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Principles of Land Law

to be in occupation on their behalf. So also the converse can be true. Thus in Lloyd v Dugdale (2001) Mr Dugdale could not rely on s 70(1)(g) of the LRA 1925 because although he held a proprietary right in the land, it was his company that was in actual occupation of the land and his presence there was indeed as agent of the company, not in his own right. Again, in HypoMortgage Services Ltd v Robinson (1997), the Court of Appeal held that a child in occupation of premises with their parent could not be a person ‘in actual occupation’ within s 70(1)(g) so as to give an overriding interest against the purchaser. The child was there because the parent was there. Finally, we should also note that a right holder currently can enforce their right (as an overriding interest) against the entire property if the right inherently relates to all the property, even if they were only in actual occupation of part of it (Ferrishurst v Wallcite (1998)).

Clearly, what acts amount to ‘actual occupation’ and what persons may occupy on behalf of the right holder if the right holder is not personally present are questions of degree and will depend ultimately on the facts of each case. Certainly, however, mere temporary absences from the property by a person who is otherwise in ‘actual occupation’ does not detract from the existence of the overriding interest (Chhokar), and once the overriding interest is established—that is, that the actual occupation has acted on the proprietary right to protect it—there is no need to continue the occupation forever. Once the right under s 70(1)(g) has crystallised (on which important issue see below, 2.6.7), the occupier may leave the land, as with the right holder whose unpaid vendor’s lien became an overriding interest in London and Cheshire Insurance Co Ltd v Laplagrene Property Co (1971), even though he later quit the property.

In the majority of cases, a person’s presence on the land will be apparent to a prospective purchaser (for example, furniture, clothes) and this may lead him to make enquiries as to the existence of any adverse interests. If this happens, overriding interests established under s 70(1)(g) cause little hardship to a purchaser as he should be aware of their existence and can act accordingly: either to abort the purchase or obtain the consent of the person with the overriding interest to the proposed sale or mortgage (Paddington Building Society v Mendelson (1985), but see, now, Woolwich Building Society v Dickman (1996), below). However, it is in those cases where the presence of a person on the land (and hence their interest) is undiscoverable that cause concern, for the purchaser will still be bound by that interest according to the terms of s 70(1)(g) and s 20 of the LRA. The typical example is where the purely equitable owner of land is hidden from the purchaser or where such occupation is difficult or impossible to discover from physical inspection, as in Chhokar, where the equitable owner was in hospital at the relevant time and the legal owner had removed all evidence of her existence and possibly in Malory where it takes a degree of imagination to deduce that a fence amounts to the actual occupation of a third party (and is not merely the fence of the vendor!).

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This problem of the undiscoverable but binding proprietary interest is most acute under s 70(1)(g) for the simple reason that a prospective purchaser when coming to inspect the land might be unaware that there are others in ‘actual occupation’ who have a proprietary right adverse to his proposed use of the land. This has led some commentators to suggest that a right should not qualify for protection under s 70(1)(g) unless it, or the actual occupation which supports it, is discoverable by a reasonably prudent purchaser. Not only would this inevitably introduce an element of ‘notice’ into registered land contrary to the rationale of the land registration system (for example, it would lead to the question ‘what should the purchaser have discovered?’), it is contrary to the clear words of s 70(1)(g). This does not say ‘the rights of every person in actual occupation, provided that this is discoverable by the purchaser’. Indeed, the ‘absolutist’ view (that it is immaterial whether the occupation or right was discoverable) holds good according to current authorities (as in Skipton Building Society v Clayton (1993); Malory), although there is the suspicion that it is being attacked indirectly by raising the hurdle of what amounts to actual occupation in the first place. As we shall see, the ‘problem’ has been tackled under the LRA 2002.

As an alternative to actual occupation, a person claiming an overriding interest under s 70(1)(g) currently can show that they are in receipt of the ‘rents and profits’ of the land. This will operate primarily to protect a person who has taken a lease from the freeholder but instead of occupying it himself (or registering it), leases the land to a subtenant. The subtenant will be protected if the freeholder sells the land, either under s 70(1)(k) (currently legal leases for 21 years or less: see below) or under s 70(1)(g), and the intermediate landlord will be protected as being in receipt of rents and profits (that is, receiving the subtenant’s rent). This is illustrated by Schwab (ES) & Co v McCarthy (1975) which also suggests that the intermediate landlord must actually receive the rent to be protected rather than merely have a right to receive it. Once again, the LRA 2002 addresses this issue.

(5)The final condition for the existence of an overriding interest under s 70(1)(g) is that it bites only if the right holder has not denied the existence of his right after enquiry by the purchaser. If the purchaser does not ask the correct person (that is, the right holder, Hodgson v Marks (1971)) or if the right holder duly acknowledges his right, the overriding interest remains valid. It is only if the right is denied that the protection of s 70(1)(g) is lost. In addition, however, if a purchaser is buying a property with the aid of a mortgage, and the purchaser makes enquiries of the right holder and the right is denied, it is not only the purchaser who takes free of the interest, but the mortgagee also. As explained in UCB Bank v France (1995), it is ‘normal practice’ for a purchaser to pass answers to such enquiries to his mortgagee and therefore the mortgagee is deemed to have made the enquiry of the right holder, and is entitled to rely on the answers. Of course, if it can be established that the

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answers to the purchaser’s enquiries were not actually passed to the mortgagee, then the purchaser takes free, but his mortgagee does not. Finally, there is always the practical problem that the purchaser simply may not know who to ask (or may not know that there is anyone to ask) and may consequently fail to avail himself of this protection. In fact, examples of s 70(1)(g) rights deliberately concealed on enquiry (and therefore void)—as in UCB v France—are rare.

2.6.5Legal leases for 21 years or less: s 70(1)(k) of the Land Registration Act 1925

Under s 70(1)(k), legal leases originally granted for 21 years or less enjoy the automatic protection of an overriding interest. These are the leases that are not currently registrable in their own right as titles, being of insufficient duration. The class does not include equitable leases (they are not ‘granted’:

City Permanent Building Society v Miller (1952)) which in any event will usually fall within s 70(1)(g). Leases granted in pursuance of the Housing Act 1985 are also excluded: s 154(7) of the Housing Act 1985. The LRA 2002 modifies this provision.

2.6.6Further overriding interests under s 70(1) of the Land Registration Act 1925

Further overriding interests are:

•s 70(1)(h): certain rights ancillary to possessory, qualified and good leasehold titles;

•s 70(1)(i): rights under local land charges until they are protected by entry on the Register;

•s 70(1)(j): rights of fishing and other feudal rights;

•s 70(1)(l): certain rights to mines and minerals in land registered before the LRA 1925 came into force;

•s 70(1)(m): certain rights under the Coal Industry Act 1994.

These remaining subsections of s 70(1) deal with a number of other rights that qualify as overriding interests and therefore for automatic protection when the land over which they exist is transferred to a new registered proprietor. They are relatively unimportant in the general scheme of the LRA 1925 although, of course, can seriously affect the use of the land over which they exist. This is particularly true of the very valuable coal rights of s 70(1)(m).

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2.6.7The bindingness of overriding interests under the Land Registration Act 1925

The existence of overriding interests is a vital element in the system of land registration under the 1925 Act. As the above sections illustrate, their definition is reasonably clear but certainly open to interpretation in some areas, particularly s 70(1)(a) and s 70(1)(g). However, we now come to the second important issue concerning overriding interests. If we are satisfied that a right falls within s 70(1) and qualifies in principle as an overriding interest, when precisely will it be binding against a purchaser? To put it another way, it cannot be true that a new registered proprietor will be bound by everything that could be an overriding interest whenever that interest came into existence or whatever the circumstances. It would be harsh indeed if, say, a new owner was bound by overriding interests that came into existence after he had purchased the land, or if the new owner was bound even if the right holder had promised expressly to waive the bindingness of his overriding interest. Consequently, the following principles determine the time at which the overriding interest must exist in order to bind a purchaser automatically and the circumstances in which agreement between the parties can remove their effect:

•For all categories of overriding interest apart from s 70(1)(g), the crucial date for determining whether the purchaser is bound by an overriding interest is the date on which the purchaser makes an application to register his title at the correct District Land Registry: the date of registration (s 20 of the LRA 1925).

This has been confirmed recently in Barclays Bank v Zaroovabli (1997), where Scott VC held that a lease falling within s 70(1)(k) would bind a purchaser (in that case, a bank as mortgagee) if the lease existed at the date the purchaser applied for registration. It mattered not, as in that case, that the overriding interest came into existence after the sale (mortgage) to the bank but before they registered their title. This period between completion of a purchase and the subsequent registration of the new proprietor is known as the ‘registration gap’ and it allows an interest in every category except s 70(1)(g) to bind a purchaser’s land even though the binding right did not come into existence until after the purchase (but before registration of the title). This may seem unfair to the purchaser—after all, how can a purchaser walk away from burdened land or offer a lower price when it is not burdened at the time of sale—but until a new approach is found (see the LRA 2002) it will be something for a purchaser to be wary of. In fact, in Zaroovabli itself, the bank had waited over six years since completing the mortgage to apply for registration and it is hardly surprising that the court felt little sympathy when this plaintiff was caught by the registration gap. There

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would be more sympathy (but currently no different result) if, say, the bank had completed the mortgage in January, had applied to register in March, but an overriding interest under s 70(1)(k) had arisen in February. In such cases, however, it must be clear that the interest which is said to bind the purchaser really does exist as an overriding interest. So, in Leeds Permanent Building Society v Famini (1998), which appears to contradict Zaroovabli in holding that a right arising during the registration gap did not bind the purchaser, the lease which was alleged to fall within s 70(1)(k) of the LRA 1925 turned out on closer inspection to be an equitable lease whose claim to overriding interest status rested on s 70(1)(g) of the LRA 1925. As explained immediately below, rights reliant on s 70(1)(g) of the LRA 1925 for overriding interest status must satisfy a different timing test.

•For overriding interests established under s 70(1)(g) (being those rights that could seriously disrupt the new purchaser’s enjoyment of the land because they presuppose someone else is in occupation), it is now clear that there is a two stage test. Although the overriding interest crystallises at the date of registration (as stated in s 20 of the LRA 1925), a person cannot claim the benefit of s 70(1)(g) unless they have a proprietary right and are in actual occupation of the land at the time the sale to the new owner was made or when the mortgage was granted (Abbey National Building Society v Cann (1991)). This pragmatic decision (also confirmed in Zaroovabli) effectively eliminates the ‘registration gap’ problem for s 70(1)(g) rights. This means that, in practice, a purchaser will not find the value or use of their land diminished by the emergence of a powerful adverse right in the interval between the purchase and application for registration as the new proprietor. The proprietary right, and the actual occupation that invests it with the status of an overriding interest, must exist prior to completion of the purchaser’s transaction so increasing the chances that it will be discovered in time for the purchaser to react accordingly.

•As indicated above, the ‘owner’ of any overriding interest that would otherwise bind a new owner of the land may be able to waive voluntarily the priority given to their right by expressly consenting to the sale or mortgage of the land over which the right exists. Indeed, in some cases, this consent will be implied because of the conduct of the holder of the overriding interest (Paddington Building Society v Mendelson (1985); Equity and Law Home Loans v Prestidge (1992)). Indeed, a right holder who has consented to a particular purchaser (a mortgagee ‘X’), may be taken to have consented to a different purchaser who steps into his shoes (a remortgagee ‘Y’ whose monies pay off the first mortgage), at least to the extent of the monies provided by the original mortgagee even if in reality the right holder did not know of the substitution (Prestidge; FC v FC (2001)). Although the precise circumstances in which a right holder will be deemed to have consented to the sale or mortgage of the land over which the

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overriding interest takes effect are unclear, mere knowledge that a transaction concerning the land is proposed would not seem to be enough. Consequently, the person with the overriding interest need not volunteer information concerning their position and will not be taken to have consented simply because the transaction proceeds around them and they remain silent—having not been asked. The requirement is one of consent to the sale or mortgage, not simple knowledge of it: Skipton Building Society v Clayton (1993). However, active participation in organising the mortgage or encouraging a purchaser will be deemed to be consent. For example, an equitable owner in actual occupation who sits by while her husband arranges a mortgage will not thereby lose the priority which her overriding interest has over the mortgagee, but an equitable owner who participates by, say, explaining to the bank that the money is needed for an extension, will. Moreover, many purchasers (especially banks lending by way of mortgage) now require all occupiers to sign express consent forms waiving such rights as they might have in favour of the bank. This would seem to be perfectly adequate to protect the purchaser. However, in Woolwich Building Society v Dickman (1996), the ability of a holder of an overriding interest to waive their priority has been challenged. The case itself is explicable on other grounds, but the Court of Appeal does say that the express consent to a mortgage by a person with an overriding interest is not sufficient to waive priority unless such consent is itself entered on the Register. This is somewhat dubious. It is true that s 70(1) of the LRA 1925 says that overriding interests are effective against a purchaser ‘unless …the contrary is expressed on the Register’ (so suggesting that consents should themselves be registered), but this applies only to such interests that are ‘for the time being subsisting’ in reference to the land. Where a holder of what would otherwise be an overriding interest has consented to the priority of the purchaser/mortgagee, the right is no longer ‘for the time being subsisting’ in reference to the land and so whether the consent is entered on the Register or not is immaterial. The right does not exist vis à vis that purchaser. Moreover, not only does the decision in Dickman appear to rest on a misreading of s 70(1), most mortgagees have relied on ‘unregistered’ consent forms to escape the effect of overriding interests ever since Paddington. Many millions of pounds in loans have been lent on the basis that such consent forms are valid. Now is not the time to throw such a principle and practice into doubt and Dickman is best regarded as authority for the much more limited proposition that a right holder cannot consent away their overriding interest if that right is also protected by other statutory machinery—as with the protection given to the tenancy by the Rent Acts in Dickman. The Law Commission’s view is that Dickman is incorrect. Indeed, in Birmingham Midshires Building Society v Saberhawal (2000), no objection was raised to the validity of a consent form and the court simply proceeded on the basis that it was effective to waive the rights of the claimant.

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•Finally, for the sake of clarity, it is trite law that a right may qualify as an overriding interest only if it exists vis à vis the purchaser in question. This is not startling news, but it does mean, for example, that if it turns out that the alleged overriding interest is not a lease at all, but in reality is a licence (see Chapters 6 and 9), this licence can never be an overriding interest because licences are not capable of binding any third party, being merely personal rights (the contrary view expressed in Saeed v Plustrade (2001) should be regarded as per incuriam). Likewise, even if the alleged overriding interest does exist as a proprietary right, it may be ineffective against a particular purchaser because of circumstances wholly unrelated to the operation of overriding interests per se. One such case has been considered above, as where the purchaser gains the consent of the potential holder of the overriding interest so ensuring that that particular purchaser can never be bound. So also, if the alleged overriding interest is given by a landowner who had no power to give it: the right cannot bind the purchaser, because, vis à vis the purchaser, it does not exist. An example is Famini where the alleged overriding interest (a tenancy) was created by a landowner who had no power to create it, having promised the purchaser (the bank) that he would not do so.

Under the LRA 2002 as to interests that override

It is apparent from what has been said already about the LRA 2002 that its provisions relating to ‘overriding interests’ are some of the most important. The mere fact that there was (and will remain) a category of rights that bind a registered proprietor even though there is no entry on the register is an anathema to a system that hopes to provide title by registration instead of registration of title. In consequence, much of the LRA 2002 is about controlling and limiting the effects of ‘overriding interests’.

The 2002 Act adopts many strategies to achieve this, but perhaps first we should note that the name (if not the concept) of overriding interests will disappear. After the LRA 2002 enters force, we will be referring to ‘interests that override’. Indeed, we shall be thinking about two different types of ‘interests that override’: interests that override a first registration of title (Sched 1 to the LRA 2002) and interests that override a registered disposition of land that is already registered (Sched 3 to the LRA 2002). These two categories are, in fact, very similar and most of the concepts are the same, save that Sched 3 rights are more narrowly drawn because it is anticipated that many rights that override a first registration will subsequently be entered on the register or will expire before the title is transferred again.

Schedule 1 rights

Sections 11(4) and 12(4) of the LRA2002, being rights which will bind a registered proprietor on first registration. These will be effective on the occasion that the

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land is first registered, either following a ‘trigger’ for registration or an application for voluntary registration. Some may eventually be entered on the register and hence cease to be overriding, especially as a duty is imposed on applicants under s 71 of the LRA 2002 to disclose such rights so that they may be so registered. The categories are:

•Paragraph 1 of Sched 1 of the LRA 2002, legal leases of seven years or less. This is the rough equivalent of s 70(1)(k) of the LRA 1925, save only that the duration threshold is lowered from 21 years or less to seven years or less. Legal leases over seven years will be registrable estates. Three types of lease are excluded from this status even if they are seven years or less, being the right to buy a lease, a lease taking effect more than three months after it was granted and leases by certain private sector landlords. (These ‘short’ leases will be registrable in their own right, as with legal leases over seven years.)

•Paragraph 2 of Sched 1, interests of persons in actual occupation. This is the new form of s 70(1)(g) of the LRA 1925 and the first point to note is that the rights of persons in receipt of rents and profits is now excluded from ‘overriding’ status. Also excluded are (as before) interests arising under settlements under the Settled Land Act 1925. In addition, it is now made clear that the interest that is said to override the first registration will do so only in relation to the land that is actually occupied by the claimant. That is, the decision in Ferrishurst v Wallcite (1998) is reversed. For the sake of clarity it should also be made clear that there is nothing in the 2002 Act to change the definition of what constitutes ‘actual occupation’, so the approach developed for the 1925 system remains valid. Likewise, the principles concerning the need for a proprietary right and concerning issues of waiver/consent remain unchanged. In so far as it will remain relevant, ‘actual occupation’ must be established as before at the time of transfer of the title, not the later date of first registration. However, we must remember that electronic conveyancing will in time remove this ‘registration gap’ because transfer and registration will occur simultaneously and electronically.

•Paragraph 3 of Sched 1, legal easements or profits. This will replace s 70(1)(a) of the LRA 1925, save that it is made clear that equitable easements will not override first registration. This effectively reverses Celsteel v Alton (1985). The point is quite simply that these equitable easements should have been registered as land charges under the Land Charges Act 1972 when the land was unregistered. If they were, they will be binding, being translated into notices on the register of title. If not, they would have been void under the unregistered system so should not now acquire overriding status simply because the land has become registered.

•Paragraphs 4 and 5 of Sched 1 ensure that ‘a customary right’ and ‘a public right’ respectively override first registration and para 6 confers the same status on local land charges. These reflect similar provisions under s 70(1)

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of the LRA 1925. Many of the rights within paras 4 and 5 will be entered on the title as they come to light and so this category is likely to diminish in importance.

•Paragraphs7–9ofSched1preservesthestatusofmineralrightsundersimilar provisions in s 70(1) of the LRA 1925.

•Paragraphs 10–14 included a miscellany of rights (for example, franchises, liability in respect of sea walls) that were also in s 70(1) of the LRA 1925, although not a chancel repair liability following the decision in Wallbank that the enforcement of such an obligation violated the human rights (right to property) of the owners of the burdened land. Importantly, this category of right will be phased out over a maximum 10 year period. During that time, they should be entered on the register against the title of the land they bind. If they are not so entered, they will become unenforceable.

•Under s 90 of the LRA 2002, a Public Private Partnership (PPP) lease also enjoys the status of a right that overrides first registration. These are special statutory creations relating to the system of transport in London.

Schedule 3 rights

Sections 29(2)(a)(ii) and 29(4) of the LRA 2002, being rights that will bind a transferee for valuable consideration of a registered disposition. These rights will be effective against a purchaser of a legal estate in the land (for example, a new freeholder, leaseholder, mortgagee) when the land they have purchased is already registered. In other words, these are rights which bind a registered disposition and legal leases which do not need to be substantively registered (those of seven years or less: s 29(4) of the LRA 2002). In many respects, they are similar to those rights listed in Sched 1, but there are some important differences:

•Paragraph 1 of Sched 3, is similar to para 1 of Sched 1 (legal leases for seven years or less), save that the exceptions (that is, rights which do not override) includes the three exceptions under Sched 1 plus those leases which should be registered with their own titles even though they are seven years or less (for example, a discontinuous lease such as a timeshare).

•Paragraph 2 of Sched 3, being an interest belonging to a person in actual occupation. This raises similar issues as those arising in relation to parallel rights under para 2 of Sched 1, including questions about the meaning of ‘actual occupation’ and proprietary status, the reversal of Ferrishurst, the relevance of waiver/consent, the exclusion of the rights of persons in receipt of ‘rent and profits’ and Settled Land Act rights, and questions concerning the ‘registration gap’ and its eventual demise. However, most importantly, there are some additional exclusions, being cases where no ‘overriding right’ will arise under Sched 3 even though it would have

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done under Sched 1. Thus, also excluded are: first, the rights of a person of whom enquiry was made who failed to disclose the right when he reasonably should have done so; secondly a lease granted to take effect more than three months in advance but where the tenant has not actually entered possession; and thirdly, the rights of a person whose actual occupation would not have been obvious on a reasonably careful inspection of the land and about which the transferee did not know. Of these three additional exclusions, the ‘enquiry’ exclusion is already found in s 70(1)(g) of the LRA 1925 and denies overriding status to a person who hides his rights when asked, and the (new) lease exclusion prevents a person from claiming an interest that overrides when he should have registered that lease under its own title. The third exclusion is both new and far reaching. It is designed to prevent a purchaser being bound by the undiscoverable overriding interest that is (apparently) so problematic under s 70(1)(g) of the LRA 1925. Thus, if the actual occupation is not ‘patent’ (discoverable on a reasonably careful ‘inspection’) and the purchaser does not know of the right, the right cannot be overriding. The aim of this exclusion is clear. As noted, it is to protect purchasers from undiscoverable rights of which they were unaware. Although the provision in para 3 of Sched 3 may well achieve this, we can but hope that it does not import concepts of ‘notice’ into registered land. It may not, because after all it is the ‘actual occupation’ that must be obvious on a careful inspection, not the right which is said to be overriding and the Law Commission in its Report No 271 is clear that there is no reason to return to the fickle concept of notice. However, the fear is that this provision will generate much litigation before its meaning is clear and the temptation to return to the old unregistered land concept may prove too much for some courts.

•Paragraph 3 of Sched 3, legal easements and profits. Again, this is very similar to the provision in Sched 1 (for example equitable easements are again excluded). However, once again there are some additional exclusions not found in Sched 1 which effectively narrow its scope dramatically. In effect, the only legal easements and profits which will be overriding under this convoluted paragraph are: those registered under the Commons Registration Act 1965; or those about which the purchaser actually knows; or those that are ‘patent’ (obvious on a reasonably careful inspection of the land); or those which have been exercised (that is, used) within one year of the purchase. As noted, this dramatically reduces the scope of legal easements that will bind as interests that override a registrable disposition and, of course, equitable easements are excluded completely. These equitable easements must now be protected by an entry on the register. We should remember, however, that most legal easements over registered land will have been granted (and in the future must be so granted: s 93 of the LRA 2002) in such a way that they are actually entered against the title of the burdened land and so will be protected without reliance on this

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