Under the Land Registration Act 1925 Overriding Interests Accounted

Discuss overriding interests and why they might be considered problematic with reference to case law.

Unregistered interests which override are those rights in another person’s land that have priority to the registered title of the registered proprietor – that is, they are binding on the land without being entered in the Register of title of the land they affect. So, they are unregistered interests which override the registered title and permit the person who claims the overriding interest to exercise the right against the land. (S. 11, 12, 29, 30 LRA 2002). [1]

Interests that override a registered disposition are interests that bind anyone taking under a registered disposition, including a purchaser for valuable consideration, although they are not recorded on the register and, as a consequence, cannot be discovered by inspecting it.1 Such interests have always been regarded as a flaw in the registered title system; in fact overriding interests under the LRA 1925 often been described as ‘the crack in the mirror of title’. [2]

The Registrar of the Land Registry, Mr Charles Fortescue Brickdale, observed: “ naturally the purchaser knows the land; he looks at it; he is aware, or, at any rate, he should be, that he can make inquiries as to tenants and others; he knows to whom they pay their rent, and so on.” [3]

As Anderson observes, “ a few interests would bind the title notwithstanding lack of registration: leases in possession, for example, which could best be ascertained on the spot, and whose title ‘ is generally so independent of the documentary title to the property that they necessarily form a partial exception”. [4]

Someone with an equitable interest in the land could be defeated by a bona fide purchaser for value without notice (Pritchard v Briggs ([1980] Ch 338)) and so again, unfairness existed.

A problem is that social and judicial developments have enlarged the opportunity for the existence of overriding interests with the result that a purchaser cannot always determine whether such interests exist by inspection of the land or title documents. The most obvious example is the right of equitable co-ownership stemming from Pettitt v Pettitt [5] , whose effect under S 70 (1) (g) on an unwary purchaser was first fully appreciated in Williams and Glyn’s Bank v Boland. Another is the equitable estoppel easement said to fall within under S 70 (1) (a) in Celsteel v Alton [6] and Ferrihurst LTD v Wallcite [7] where the plaintiff’s overriding interest in respect of the property was undiscoverable because his actual occupation extended only to part of that property. This difficulty concerning overriding interests is one reason why the Law Commission recommended a reduction in their scope and effect and this has now been implemented in Schedules 1 and 3 of the LRA 2002. [8]

Under LRA 2002, overriding interests may take effect against a first registered proprietor or against a person who becomes registered proprietor on the transfer of a title that is already registered. Interests which override at first registration are defined in Schedule 1 to the 2002 Act and interests which override following a transfer of land that is already registered are defined in Schedule 3. [9]

In Roger Sexton’s view the 2002 Act achieves this purpose only to a very limited degree. [10]

In Kling v Keston Properties Ltd [11] the plaintiff’s unregistered right of preemption over a garage took priority over a 99-year lease granted to a third party and registered. [12]

Vinelott J., citing extensively from Lord Wilberforce’s judgment in Boland [13] , confirmed the general irrelevance of notice-based doctrines and observed that purchasers face being bound by interests that they could not reasonably have discovered.

The observations of Ungoed-Thomas J. in Hodgson v Marks [14] that actual occupation within section 70(1)(g) must be apparent occupation [were] clearly founded on the assumption, which can now be seen to be incorrect, that section 70(1)(g) is a statutory application of the equitable principle of constructive notice of the rights of a person in occupation [15] , explained in Hunt v Luck. [16]

Sparkes observes that “ Vinelott J. assumed that protection of undiscoverable occupiers is the consequence of the rejection of the first instance decision in Hodgson v Marks. ” [17] There is force in this argument. Section 70(1)(g) and the rule in Hunt v Luck [18] have key differences, one being that the wording of the former does not predicate that inquiry should be possible whereas the latter does.

Russell L.J. in Hodgson v Marks [19] articulated the extent of the ambit of the overriding interests of those in actual occupation: “ It must depend on the circumstances, and a wise purchaser or lender will take no risks. Indeed, however wise he may be he may have no ready opportunity of finding out; but, nevertheless, the law will protect the occupier.” [20]

Mustill L.J. considered that “ when Parliament decided in 1925 to add paragraph (g) to the list of overriding interests in registered land already created … it intended to produce a result which did reasonable justice to the bona fide purchaser … although the paragraph does not actually say that the acts constituting actual occupation must be such that a purchaser who went to the land and investigated would discover the fact of occupation and thereby be put on inquiry, the closing words of the paragraph are at least a hint that this is what Parliament principally had in mind.” [21]

Nicholls L.J. interpreted the open-textured rationale in Boland extending s.70(1)(g) to offer protection for more modern problems connected with the occupation of property.70 His judgment reveals that ordinary conceptions of occupation no longer provide a just mechanism by which to resolve the question of priority between formal and informal interests in land. [22] Property is now used for a greater variety of purposes and persons may not live in the property. Nicholls L.J. considered that equating occupation with residence would “ in some cases” , for example, cases of renovation, “ defeat the purpose intended to be achieved by paragraph. [23]

The unregistered system of examining title deeds and the doctrine of notice might be considered to be unduly burdensome on the purchaser. Nonetheless, the judiciary has to balance the competing interests of the purchaser and the occupant. It is due to this need that although the doctrine of notice finds very little application in the unregistered system and no place at all in the registered system, the judiciary and legislature has found it necessary to impose certain comparable requirements to purchasers of registered land. The emphasis, focus and terminology has certainly shifted, however, perhaps the legislators of the very first system were more right than they thought when they stated that: [24]

When compared with the LRA 1925, LRA 2002 markedly reduces the scope and range of overriding interests in respect of both Schedules 1 and 3. The aim is to ensure that a potential purchaser of the land is bound only by those unregistered interests which it is absolutely necessary must bind without registration and then only in circumstances when the purchaser had a realistic opportunity of discovering the existence of the interest by a physical inspection of the land or by making normal enquiries of the transferor. Overriding interests account for a substantial number of rights affecting registered land and their importance stems from the fact that they have priority without being entered on the Register. [25]

“We are aware that it has been said that judges would notwithstanding any law to the contrary, in the course of time contrive some means of neutralising any enactment which went to exclude the doctrine of notice. [26]

This group of overriding interests is described as well-recognised burdens that are easily discoverable, although they cannot be conveniently entered onto the register. Furthermore, s.3 of the Land Registration Act 1925 states that overriding interests automatically bind the third-party purchaser, notwithstanding that they cannot be ascertained by merely looking at the register of title, or the fact that the third-party purchaser is not actually aware of their existence. [27]

Registered land, however, puts the burden on the purchaser who has physically to inspect the land itself and make enquiries of persons living there. The purchaser is faced with the problem of finding out as much as he or she can before purchasing the land. This burden distorts ‘absolute certainty which is the ideal of all registered systems throughout the world’ to the extent that, ‘absolute title becomes something of a misnomer,’ (Sir John Stewart-Wallace). [28]

MP Thompson critically examined the wording of s.70(1)(a), identifying inconsistencies and the extent of the ‘crack’. The words focused on are ‘easements not being equitable easements required to be protected by notice on the register’. [29]

Accepted in Celsteel Ltd v Alton House Holding Ltd [30] . Here, Scott J held that, if equitable interests were construed narrowly and excluded from para (a), then there would exist a wide category of overriding interests, despite being undiscoverable by a purchaser of the servient tenement. [31]

The ‘benefit’ of the overriding interest may be vital (to the occupier), and the burden ‘devastating’ to the purchaser. The Court of Appeal’s decision in William & Glyn’s Bank v Boland leads to more problems for the purchaser or mortgagee concerning the duty of enquiry, especially where the spouse claims an overriding interest behind a trust for sale of the matrimonial home. [32]

In the Court of Appeal, Nicholls LJ acknowledged the difficulties of s.20 of the 1925 Act which focused on the position at the time of registration and s.70(1)(g), which gave rights to persons in occupation of the land at the time when the purchaser or mortgagee acquired the estate or interest. This difficulty was due to the ‘gap’ between completion and registration. Nicholls LJ went on to say that once completion had taken place the ‘die had been cast’. [33]

S 134 and Sch.12, paras. 7-13 provide that any overriding interest which bound an estate immediately before the act came into force will continue to have an overriding effect, either for three years from the coming into force of the LRA 2002 or indefinitely. [34]

LRA 2002 provides two lists of overriding interest: Sch.1 lists the interests which override first registration, and Sch.3 lists interests which override a registered disposition.

First registration does not transfer or alter the title to the estate; it merely records the state of the title already held by the applicant. By contrast, registering a disposition of a registered estate does give the new owner a legal title which he did not have before. The 1925 Act did not distinguish between first registration and registration of a disposition. [35]

Of the remaining four important overriding interests, one, Local Land Charges, is retained unchanged. (See Sch. 3, para. 6.) The other three categories are:

(a) Easements and Profits;

(b) Short-Term Legal Leases;

(c) Property Rights of a Person in Actual Occupation.

These have all been reduced in their scope but will continue to be of fundamental importance. [36]

Easements and profits already existing against a registered title (and there must be a huge number of such rights) will continue to be governed by the old LRA 1925, s. 70(1)(a) and the case law interpreting that provision. As a result of these new rules, only a very few legal easements and profits will be excluded from being overriding interests. The new rules exclude from being overriding only an (undiscovered) legal easement or profit which has neither:

(a) left physical evidence on the land of its existence; nor

(b) been exercised at least once in the year before the land transfer. [37]

Critically evaluate to what extent the Land Registration Act 2002 simplifies and reduces the scope of the overriding interests regime, with particular reference to persons in actual occupation.

2,000 words

Ferrishurst Ltd v Wallcite Ltd

It is a truism that one of the purposes of the land registration scheme was to replace the doctrine of notice by less capricious system for resolving disputes between parties with competing interests in land. (LRA 1925) [38]

With reference to the system of unregistered title, Nicola Jackson said that “the discovery of encumbrances upon land is “parasitic” to this process as they are a natural consequence of verifying the title deeds.” [39]

As far as the third party with the equitable interest is concerned, there still exists the risk of losing their interest in certain circumstances as would happen under the doctrine of notice if those circumstances will determine the judiciary to conclude that they are not in actual occupation as it was the case in Abbey National Building Society v Cann [40] , where the Court held that “taking “preparatory steps” to occupy the house is not actual occupation as a matter of fact.” [41]

The Land Registration Act 2002 has been received with much critical acclaim, designed to revolutionise conveyancing in England and Wales and to bring the land registration system established by the 1925 Land Registration Act into the modern age.

Both reflect the new “ technology” of their age (the introduction of the widespread use of registers and e-commerce respectively). Fundamentally, both Acts are directed principally to simplifying the processes by which land transactions are carried out and substantive changes found in the two pieces of legislation can be regarded as supportive of this primary purpose.

In addition to this re-classification of “ interests that override” , the Act also radically alters the type of right that can have overriding status in the first place. The result is a considerably slimmer set of rights under both Schedules than those that take effect under the LRA 1925. [42]

Under the new scheme, there are a number of deliberate omissions from both Schedules. First, equitable easements no longer fall within either Schedule, despite being overriding interests under the LRA 1925 after Celsteel v Alton. The 2002 Act, however, uses the legal/equitable distinction as the touchstone for inclusion within the Schedules. In consequence, impliedly granted equitable easements do not enjoy overriding status, even though they are by definition not expressly mentioned in a written instrument and so may easily be overlooked for registration. This will have two immediate consequences. First, impliedly created equitable easements of necessity, common intention or under the rule in Wheeldon v Burrows will no longer carry overriding status. Secondly, easements generated by proprietary estoppel and now the inchoate equity that precedes it will have no protection unless the crystallisation of the estoppel (if any) has resulted in an entry on the register. [43]

The Land Registration Act 2002 makes provision to improve the accuracy of the land register and to accelerate the process of total registration of land throughout England and Wales. The pre-eminent aim of the 2002 Act is that a purchaser and other interested parties should be able to investigate title purely by examination of the land register with an absolute minimum of additional inquiries and inspections.(Law Com. No.271 at para.1.5. This implements the current Government’s commitment to transparency: Charles Harpum, Land Registration Conference, October 2001, University of Reading; Modernising Government (1999) Cm. 4310. As the Law Commission observes, “ the register is no longer something of concern only to conveyancers but provides an important source of publicly available information about land, a resource in which there is an increasing interest” : Law Com. No.271 at para.2.9.) [44]

The 2002 Act makes provision for the creation of an interest to be simultaneous with its registration.

The governing principle of reform is that an interest should only override the estate of a registered disponee where (i) protection against purchasers is required because it is unrealistic to expect the owner of the interest to register and (ii) the priority of the interest could be discovered by the purchaser from his own inspections and inquiries.( Law Com. No.271 at paras 8.6, 8.53, 8.62.) [45]

Another factor that gave rise to the possibility of a concealed occupational overriding interest was the high standard of inspection imposed upon purchasers. Overriding protection is triggered by a level of conduct interpreted as amounting to “ actual occupation” . In the s.70(1)(g) case law, there are “ constitutionalist” interpretations, according to which occupation is required to be discoverable on an inspection of the land. On the other hand, “absolutist” constructions have been taken to mean that occupation is not required to be apparent to an intending purchaser: [46]

“ In the case of unregistered land, the purchaser’s obligation depends upon what he has notice of–notice, actual or constructive. In the case of registered land, it is the fact of occupation that matters. If there is actual occupation, and the occupier has rights, the purchaser takes subject to them. If not, he does not. No further element is material.” [47]

Thompson concludes that “there is probably less substance to this debate than might meet the eye, not least because the scope of constructive notice has, itself, widened considerably since Hunt v Luck [48] was decided”. [49]

The Law Commission states: “ the existence of this uncertainty on a matter of such fundamental importance has been a major consideration … in making our proposals for reform.” [50]

Accordingly, the 2002 Act introduces a limitation on overriding protection, the aim of which is to eliminate the possibility of a concealed overriding interest arising. An occupier’s unregistered interest will only bind the estate of a registered disponee if occupation would have been apparent on a reasonable inspection of the land. The limitations contained in Sch.3 apply only to unregistered interests that override registered dispositions. The priority of unregistered interests over first registrations will be determined by the rules of unregistered conveyancing (if the registration is dispositionary) or will simply have been determined prior to the application for registration (in cases of voluntary first registration). [51]

It is undeniable that interpretations of s.70(1)(g) and s.199 impose standards of inspection that are repugnant to a system of documentary proof of title. However, this is the result of wide interpretations of what is apparent (in registered land) or what constitutes a reasonable inspection (in unregistered land). The possibility of the concealed overriding interest did not arise as a result of the absence of such requirements. Therefore, the 2002 Act’s reasonably careful inspection defence will not enable the register to be any more conclusive as to priorities than it was under s.70(1)(g). Smith observes that “ the factors considered in the cases indicate that the result would be the same, albeit that the analysis would today be couched in the terms of the statutory language”. [52]

under the 2002 Act, if a purchaser has actual knowledge of the occupation, the interest is overriding even if the occupation is not obvious which can be compared to the actual notice doctrine under the unregistered system. Although strictly speaking there is a difference between actual knowledge and actual notice, these differences are minimal and might not be significant in practice. [53]

Williams & Glyn’s Bank Ltd. v Boland [1981] A.C. 487 The doctrine of notice has no role in the registered system as it is irrelevant whether the purchaser has notice of any occupants besides the vendor. [54]

Lord Justice Mustill dissented from the majority opinion by saying that by the development of the doctrine of notice in para (g), this was merely preparing the home and she was not really there in occupation. Therefore, the bank had no opportunity to discover her interest. However, Lord Wilberforce in Boland stated that the doctrine of notice plays no part in registered conveyancing. [55]

Thompson v Foy [2009] EWHC 1076 (Ch) the case where the previous decisions under the 1925 Act were cited with approval, although obiter, which might suggest that for an interest to become overriding the judiciary will employ the same interpretations as under the older act.

the doctrine of notice and the overriding interests – The two differ in this regard as the doctrine of notice is more concerned with the actions that the purchaser took and whether the actions were reasonable to acquire notice in regards to third party interests. [56]

Lloyds Bank Plc v Rosset [1991] 1 A.C. 107 In practice however this distinction, besides perhaps shifting the burden of proof from the purchaser to prove that he has taken all reasonable steps to the occupant to prove that they are in actual occupation and such occupation would be obvious. [57]

As for the purchaser, the way actual occupation is interpreted might suggest an underpinning of the doctrine of notice in the interpretation of the judiciary. Thus, temporary absence, such as being in the hospital, was found to be actual occupation due to the presence of the furniture as well as her intention to return, see Hogget v Hogget. [58]

The presence of furniture alone does not amount to actual occupation; see Strand Securities Ltd. v Caswell.27 If Hogget v Hogget were to be upheld under the new act, it is unclear how a purchaser is to determine the intention of the occupant to return. It seems that a duty would be imposed upon the purchaser to inquire of other occupants to determine the intention of the absent occupant which resembles the requirement under the doctrine of constructive notice to take all reasonable steps. [59]

LRA 2002 creates a more simplified and efficient system for practitioners, which will increase the volume of cases able to be undertaken; reducing costs; the elimination of barriers; and the increase of customer satisfaction. [60]

The introduction of e-conveyancing has opened up interests in land, such as leases and charges for viewing. It has also meant that there is no need to lodge applications of land charges and transfers of title as this will be done automatically in the e-conveyancing; therefore creating a more efficient system for conveyancing practitioners. As with every change there will be apprehension that the title and charges have really been completed without the sending of applications and receipts of notification; however this is belied by the fact the changes can be viewed openly to make sure they are correct. However, it will be important for practitioners to remember that any documents sent to the Land Registry without a certified copy will be retained and possibly destroyed. To counteract the loss of valuable information the LRA 2002 has given a grace period of 5 years in which documents will be retained and application can be made for their return. Also it has introduced a change in the registration of legal leases from 21 years to 7 years because the sale of property is a lot more prevalent after a few years and this has been made compulsory, as well as any legal easement. This will make the process of land sales and transfers a lot more efficient. In addition to further this easier system of conveyancing the practive of entering a caution against first registration is being phased out; whereby after 2 years no applications will be taken and those in the previous 2 years cancelled meaning that upon sale the property must be registered. The categories of adverse possession and overriding interests have been narrowed. In the circumstance of possible adverse possession it clearly delineates between who is an adverse possessor and those that have a legal right in the property. It also makes compulsory application for title by the adverse possessor after 10 years which will be rejected, the court will notify the paper owner and if after 2 years the adverse possession is not ended the title will be given to the adverse possessor. Overriding interests have been narrowed and certain categories, such as legal easements have been made compulsory to register therefore confirming the easy access to conveyancing. [61]

Link Lending Ltd v Hussain and another

[2010] EWCA Civ 424; [2010] WLR (D) 103

MUMMERY LJ said that the judge had considered the relevant authorities on the concept of a “person in actual occupation” of land in the earlier land registration legislation and now found in the Land Registration Ac