Company search of unregistered land
When a buyer purchases unregistered land from a company, or when it is known that the land was once owned by a company, the conveyancing solicitor must undertake a company search to make sure that adverse entries such as fixed or floating charges or appointment of a court receiver has been not made on the land.
To the uninitiated, a floating charge is similar to a mortgage, but is applicable on a company. This charge is floating, i.e. the borrower has the right to deal with its assets without the approval of the lender. Thus, the company is free to buy or sell some of its assets. Although the assets can be sold to a third party free of charge, any property that is purchased shall be subject to the charge as soon as it is purchased. When the borrower i.e. the company defaults in its payments or if the occurrence of some event renders the loan due, crystallisation occurs. Thus, the charges cease to float on the fix on the assets of the company. To prevent this, conveyancing solicitors obtain a certificate of non-crystallisation from the lender.
Company search of registered land
When the property in question is a registered land, the search is to be conducted only when the current seller is a company. It need not be done against previous corporate owners. This is because the Land Registry would have a note of the necessary checks at the time that the company acquired the property.
Floating charges on a registered land do not bind the buyer unless an entry is made on the Register. When a floating charge is revealed, but it is not entered in the Register the floating charge shall become fixed on the property. This should not concern a prospective buyer. However, some solicitors do seek a non-crystallisation certificate from the lender, to be on the safer side. And when there are chattels included in the sale, a letter of non-crystallisation is a must as the charge could become fixed.
Photo courtesy: Kathleen Tyler Conklin