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Principles of Land Law

for the creation of legal rights, and more informality permitted for the creation of equitable rights. Here lies the heart of the pre-electronic legal/equitable distinction, especially if we remember that the historical division between law and equity originated in a dispute between two sets of courts, one of which was prepared to enforce rights only if they were accompanied with the proper formality, the other that was prepared to enforce rights when it was equitable to do so, notwithstanding the lack of proper formality:

•When is a proprietary right legal?

Assuming it falls within s 1 of the LPA 1925, a right will be ‘legal’ if it is created with proper formality, which at present generally means the use of a deed. Adeed is a written document of a special kind which, according to s 1 of the Law of Property (Miscellaneous Provisions)Act (LP (Misc Prov) A) 1989, is expressed to be a deed on its face or by the person signing it. A deed must be witnessed by some person other than the persons who are parties to it. Usually, a document intended to be a deed will state that it is ‘executedasadeedbyXandY’.Note,however,that,inspecialcircumstances, certain proprietary rights may be legal without the execution of a deed, such as with certain leases for three years or less (Chapter 6) or an easement by ‘prescription’ (or long use: see Chapter 7). These special cases will be considered where appropriate. Also, it is important to appreciate at this stage that the Land RegistrationAct (LRA) 1925—the statute that currently establishes a nationwide register of land ownership (see Chapter 2)—has affected the position. So, even if an estate that is capable of being legal has, in fact, been created by a deed (that is, the fee simple absolute in possession and leasehold), it will not take effect as a legal right until it is registered on theregisteroftitleasrequiredbytheLRA1925.Thisissimplytheconsequence of the land registration system, which guarantees a person’s estate (and its legal quality) when, but only when, it has been properly registered.

•When is a proprietary right equitable?

Aproprietary right will be equitable either because it is excluded from the definition of a legal estate/interest found in s 1 of the LPA1925 and is created in the manner appropriate for the creation of equitable rights, or because it is a right which could have been legal or equitable, but is equitable because it is created only in the manner appropriate for the creation of equitable rights. In either case, the lesser formalities for the creation of equitable rights must be observed. In the majority of cases, this means that the equitable right must be created by a comprehensive written contract signed by, or on behalf of, the parties creating the right as required by s 2 of the LP (Misc Prov) A1989 or by a written instrument within s 53 of the LPA1925. Failing this, the proprietary right does not exist at all: it is ‘void’, although it may be possible to save part of a written instrument by severing a valid clause from an invalid one (Murray v Guinness (1998)). Of course, a written contract or instrument is relatively formal, but there is a clear distinction between

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these and a deed, not least that the latter must be witnessed. Note, however, that in exceptional circumstances, equity will recognise the existence of an equitable right arising from an oral contract or promise, providing the conditions for proprietary estoppel or constructive trust have been fulfilled (Chapters 4 and 9). As will be seen in Chapters 4 and 9, the creation of equitable rights by purely verbal dealings between the parties is not particularly uncommon, because it serves the needs of fairness—or equity— between the parties. It is an anathema to the law that a person should be able to deny that they have granted a proprietary right to another by pleading non-compliance with statutory formalities if this is their own fault. Nevertheless, the creation of equitable rights by proprietary estoppel or constructive trust (that is, verbally) are in the nature of exceptions to the rule that equitable rights usually should be created in writing, and, consequently, the relevant principles may not be so widely interpreted as to destroy the basic rule. For completeness, it should also be noted that rightsarisingbeforethe1989Actcanbeequitableifcreatedbyanoralcontract withouttheneedtopleadproprietaryestoppelorconstructivetrust,provided that that oral contract was supported by some act of part performance in pursuit of the right, as in Thatcher v Douglas (1996), applying s 40 of the LPA 1925 (now repealed for rights arising post the 1989 Act).

1.3.5The proposed system of electronic conveyancing

The picture presented above can, at its simplest, be stated thus: such rights as may be legal usually must be created or transferred by a deed in order actually to be legal (with some limited exceptions such as short leases and easements by ‘prescription’); such rights as may be equitable (including ‘failed’ legal rights) usually must be created or transferred by a written instrument in order actually to exist in equity. In the absence of these ‘formalities’, the relevant right simply will not exist, unless rescued by some exceptional principle such as proprietary estoppel or constructive/resulting trusts. Necessarily, electronic or paperless conveyancing will change this. Under the proposed scheme—which although authorised by the LRA 2002 is lacking in detail pending the development of suitable Land Registration Rules—certain rights will not be able to be created unless they are entered electronically on the register of title of the relevant land: s 93 of the LRA2002. So, it will matter not that a freehold or leasehold has been transferred or created by deed. If it (the freehold or leasehold) is in that class of ‘disposition’ that is required to be made by electronic entry on the register, it will not exist at all (legally or equitably) until it is so registered. Clearly, such a ‘formality’ requirement necessarily removes any meaningful distinction between legal and equitable rights. In reality, these rights (those required to be created by electronic registration) will either exist, or they will not.

In fact, this is rather a simple picture, because not all proprietary rights will be required to be transferred or created by electronic entry on the register. We

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do not yet know what rights will be subject to this new electronic regime or whether it will be mandatory in all circumstances. However, it is clear that some proprietary rights still will be capable of creation by deed or in writing (at least initially) possibly with a choice of either a paper deed/writing or electronic deed/writing, and so (presumably) the old legal/equitable distinction will have some relevance in these cases.

1.3.6The division of ownership and the ‘trust’

Although the distinction between legal and equitable rights turns, primarily, on the definition in s 1 of the LPA1925 and the manner in which the right is created, there is a third way by which the distinction can arise. This is where enjoyment of the land is regulated by use of the ‘trust’. In English law and systems derived from it, it is perfectly possible for a single piece of property (any property) to be owned by two or more people at the same time. This is not simply that two people may share ownership; it is, rather, that two or more people may have a different quality of ownership over the same property at the same time. In other words, one person may have the legal title to the property, and another may have the equitable title. Of course, in the normal course of events, when a person owns land (or any other property), this legal and equitable title is not separated, and the person is regarded simply as ‘the owner’. However, it is the ability to split ownership that is so unique to the English legal system and other systems derived from it. So, for land, it is possible to have a legal owner and an equitable owner, one with legal rights of ownership, the other with equitable rights. Necessarily, these two owners must stand in a relationship to each other and this relationship is known as a ‘trust’. This is what is meant when it is said that A holds land on trust for B: Ais the legal owner (and trustee), and B is the equitable owner:

The trust that exists betweenAand B can take many forms and different rights and duties can be imposed onA(the trustee) for the benefit of B (the beneficiary) dependingonhowthetrustwasestablishedandanyrelevantstatutoryprovisions (forexample,theTrustofLandandAppointmentofTrusteesAct1996—seeChapter 4). In some circumstances, a trust will be imposed on a landowner without a deliberate act of trust creation, thus creating by force of law a distinction between thelegalandequitabletitles(seeChapter4).Finally,itisalsoimportanttoappreciate that the creation of legal and equitable proprietary rights through the use of a

Figure 3

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An Introduction to Modern Land Law

trust requires compliance with a different but complementary set of formality rules: that is, rules similar to (but not identical with) those required for the simple creationofproprietaryrights.Unlessthereisa‘constructivetrust’,‘resultingtrust’ (see Chapter 4), or a successful claim of proprietary estoppel (Chapter 9), a trust concerning land or any right therein must be ‘manifested and proved by some writing’ (s 53(1)(b) of the LPA 1925). This means that the existence of the legal and equitable interests under a trust concerning land depends on the trust being created in the proper manner, although the requirement here is that the trust of land must be evidenced by some written document, rather than actually be in writing itself.

1.4The consequences of the legal/equitable distinction

It is apparent from the above that whether a proprietary right is legal or equitable may tell us many things; for example, how the right was created and whether there is any possibility of the existence of a trust. However, one of the most important consequences of the distinction, albeit much modified by statute, is the different way in which legal or equitable rights can affect the new owners or occupiers of the land over which such rights exist. As noted at the outset of this chapter, the peculiar quality of proprietary rights is that they attach to the land, and thus the right to enforce them, or the obligation to honour them, is capable of passing to new owners of the benefitted or burdened land. This is the situation represented by Figure 2, above. So, in practice, the precise effect of a proprietary right on a third party (in the sense of their obligation to honour it) can sometimes depend on whether it is ‘legal’ or ‘equitable’. Necessarily this is a simple picture because the situation is much modified by the 1925 legislation. But even now it is impossible to understand modern land law without an appreciation of this issue.

1.4.1Legal status before the 1925 legislation

Prior to 1 January 1926, if a proprietary right was legal, it would always bind every person who came to own or occupy the land over which it existed. As was commonly said, ‘legal rights bind the whole world’, and the person entitled to enforce the legal proprietary right could exercise it against any purchasers, squatters, donees of gifts and all others. So, for example, the person entitled to a legal right of way (an easement) would have been able to enjoy that right no matter who came to own or occupy the land over which it existed.

1.4.2Equitable status before the 1925 legislation

Prior to 1 January 1926, if the right was equitable, it would bind every transferee of the land except a bona fide purchaser for value of a legal estate in the land who had no notice of the equitable right. This appears to be a complicated rule,

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but it can be broken down into its constituent parts. Thus, an equitable right would be binding on a transferee of the land in all the following cases:

(a)where the transferee was not a purchaser for value, as where he received the land by will, or as a gift, or under the rules of adverse possession (squatting);

(b)where the transferee did not purchase a legal estate in the land, as where he occupied the land under an equitable lease;

(c)where the transferee was not bona fide, as where he acted in bad faith;

(d)where the transferee had notice of the equitable right, as where he either knew of its existence (actual notice) or knew of circumstances from which a reasonable person would have been aware of its existence (constructive notice) (Hunt v Luck (1902); Kingsnorth v Tizard (1986)), or the transferee’s agent had actual or constructive notice (so called imputed notice, when, for example, the transferee’s solicitor had notice).

In all these cases, the equitable right would have been binding on a transferee of the land. However, it is important to realise that, in the great majority of cases, the transferee of the land would easily fulfil the first three requirements of the ‘bona fide purchaser’ rule and so hope to escape being bound by the equitable right. In practice, the only real question would be whether he had notice of the equitable right. Consequently, the rule about equitable interests became known as the ‘doctrine of notice’, because it was usually the transferee’s ‘notice’ of the equitable interest (therefore, bound by it) or lack of notice (not bound) that was the live issue. Unfortunately, such were (and are) the vagaries of the doctrine of notice that both the transferee of the land and the owner of the equitable right could never be sure whether his land or his right (as the case may have been) was secure. In many cases, the ‘owner’ of an equitable right over land could do little to ensure its survival should the burdened land be sold, and, conversely, a purchaser might find that the land they had just purchased was encumbered by an equitable right of which they were deemed to have constructive notice. In short,theoperationofthedoctrineofnoticewassouncertainthatthe1925property legislation modified the rule in a radical way and thereby substantially reduced the importance of the legal/equitable distinction.

1.5The 1925 property legislation

All that we have considered so far forms the basis of the modern law of real property. However, the start of the 20th century brought with it fundamental socialandeconomicchanges,andwhenthesewerealliedtothedefects,mysteries, vagaries and plain injustices of the law before 1925, it was clear that wholesale reform was necessary. The detail of the legislative changes that came into effect on 1 January 1926 are considered later, in the appropriate chapters, especially Chapters 2, 3 and 4, but for now it is important to realise that both substantive

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and structural changes were made in 1925, particularly regarding the question of ownership of land and the way in which proprietary rights could affect ‘third parties’, being persons who came to the land after the proprietary right had been created. The main legislative enactments are noted below.

1.5.1The Law of Property Act 1925

The LPA 1925 made substantive changes in the law of real property, including, as we have seen, a redefinition of what rights could be legal or equitable. It also has much to say about joint ownership of land, the creation of proprietary rights, the nature of the fee simple and leasehold, and much more. Although amended in parts, it remains the governing statute for modern land law.

1.5.2The Settled Land Act 1925

TheSettledLandAct1925isacomplicatedstatute,designedtoregulatethecreation and operation of successive interests in land, as where a house is given to A for his life, and then to B. It is considered in Chapter 5. Its importance is much diminished by the abolition of settled land for dispositions taking effect on or after 1 January 1997: see s 2 of the Trusts of Land and Appointment of Trustees Act 1996.

1.5.3The Land Registration Act 1925

The machinery established by the LRA 1925 is examined in detail in Chapter 2. Currently, this statute is fundamental to the modern law of real property. It creates a system whereby title to land (being the estates of legal fee simple or legal leasehold) and many other rights in that land are recorded by the Land Registry in a register of land held by district offices. In essence, each title will be assigned a ‘title number’ linked to a plot of land, under which the ownership and many other rights will be recorded. The purpose is to replace the haphazard system of conveyancing that existed before 1 January 1926 and, especially, to bring certainty and stability to the difficulties surrounding the effect of proprietary rights on third parties. As such, the LRA1925 applies to what is loosely called ‘registered land’. As indicated already, the system introduced by the LRA 1925 was ripe for reform and that reform has now found shape in the LRA 2002. The detail of this will be discussed in Chapter 2 and although most of the central principles of land registration will remain the same (albeit ‘tidied up’ to reflect modern circumstances) there is much that will be different. The 2002 Act will not take effect all at once, but gradually as circumstances determine. It is anticipated that no significant provision will be brought into force before early 2003.

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1.5.4The Land Charges Act 1972

The Land Charges Act (LCA) 1972 (originally, the Land Charges Act 1925) is also examined in detail later (Chapter 3). Once again, it establishes a system to regulate the transfer of land and is also designed to bring certainty to dealings with land affected by another’s equitable interest in that land. Importantly, land that is covered by the LCA 1972 is not ‘registered land’ and it falls outside the scope of the LRA 1925 and the LRA 2002. Thus, the LCA 1972 governs what is called ‘unregistered land’, this being land to which the title is not entered on a register but proved by the title deeds and related documents.

1.6The distinction between registered and unregistered land

The fundamental distinction which every student and practitioner must draw since 1 January 1926 is between registered and unregistered land. The former is governed by the LPA 1925, the common law and currently the LRA 1925 (as amended). The latter is governed by the LPA 1925, the common law and the LCA1972. Most importantly of all, registered and unregistered land are mutually exclusive. Land either falls into one system or the other, but never both at the same time. Gradually (as explained in Chapter 2), virtually all land will become of registered title but, until then, two systems of land conveyancing are in operation in this country side by side. What follows is an outline of the two systems and the detail is provided later in Chapters 2 and 3. Particular attention should be paid to the way in which both systems deal with the question of the effect of proprietary interests on third parties, that is, the issue that was once governed, principally, by the distinction between legal and equitable rights and the doctrine of notice.

1.6.1Registered land

(a)Registered land is land to which the title is registered in a register. Every title is given a title number and details of the current owners are registered against it. Once a person is registered as title owner, that ownership is guaranteed by the State and prospective purchasers may buy the land in the certainty that the title has been thoroughly investigated and approved before it was first registered (for example, as in Habenec v Harris (1998)). The essence of this scheme will be preserved under the LRA 2002.

(b)A second category of right in registered land is the registered charge. These areessentiallymortgages,usedtoraisemoneyfortheestateownerbyoffering the land as security. They are also entered against the title. Corresponding provision is made under the LRA 2002.

(c)There is another category of proprietary right in registered land, defined in the LRA 1925, called overriding interests. Overriding interests are

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automatically binding on any transferee or occupier of the land, without the need for any kind of registration or notice. Note that overriding interests are not only comprised of legal rights, but include a number of equitable rights. This is because overriding interests currently are statutorily defined in the LRA 1925 (see s 70(1)) and this definition is conclusive. In fact, it is a right’s status as an ‘overriding interest’ that is important (not its legal or equitable quality)anditisthisstatutorystatusthatmakessuchrightsbinding on a third party. The concept of interests which override is preserved by the LRA 2002, albeit in much modified form.

(d)A fourth category of right in registered land is the minor interest. Minor interests include all other proprietary rights not included in the above categories, although nearly all will be equitable. The fundamental point about minor interests is that they will only bind a purchaser of the land if they registered against the registered title. If they are not registered, they are void against a purchaser of the affected land, meaning that they cannot be enforced against him and are destroyed (for example, as in Petrou v Petrou (1998)). Similar provisions exist under the LRA 2002.

To conclude, three points about registered land bear repetition:

First,inregisteredland,currentlytheeffectofaproprietaryrightonatransferee of the land is determined by its status under the LRA 1925, especially whether it is an overriding or minor interest. Its legal or equitable quality is relevant, but not crucial.

Secondly, under the system of the LRA1925, the ‘doctrine of notice’ is entirely irrelevant.

Thirdly, the concept of overreaching (see Chapters 2 and 4) may allow a purchaser of registered land to defeat certain equitable rights, even if they are technically overriding or are properly registered as minor interests. So, a purchaser who pays the purchase price to the co-owners of a legal estate will ‘overreach’ any equitable owners, meaning that the equitable ownership rights cannot bind that purchaser, whether or not the rights fall within the definition of overriding interests or registered minor interests. The equitable owner’s rights are, in fact, transferred to the purchase money that has been paid. Overreaching is a limited, but powerful, ‘trump card’ and is explained in greater detail later—see Chapters 3 and 4.

1.6.2Unregistered land

Unregistered land is land to which the title is not registered. The title is located in the title deeds, and a prospective purchaser must investigate ‘root of title’ through examination of the title deeds in order to be confident of obtaining an unimpeachable right to the land. Further, in unregistered land, it remains true that ‘legal rights bind the whole world’. This aspect of the pre-1926 common law remains important and an understanding of how ‘legal’ rights come into

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existence is therefore crucial. However, equitable rights in unregistered land fall into three distinct and separate categories:

(a)most equitable rights are ‘land charges’ within the LCA1972. As such, they must be registered against the owner of the land over which they take effect (not the land itself) in order to bind a purchaser of it. If they are not registered, they are not binding (void) and the doctrine of notice is irrelevant. It should be noted that this is an entirely separate system of registration from that which exists in registered land. The two different systems of registration are mutually exclusive, and operate under different statutes. The equitable rights that are land charges for the purposes of registration under the LCA 1972 are defined in the LCA1972 itself. They are generally rights of a commercial nature (for example, an equitable mortgage);

(b)there are a number of equitable rights which do not fall within the statutory definition of land charges. Consequently, they are not registrable under the LCA 1972 and are not ‘land charges’. Their effectiveness against a purchaser is decided by the application of the old doctrine of notice. This is a very limited class of right;

(c)there are certain special equitable rights which are neither land charges nor always subject to the doctrine of notice. These are the rights that are overreachable (see Chapter 4). They are equitable rights of a special character, being rights capable of easy quantification in money (for example, equitable ownership of a proportion of a house). They may be ‘overreached’ so as not to be binding on a new purchaser of the land, meaning that the equitable owner may be required to take the monetary value of the right rather than enjoy the right over the land itself. This is explained more fully in Chapter 3, but its relevance here is to signpost the existence of equitable rights in unregistered land that are neither land charges under the LCA 1972, nor subject to the old doctrine of notice.

So, to reiterate with respect to unregistered land:

First, in unregistered land, the distinction between legal and equitable rights is still of fundamental importance.

Secondly, in unregistered land, the doctrine of notice is largely irrelevant, but may still play a part for those equitable rights which fall outside of the LCA 1972 and which are not overreached.

Thirdly, the concept of overreaching (see Chapters 3 and 4) also applies to unregistered land, and may allow a purchaser of unregistered land to defeat certain equitable rights.

Fourthly, over 85% of all titles are registered land and unregistered land is slowly but surely disappearing from the map. Land that is currently unregistered becomes registered on the occasion of certain dealings with it. These ‘triggers’ for compulsory registration are discussed in Chapter 2. There are also procedures by which an estate owner may apply for voluntary registration of title. The entry into force of the LRA 2002 is likely to encourage greater voluntary

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registration. However, the point is simply that unregistered land is a fading system and soon will barely trouble practitioners and students alike.

1.7A diagrammatic representation of the 1925 property legislation

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