Экзамен зачет учебный год 2023 / Dixon, Principles of Land Law

Principles of Land Law

paragraph. In reality then, expressly granted legal easements will be binding as entered against the title and this paragraph will confer overriding status on impliedly granted legal easements (see Chapter 7).

The remaining paragraphs of Sched 3 are the same as their counterparts in Sched 1. Thus, the main differences between the Schedules occur in relation to easements and the rights of persons in actual occupation. The differences reflect the fact that relevant entries on the register of title either will be made or should be made concerning many rights that override a first registration so that protection is not needed when the land is transferred subsequently. In addition, of course, there is the policy of ensuring that a purchaser of land that is already registered should not be subject to rights which were not on the register nor discoverable by a reasonable inspection of the land. Overall, the differences between the Schedules on the one hand and the scheme of s 70(1) of the LRA 1925 on the other is a reflection of the aim of the LRA 2002 to produce a register of title that is as near complete as possible, with consequential benefits to purchasers and third parties alike. For example, the rights of persons in adverse possession will no longer be overriding interests in their own right (as they currently are under s 70(1)(f) of the LRA 1925). Such rights will override only if the adverse possessor is in actual occupation under the new definitions. Again, equitable easements are also excluded. Indeed, the reduction in the breadth and scope of ‘overriding interests’ has long been a goal and there is no doubt that, for good or ill, the LRA 2002 achieves it.

2.7The operation of registered land: minor interests under the Land Registration Act 1925

Minor interests form a residual category of rights in the 1925 land registration system, being rights which are not protected by any of the methods outlined above. They are neither registrable titles or charges nor overriding interests. In practice, minor interests usually comprise the rights of a person other than the owner and are mostly equitable, although there is no a priori reason why this should be so. It is a basic tenet of the registration system that minor interests must be registered against the land (in the charges section of the Register) in order to bind a purchaser of it. The one exception to this is those rights which are ‘overreachable’ and therefore incapable of protection when an overreaching transaction occurs even if they are in fact registered (see below, 2.8). The mechanics of the registration process for minor interests can be complicated, but the crucial point to remember is that under the LRA 1925 there are four different ways to protect minor interests by registration. The position under the LRA 2002 is different.

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2.7.1Restriction: s 58 of the Land Registration Act 1925

The restriction is a form of protection which enables the proprietor of a registered title (or charge) or the Registrar (on the application of an interested person) to restrict any future dealings with the land. The restriction is entered in the proprietorship section of the Register and will ensure that no dealings with the registered title can occur until the conditions specified in the restriction are complied with. Entry of a restriction usually requires production of the land certificate (an exception is where the certificate is lost) and therefore occurs with the concurrence of the registered proprietor. For this reason, restrictions are rarely used to protect rights that are truly adverse to the registered proprietor—in the sense of being disputed by him—and, in such cases, registration by means of a ‘caution’ is normally more appropriate (see below).

Although a restriction can be used to protect most minor interests—by controlling how the registered proprietor may deal with the land—it is most commonly used to protect equitable interests existing behind trusts of land or strict settlements (see Chapters 4 and 5). In such cases, the restriction requires the registered proprietor to conduct a proper overreaching transaction (see below) and so ensures that the equitable interests are duly converted into their monetary value. Under the TOLATA 1996, dispositions of land subject to a ‘trust of land’ can be made dependent on the registered proprietor obtaining the consent of some other person (see Chapter 4) and a restriction may be appropriate to ensure that this requirement is observed. Restrictions may also be used to ensure that a purchaser of registered land undertakes direct liability for positive burdens affecting the land (such as an obligation to pay for the upkeep of a private road). So, a restriction can be entered preventing sale of the land unless the purchaser promises to undertake the burden.

2.7.2Inhibition: s 57 of the Land Registration Act 1925

The inhibition is a powerful form of protection which inhibits any dealings with the registered land until an order of the court is obtained or a specified event occurs. Entry of an inhibition is made by either the Registrar or the court on the application of ‘any person interested’. Its effect is usually to freeze all dealings with the land, as may be necessary, for example, where there is an allegation that the registered proprietor has obtained the title (or its registration) by fraud, or the registered proprietor is bankrupt and it is necessary to prevent the dissolution of his estate. It will be appreciated then, that entry of an inhibition is a drastic measure and indeed, it is rarely appropriate to enter an inhibition to protect ‘normal’ third party interests in land. The inhibition is, in reality, a method of preventing dealings with the registered title because of circumstances affecting the land or its owner, rather than because of the existence of the typical

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third party proprietary right. The court or Registrar has the power to substitute a ‘restriction’ or ‘notice’ if this is more appropriate: s 57(4) of the LRA 1925.

2.7.3Notice: s 49 of the Land Registration Act 1925

A great many minor interests are capable of protection through the entry of a notice in the charges section of the Land Register, although as with the restriction this can prove problematic, given that the land certificate must be with the Registry before a successful registration can be made. The effect of an entry of a notice is that any person becoming registered as proprietor of the land to which the notice applies, takes that land subject to the rights protected by the notice.As stated, in most cases, entry of a notice may be made only on production of the land certificate and so with the concurrence of the registered proprietor, animportantexceptionbeingtheprotectionofmatrimonialhomesrights.Despite this limitation, entry of a notice is the most effective and appropriate form of registration for the protection of third party proprietary rights over the land. It typifies the way the registration system was supposed to work. Note, however, that entry of a notice has absolutely nothing to do with the pre-1925 ‘doctrine of notice’. As we shall see, the latter plays no part in the protection of minor interests when registered land is sold or transferred.

A notice is also the appropriate form of entry on the Register to protect certain non-proprietary rights affecting land. These are rights that are not inherently capable of binding land (that is, they are personal rights), but where Parliament has deemed that they should be raised to an equivalent status for social or economic purposes by means of the registration machinery. They are a special class and most fall outside the scope of land law. The most relevant right for our purposes is a spouse’s matrimonial home right arising under ss 30(1) and 31(10)(a) of the Family Law Act 1996. This is the personal right to occupy land belonging to one’s spouse and is enforceable against him or her. It is not proprietary but is given equivalent protection through the ability to enter a notice. This notice may be entered in the absence of the land certificate and so does not require the co-operation of the registered proprietor (by definition the other spouse). The entry of a notice will ensure that this nonproprietary right binds the purchaser of land over which it exists, as in Wroth v Tyler (1974), although it is now a statutorily implied term of a contract for sale with vacant possession that the vendor will procure cancellation of any such registration before completion of the sale (Sched 4, s 3 of the Family Law Act 1996).

2.7.4Caution: ss 54, 55, 56 of the Land Registration Act 1925

The entry of a caution in the charges section of the Register is appropriate to trigger protection for nearly every possible type of minor interest. It is especially useful given that a caution may be registered in the absence of the

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land certificate and therefore can be done without the consent of the registered proprietor. However, it is now clear that entry of a caution gives only limited protection to a person seeking to protect a minor interest. A caution is really a warning against dealings with the land. Thus, in the event of any proposed dealing with the land (for example, a sale), the Land Registry is required to give the cautioner (the person entering the caution) 14 working days’ warning during which time he may apply to protect his interest fully by the entry of (usually) a notice or a restriction. Failure to apply during this period, or a refusal by the Land Registry to ‘upgrade’ the caution, results in the caution being ‘warned off’. If a caution is warned off, it ceases to protect the minor interest and a purchaser will take the land free of that interest (Clark v Chief Land Registrar (1993)).

Additionally, as is now made clear by Clark v Chief Land Registrar (1993) (following Barclays Bank v Taylor (1974)), failure by the Land Registry to give the required warning to a cautioner, resulting in a totally innocent failure to apply for and obtain a secure entry on the Register, still means that the interest is not protected and is void against a purchaser. The innocent cautioner would, in such circumstances, be able to claim an indemnity from the Land Registry, but it is not always the case that the loss of an interest in land can be compensated for by a cash payment. So, as Clark illustrates, the entry of a caution itself gives noprioritytoaminorinterest,itisratheratransitionalformofprotectiondesigned to trigger more permanent protection.

2.7.5Enforcing minor interests

The whole purpose of the system of registration for minor interests is that such registration ensures that the protected right binds the land when the land is transferred to a new registered proprietor. This has two particular aspects: the ‘validity rule’ and the ‘voidness rule’ and these will be considered shortly. Before that, however, it is important to appreciate the precise purpose of the minor interest system. Registration of a minor interest can protect only that which is capable of protection. In other words, it must be clear that the right which is to be protected actually exists before the protection can take effect. Registration of a right which does not exist, or which is merely personal (such as a contractual licence) and not within the category of special non-proprietary minor interests, may not confer protection for the right. So, if I am in dispute with my neighbour over whether I enjoy an equitable right of way (an equitable easement) over his land, registration of the alleged easement by means of a caution does not necessarily confer protection. The right must exist first before it can be protected. In a similar vein, the priority of minor interests between themselves depends on the date of their creation, not the date of their registration as a minor interest (Barclays Bank v Taylor (1974)). So, if A has an equitable mortgage over X’s land created on 1 January 1997 (registered as a minor interest in June 1997), and B has a second equitable mortgage created on 1 March 1997 (registered in April

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1997), when the land is sold to Z, priority is given first to A’s mortgage. It is only in exceptional circumstances that the ‘first in time’ rule for competing equitable interests can be waived, as in Freeguard v Royal Bank of Scotland (1998) where the first created equitable interest was wholly artificial.

•The validity rule

If an interest is protected in the proper way by entry on the Register, it binds any subsequent purchaser or transferee of the registered land: ss 20 and 23 of the LRA1925. To this end, an intending purchaser will usually request a search of the Register in order to discover whether there are any registered adverse interests. Following this search, the prospective purchaser will receive a ‘search certificate’ and this will give him a 30 day ‘priority period’ in which to apply for registration of his title. If an application to register title is made within this priority period, any newly registered minor interest (that is, registered after the search was made) will not be binding on the purchaser.Any minor interests properly registered at the date the new owner applies for registration and not excluded by the priority period will be binding. It must be remembered, however, that unlike unregistered land, it is the Register itself that is conclusive, not the search certificate. Thus, any registered minor interest that is not revealed because of an inaccurate search of the Register remains binding on the purchaser because it is still entered on the Register.Again, in such circumstances, a purchaser prejudiced by an inaccurate search may be entitled to an indemnity or may sue the Registry in negligence.

•The voidness rule

The converse of the validity rule is that any minor interest which is not registered in the appropriate manner is void against a subsequent purchaser of the land who registers their title. It is vital to appreciate that this is the case whether or not the purchaser knew or should have known of the existence of that interest. In other words, the doctrine of notice is irrelevant because voidness is the penalty for lack of registration (ss 20, 23 and 59(6) of the LRA 1925; Strand Securities v Caswell (1965); Petrou v Petrou (1998)). This is a vital feature of the registration system. In the great majority of cases, the new owner of land will be a purchaser (as opposed to a donee of a gift or devisee under a will) and he will seek security in a search of the Register for registered minor interests. If any exist which are not appropriately registered, they are void against him and any subsequent transferee of the land. However, this is not the whole story and some exceptions to the voidness rule do exist, these being cases where an unregistered minor interest does in fact bind a new owner of the land. As explained below, these exceptions occur for specific rather than general reasons and consequently, whenever it is alleged that an unregistered minor interest binds a new registered proprietor, the facts of the case are likely to be crucial.

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•An unregistered minor interest may nevertheless qualify as an overriding interest under s 70(1) of the LRA 1925, usually under s 70(1)(g). In such a case, it may well bind the new owner of the land but only because it now falls into this new category. A typical example is an equitable lease which could be registered as a minor interest, but which will usually bind a purchaser as an overriding interest under s 70(1)(g) of the LRA 1925 because the tenant will be a person in actual occupation of the land. This possibility will be much reduced under the LRA 2002 because of the reduction in the scope of overriding interests and because of the various techniques that encourage or require registration of these interests.

•An unregistered minor interest (not qualifying as an overriding interest) remains valid against a person who is not a purchaser for value of the land, for example, the recipient (donee) of a gift, the recipient (devisee) under a will or a squatter (adverse possessor). The voidness rule, as expressed in s 20 of the LRA 1925 (freeholds), s 23 of the LRA 1925 (leaseholds) and s 59(6) of the LRA 1925, is concerned with protecting purchasers of land, those who do give ‘value’. Such donees, devisees and squatters acquire no greater right than their predecessor and if he was bound, so are they, irrespective of registration.

•An unregistered minor interest (not qualifying as an overriding interest) remains valid against a purchaser for value who does not register their title. In such cases, the new owner obtains an equitable title only and the unregistered minor interest takes priority over it being ‘first in time’. This is another example of the Barclays Bank v Taylor principle, affirmed in

Mortgage Corp v Nationwide Credit Corp (1993), and reinforces the policy of the LRA1925 that as much as possible concerning registered land should be on the title. So, assume an equitable mortgagee fails to protect his mortgage by means of a notice, but the land over which the mortgage exists is sold to X. If X fails to register her estate, she has only an equitable title created after the equitable mortgage and thus ranking behind it. Of course, should X seek registration of her new estate, the equitable mortgage will cease to be effective against the land, unless it has by that time been registered or otherwise qualifies as an overriding interest. It is only in exceptional circumstances that an unregistered minor interest will become void against a purchaser who does not register his title. In Freeguard, for example, the plaintiff claimed to be able to enforce an unprotected minor interest against a later purchaser who had not registered their interest (the bank). This purchaser had only an equitable interest and the ‘first in time’ rule should have meant that the plaintiff’s unprotected minor interest took priority. The court held, however, that the normal rule was displaced because the creation of the first equitable interest was a wholly artificial transaction. Hence, the ‘later’ right of the equitable purchaser had priority.

•An unregistered minor interest (not qualifying as an overriding interest) remains valid against a purchaser for value who has expressly

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promised to give effect to that interest and thereby gains some advantage, for example, a lower price. In such cases, if it would be unconscionable for the purchaser to deny the validity of the unregistered minor interest, that interest will be held binding on the purchaser by means of a personal constructive trust (Lyus v Prowsa Developments (1982); approved in Lloyd v Dugdale (2001)). It should be noted that this is an exceptional way in which an unregistered minor interest will be held binding and it depends entirely on the conduct of the particular purchaser against whom a remedy is sought. If, for example, that first purchaser were to sell the land on, the minor interest would then need to be registered in order to take effect against the second purchaser. In other words, this is a personal remedy against a particularly unconscionable purchaser. What amounts to ‘unconscionable’ conduct so as to deny a purchaser the benefit of the voidness rule necessarily will vary from case to case. As mentioned previously, a purchaser who promises the vendor that he will honour an unregistered minor interest and thereby obtains a lower price, will be held to his agreement (Lloyd v Dugdale (2001)). Again, however, it is important to emphasise that we are looking for ‘unconscionability’ on the part of the purchaser, not that he has old-style ‘notice’ of the minor interest (as explained in Miles v Bull (No 2) (1969)). So, a purchaser who knows of an adverse interest that is not registered and is keen to complete the purchase before it is registered, thereby securing a bargain, is not acting unconscionably simply because they have been able to take advantage of the provisions of the LRA 1925.

•An unregistered minor interest (not qualifying as an overriding interest) remains valid against a purchaser for value where the purchaser has knowledge of the interest and is relying on the voidness rule in order to perpetrate a fraud. This is similar to the situation outlined above and is an example of the old equitable rule that ‘equity will not permit a statute to be used as an instrument of fraud’ (De Lusignan v Johnson (1973)); viz, a person cannot plead the voidness rule established by the LRA 1925 as justification for their own fraudulent use of the land. Again, the emphasis is not on the purchaser’s knowledge or notice of the existence of the unregistered minor interest, but that the purchaser is attempting to use the voidness rule to further a fraudulent design. Knowledge or notice of the unregistered minor interest per se does not make a purchaser fraudulent. In Peffer v Rigg (1978), Graham J commenting on s 59(6) of the LRA 1925, decided that a ‘purchaser’ could only plead the voidness rule if they were acting ‘in good faith’, as ‘good faith’ was part of the definition of a ‘purchaser’ in s 3(xxi) of the LRA. If correct, this undoubtedly introduces elements of the old doctrine of notice into the voidness rule and this extreme interpretation is now largely discounted (see the analysis in De Lusignan (1973)). In short, ‘fraud’ means more than acting on one’s rights under the LRA 1925. It appears to include schemes

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deliberately designed to defeat unregistered minor interests, as in Jones v Lipman (1962), where the new registered proprietor who claimed to be free from the unregistered interest was in fact a company controlled by the former proprietor who had been bound by that minor interest. Likewise, a promise given to the right holder to respect the right and therefore to discourage deliberately its protection by registration will amount to fraud.

Under the LRA 2002 as to ‘minor interests’

The provisions of the LRA2002 in relation to so called ‘minor interests’ generally concern matters of detail rather than groundbreaking questions of principle. The essential scheme of the LRA 1925 remains in place; that is, there is the validity rule and the voidness rule (ss 11(4), 12(4), 29(2)(a)(ii) and 29(4) of the LRA 2002). Thus it remains true that these third party rights (which are not identified as ‘minor interests’ by name in the LRA2002) will bind if entered on the register and will be void against purchasers if they are not. Similarly, questions of priority continue to be determined by reference to the time of creation of the interest and an entry on the register cannot make valid that which is otherwise invalid (s 32(3) of the LRA2002). However, there are some points of interest and change.

First, that there will no longer be four methods by which a ‘minor interest’ can be protected. There will be the ‘restriction’ combining the functions of the current restriction and inhibition (s 40 of the LRA 2002), and the ‘notice’ combining the functions of the current notice and caution (s 32 of the LRA 2002). Restrictions will record limits placed on a registered proprietor’s ability to deal with the land (for example, in a co-ownership situation: see Chapters 4 and 5) and notices will record any third party rights over the land. Notices will either be consensual (as where the registered proprietor acknowledges the right) or unilateral (as where the right is disputed). There are provisions relating to the removal of notices and restrictions, but importantly both the consensual and unilateral notice give substantive protection to the right recorded (thus effectively reversing Clarke v Chief Land Registrar (1993) as regards cautions under the LRA 1925). Secondly, certain matters cannot be protected by notice (s 33 of the LRA 2002). These are an interest under a trust of land or settlement (for which a restriction should be used), leases for three years or less (being an interest that overrides), restrictive covenants between lessor and lessee relating to the property leased (these bind under special rules, but note that Dartstone v Cleveland Petroleum (1969) is reversed because such a covenant can be registered if it does not relate to the land leased), an interest capable of being registered under the Commons Registration Act 1965 (which is the proper form of protection) and certain mineral rights. Thirdly, the rule that such interests have priority from the moment of creation and not registration is preserved. This is because, under the full system of electronic conveyancing, creation and registration will occur simultaneously

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because registration of the right will be its creation. This will eliminate priority problems. Fourthly, given that in due course certain rights will not exist until they are electronically entered on the register (s 93 of the LRA 2002), only those third party rights that are so registered will bind the land and of course, the register will provide a very full picture of the state of the land at any given time. The possibility of the unregistered but valid ‘minor interest’ will all but disappear.

2.8The operation of registered land: overreaching

Throughout the above analysis, especially when considering whether and how a third party right might be protected on a transfer of registered land, repeated reference has been made to the concept of overreaching. The following section will analyse the concept of overreaching and explain how it fits into the registration system. As will be seen, it is a process whereby rights which would otherwise be binding against a purchaser according to the rules of registered land, will not be so binding because of this ‘statutory magic’. As a preliminary, it is also important to realise that ‘overreaching’ is not actually a creation of the LRA 1925: it operates in unregistered land also and in a similar fashion. It will continue to operate in much the same way under the LRA 2002. This is explained in the following sections.

Overreaching is a process whereby certain equitable rights in land which might otherwise have enjoyed protection in the system of registration on the occasion of a sale of that land to a purchaser for value, are ‘swept off’ the land and transferred to the purchase money which has just been paid. When this occurs, the equitable rights are said to be ‘overreached’ and no longer bind the purchaser, even though they might have fitted exactly into the category of overriding interests or protected minor interests. Overreaching is, in effect, a method of promoting the alienability of land by removing certain equitable rights from the land and recasting them as a monetary equivalent. Note, however, that not all equitable rights can be ‘swept off’ the land by overreaching. In fact, the rights which are capable of being overreached are those equitable rights which exist behind a trust of land: being those equitable ownership rights which exist when the land is co-owned (see Chapters 4 and 5) and which do have a readily identifiable monetary value. The crucial point is, then, that if overreaching occurs, a right which would have been protected against a purchaser ceases to be so protected, irrespective of whether it would have been an overriding interest or whether it was entered on the minor interests register (and equivalent under the LRA2002). Overreaching is the purchaser’s trump card.

It follows from the above that two essential conditions must be met before overreaching can occur.

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2.8.1The right must be capable of being overreached

The first condition is that the equitable right must be of the kind that is capable of being overreached. Not all equitable rights are ‘overreachable’ and so the trump card can be played only in defined circumstances. Overreachable equitable rights are defined in s 2 of the LPA1925 and, in essence, are equitable co-ownership rights existing behind a trust of land (as in City of London Building Society v Flegg (1998); see Chapter 4) or equitable interests existing behind a strict settlement (see Chapter 5). Consequently, equitable interests such as the equitable easement and equitable lease can never be overreached and will bind a purchaser of the registered land (or not) according the rules of registered land just discussed.

2.8.2The statutory conditions for overreaching must be fulfilled

The second condition is that the statutory conditions for overreaching must be fulfilled. This means that the sale must be made by those persons and in those circumstances that together constitute an overreaching transaction, s 2(1) of the LPA 1925. These are four in number, although the first is the one most frequently encountered, viz:

(1)the transaction is made by at least two trustees (or a trust corporation being a limited company of £250,000 capital) exercising valid powers under a trust of land, usually in a co-ownership situation. The trustees will be the legal owners of the land (see Chapter 4). The need for two trustees (legal owners) is a statutory requirement and has no relevance other than that thisistheminimumnumberrequired.Asweshallsee,themaximumnumber of trustees of land are four, so that if there are four trustees, all four must concur in the transaction (and likewise if there are three, etc). The most common transaction effected by the trustees which will overreach any equitable co-owners is either the simple sale to a purchaser or the execution of a mortgage in return for funds. If there is a sale, the new registered proprietor will have overreached the equitable owners and may evict them; if there is a mortgage, the mortgagee’s interest will have priority over that oftheequitableownersandsointheeventthatthelandissold,themortgagee will be paid first.

As noted, the sale/mortgage in a co-ownership situation is the most common type of overreaching transaction and it will be discussed at length in Chapter 4. At this stage, it is noteworthy that s 2 of the LPA 1925 appears to assume that overreaching occurs when the sale proceeds (either from sale proper or monies advanced by mortgage) are actually paid to the two (three or four) trustees. This is quite natural as the rationale for overreaching and its ability to release a purchaser from otherwise binding rights is that the equitable owners take a share of the

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