Overriding Interests Do Not Appear on the Register

The above quotation is an extract taken from the consultative process the Law Commission established in 1996, with an intention to modernise the out dated Land Registration Act 1925.

The Law Commission together with HM Land Registry began a joint programme to update and reform statute law relating to the procedural registration of land, and the inherent problems involved within the transactional process.

One of the concerns dealt with by this process was to consider the rights of a purchaser who buys the title to land and then discovers that the land in question is subject to unregistered third party interests.

Unfortunately for the purchaser in this all too frequent type of scenario, these interests are legally capable of undermining the entire transactional process that should have otherwise been validated and taken free from encumbrances by information held on the Land register.

These rights are known as overriding interests, and as the name implies – they override the interests that are written legitimately on the land register.

Unfortunately, these overriding interests do not need to appear on the register to make them valid; however they are binding on all transactions involving the title of land in question.

So in theory, a prospective purchaser could carry out all the stipulated requirements in terms of due diligence in relation to the purchase of title relating to land, and still have complicated legal issues to deal with, that may very well impact on the overall process of land purchase and ultimately affect its intended result.

A requirement for revising or in the least a delimitation of the effects of overriding interests was a prominent feature highlighted and recommended for consideration within the framework of the Land Registration Act 2002.

Overriding interests had become a proverbial thorn in the flesh in terms of property matters with several cases providing conflicting and often inconclusive assessments, thus necessitating the need for a more accurate and comprehensive system of registering land, one that would result in less investigation by prospective purchasers as to the title of land and the ensuing ownership rights.

Following are some decided cases that feature prominently issues of overriding interests, in which it is possible to ascertain a more considered opinion in terms of the interests that are not, or cannot be protected by an entry on the register.

Background

The system of land registration was formally introduced by the Land Registration Act 1925, yet prior to this there was only a provision for voluntary registration of title of ownership by the legislation of 1862 [2] , so this highlights one of the key issues that necessitated a change in law – the fact that the guiding legislation is perhaps not as pertinent now nearly 85 years later from its inception, due to changes in property purchasing and society overall.

It is important to note that it is the title to the land, and not the land itself that is registered – as registered land could actually have several registered titles with separate title numbers, for example a registered freehold, registered leasehold and a registered sub leasehold.

Overriding interests were also detailed within section 70 of the LRA 1925, and whilst they had always been a feature of the system of registration, they include all the encumbrances, interests, rights and powers which are not entered on the register, but never the less override registered dispositions.

These ‘invisible’ interests whilst not appearing on the register bind any prospective purchaser and affect the title purchased whether they knew about them or not.

The primary categories of such interests are rights of a person in actual occupation, local land charges, easements and profits, and also certain legal leases.

The 1925 Act also did not distinguish between those interests which are overriding on a first registration and those that were overriding on a disposition of registered land.

Relevant case law – Pre 2002 Act

The decision reached in the leading case of Williams and Glyn’s Bank Ltd v Boland [3] is a particularly interesting case in relation to this topic, as the House of Lords unanimously held that Mrs Boland’s constructive trust interest was an overriding interest by virtue of s.70(1)(g) of the LRA 1925.

This section outlined that an interest in land, is an overriding interest where the person with the interest is in actual occupation, unless the following points are considered:

Enquiry is made of him or her, and

The interest is not disclosed.

However, in this instance the husband who held sole title, mortgaged and subsequently defaulted on the property without the knowledge of his wife.

As one would expect in such circumstances, the bank commenced proceedings and were granted possession of the property.

The bank however never enquired as to whether the wife had any interest in the property and were thus bound by her overriding interest, and as her husband was the sole trustee Mrs Boland’s rights in the land could not be seized using the doctrine of overreaching.

It is interesting to note that she was protected in this instance in more than one way – her rights were eligible for legitimate registration as an equitable which resultantly transposes into a minor interest , and should she decide not to register (which she didn’t) she had the fall back position of claiming overriding interest status.

The 1984 case of Chhokar v Chhokar [4] was an interesting case in which it was held that furniture can constitute adequate occupation which amounted to an overriding interest.

In this case the Husband contrived to sell the house to an associate for a sum substantially lower than the market value, and timed the transaction to coincide with his wife being in hospital giving birth to their child – the husband subsequently absconded with the proceeds from the sale and fled the country to India.

This left his wife in a precarious position but with an equitable interest in the house – however she was initially denied entry to the property by the purchaser on her return and it was thought that she would have no redress legally as she was not in occupation at the time that he was registered as the proprietor.

As one would expect litigation ensued and the Courts held that she was in occupation as her furniture and other belongings were there, even though she at the time was not.

Ferrishurst v Wallcite [5] gives a more elaborate display to the extent of overriding interests and the problems faced by prospective purchasers.

In this instance the Court of Appeal held that if a person had a right relating to a part of registered land, then actual occupation of the land was sufficient to make the right an overriding interest with respect to the land.

Subsequently, an option to purchase the lease of land which is much larger than the area in actual occupation was held to be overriding by the Courts.

It would seem that this is an extension of the provisions of overriding interests in relation to occupiers.

This would seem to be disadvantageous to a purchaser who may have executed all stipulated aspects of due diligence in regards to the property register, only to discover this type of scenario.

Furthermore, in Malory Enterprises Limited v Cheshire Homes (UK) Limited [6] , the action was for rectification of the land register under s.82 of the LRA 1925.

In which a person, who purchased land from a wrongdoer and had been entered on the register as legal owner took the title subject to the right of the lawful owner to seek rectification of the register.

The rightful owner was deemed to have sufficient standing to sue for trespass without rectification – here, possession that amounted to actual occupation was construed to encompass some physical presence, that entailed a degree of permanence and continuity and therefore being residential was not so fundamental.

Such activity was decided as constituting an overriding interest within sector 70(1)(g) of the LRA, with the theme of continuity being considered the key element.

This contrasts with the case of Secretary of State v Baylis [7] in which the Courts held that minor acts of mowing did not amount to what they considered to be actual occupation.

From the cases noted above, it is pertinent to note the fact that the purchaser in each instance was unaware of third party interests was unfortunately for the purchaser irrelevant.

This is particularly the case, regardless of the fact that the land was registered and purchasers were unaware and oblivious of these legally binding overriding interests.

This dilemma was substantiated in the above Malory case where the land in dispute was a part vacant building, part open land – and thus classed as vacant land, notwithstanding this the Court of Appeal held that there could be actual possession of vacant land! – An interesting concept indeed.

Personally I agree with a purchasers perspective in these instances, that it is quite infeasible and severe to successfully explore vacant land and identify reasonable circumstances of possession.

Developments arising from the Land Registration Act 2002.

This act is by far the most concise and fundamental overhaul of the land registration system since its formal inception in 1925.

The new Act it would seem aims to direct the trend of conveyancing to ultimately reflect the changing world of commerce in which we now live, toward that of a more electronic and fully automated system that is intended in the not too distant future.

The Acts intention was to simplify and modernise land registration law and makes the Register a more detailed and accurate reflection of land ownership – in legal circles considered as the mirror principle – that it should reflect fully the rights and interests that are intertwined within a title of land.

Amongst the changes brought by the Act are that shorter leases must now be registered, and a reduction from over twenty one years to seven years is now required [8] .

Voluntary registration of property title was also introduced for new types of interest in land and changed the protection of third party interests [9] .

It also makes provision for punitive measures for non registration by a loss of priority against a duly registered transferee for value, this combined with the simplification of issues of priority is thought to encourage registration [10] .

The scope of adverse possession has also been radically reformed in that overriding interests have been narrowed down, the Act also looks to reduce the scope of some overriding interests and takes into consideration the eventual abolition of others, requiring persons applying for registration to give details about unregistered interests so that they in turn can be included on the register, and that once an interest has been noted on the register, it loses its overriding interest status, even if the register entry is subsequently cancelled.

The LRA 2002 also outlines two distinct and separate lists of interests that carry overriding status, it also differentiates between interests that override first registration of property (schedule 1), and those that override subsequent registrable dispositions (schedule 3).

Schedule 12 of the Act contains important transitional provisions that limit the duration of certain rights classed as overriding interests which will be phased out after 10 years of the Act coming into effect.

This transitional period will give persons with such interest’s time to apply at no cost for their interests to be noted on the register. [11]

However, several overriding interests will still be automatically binding on purchasers of registered land and these are as follows:

Easements and profits already existing on 12 Oct 2003 and easements and profits created after 12 Oct 2003 by implied grant or by prescription.

According to the Act, the position for legal easements and profits will remain the same as for first registration for 3 years, and as of 13 Oct 2006, there will be exceptions.

An unregistered legal easement or profit will then only override registered dispositions

If it is obvious on a reasonable careful inspection of the land;

Known to the person to whom the disposition is made;

Exercised within the year before the disposition;

If registered under the Commons Registration Act 1965.

Thus it seems it will only be overriding if there is a pre determined level of notice and awareness involved.

What this in effect means is that pre 12 Oct 2003, easements and profits however created remain overriding interests after 12 Oct 2003, whether they be legal or equitable in the first instance with the prospect of being registered as three years after.

Legal Leases

Leases for duration of not more than seven years will be automatically binding – however a lease of shorter duration must be registered in its own right and won’t therefore be considered as an overriding interest even if it doesn’t exceed seven years:

If it is a right to buy lease;

A lease that takes effect more than three months after it is made;

And certain leases by private sector landlords.

The aim of the Act is to make all leases over seven years registerable, however the fact that a lease for more than seven years but is unregistered, doesn’t void it but makes it an equitable lease.

This in my mind could inadvertently still be considered an overriding interest if the owner of that right is in actual occupation.

Local Land Charges

These remain binding, however s.55 of the Act provides that a local land charge that secures the payment of money must be registered at the Land Registry before that money can be realised.

Property rights of a person in actual occupation.

This update as noted in schedule 3 excludes from being overriding “an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so” [12] – basically this implies that there will be situations where it is not reasonable to expect someone to respond to an inquiry by revealing their right.

Also the overriding status of these property interest rights only extend to those parts of the land which the person is actually occupying – which would seem to conflict with the decision in the Ferrishurst case, as actual occupation of the land would now amount to an overriding interest with respect to that part of the land only.

In concluding on this subject, the changes brought about by the LRA 2002 are without doubt extensive, and were conceived to cope with a modern society and the developments in terms of electronic communication.

One of the key procedural changes under the new Act is that it is a move away from a system of registration of title to one where the fact of registration itself gives a person title to the land, this combined with the increase in trigger events that necessitate compulsory and voluntary registration were designed to operate in two ways – more land would subsequently be triggered to come under registered title, whilst also reducing the volume of unregistered land conveyancing.

However the resultant changes designed to improve the process are perhaps questionable, as they introduce further complication to the already complex issue of overriding interests.

I would suggest that the process of a transaction would perhaps be more fluid as the Register is now a more detailed mirror like reflection of reality, and yet I would not expect a reduction in terms of litigation in this area as the whole notion of overriding interests is still a very complicated area fraught with loopholes for both parties to a transaction.

It is eight years since the date of the Act, and seven years since its application and is an improvement when compared to its now ancient predecessor.

Registration is now encouraged and advisable with a view to the register of title to land becoming an absolute and sufficient mirror of property title and interests in the not too distant future of e-conveyancing.