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

Principles of Land Law

2.3The so called ‘three principles’ of registered land

It is sometimes said that there are three principles underlying the system of registered land against which we should judge the reality of the LRA 1925. These are the mirror principle, the curtain principle and the insurance principle.

2.3.1The mirror principle

The mirror principle encapsulates the idea that the Land Register should reflect the totality of the rights and interests concerning a title of registered land. Thus, inspection of the Register should reveal the identity of the owner, the nature of his ownership, any limitations on his ownership and any rights enjoyed by other persons over the land which are adverse to the owner. The point is simply that if the Register reflects the full character of the land, any purchaser and any third party can rest assured that they are fully protected: the purchaser knows what he is buying and the person with an interest in the land knows that it will be protected. Yet, as we shall see, the mirror principle does not operate fully in the system of registered land in England and Wales under the LRA 1925, not least because of the existence of a large category of rights which affect the land and which bind any purchaser of it without ever being entered on any register (overriding interests: s 70(1) of the LRA 1925). However, before we criticise the draughtsmen of the LRA 1925 too severely, it is important to remember that overriding interests were not a mistake: the Register was never intended under the 1925 system to be a perfect mirror, nor was it ever intended to replace physical inspection of the land by the purchaser as a way of discovering whether there were any adverse rights over that land. The original intention was that overriding interests should be largely discoverable by physical inspection of the land and should not derogate in any practical way from the sanctity of the Register.

Consequently, although the image reflected by the Register under the LRA 1925 is imperfect, the imperfection will not necessarily cause loss to a diligent purchaser. Title registration exists to ease the purchaser’s path, not to exclude his participation in the conveyancing process. However, if there are circumstances where these unrecorded, overriding interests are not in fact discoverable by a prudent purchaser, then the mirror principle is seriously compromised.

This possibility—the possibility of undiscoverable binding rights—is one of the issues addressed in the LRA 2002. Necessarily, the register will never be a truly perfect mirror, as not everything can be expected to be entered on a register (for example, informally created rights where no property professional has been involved), but the changes made by the LRA 2002 will do much to improve the reflection. As noted already, many more interests

30

Registered Land

will be brought on to the register through the dictates of the electronic conveyancing process (as where the right will not exist at all unless it is electronically registered: see s 93 of the LRA 2002) and the extent to which unregistered interests (called ‘overriding interests’ under the LRA 1925, but called ‘interests that override’ within Scheds 1 and 3 under the LRA 2002) can affect a purchaser of registered land will be reduced. Similarly, it will be very difficult for a registered proprietor to lose title through adverse possession and many more short term titles (for example, legal leases over seven years) will be required to be registered in their own right. All in all, if only a few of the reforms instigated by the LRA 2002 are effective (and there is every reason to suppose that the Act will be a major success), the mirror principle will become more like the mirror fact.

2.3.2The curtain principle

The curtain principle encapsulates the idea that certain equitable interests in land should be hidden behind the ‘curtain’ of special types of trust. Thus, if a person wishes to buy registered land which is subject to a trust of land, the purchaser need be concerned only with the legal title to the land which is held by the trustees. He need not look behind the curtain of the trust or worry about any equitable rights of ownership that might exist. The reason is that any such equitable rights will be overreached if the proper formalities of the purchase are observed (s 2 of the LPA 1925 and see below, 2.8). Consequently, these equitable rights will not affect the purchaser in his enjoyment of the land. Moreover, although the interests of the equitable owners cannot affect the purchaser because of overreaching, they are not completely destroyed because the process of overreaching operates to transfer the rights of the equitable owner from the land itself to the money which the purchaser has just paid for it. Thereafter, the trustees (the legal owners) hold the purchase money on trust for the equitable owners. This doctrine of overreaching (which also operates in unregistered land) is discussed more fully in Chapter 4 on co-ownership, but for now the important point is that once again the aim is to facilitate the alienability of land by freeing the purchaser from the effort and worry of dealing with equitable owners. As we shall see, the ‘curtain’ principle operates effectively in the majority of cases, but when it fails (usually because the preconditions for statutory overreaching cannot be met), the purchaser is faced with considerable difficulties. It may then become necessary for the purchaser to look behind the curtain: see, for example, Williams and Glyn’s Bank v Boland (1981). It is not clear at this stage whether the LRA 2002 will have a major impact in this area. The LRA 2002 does not alter the fundamentals of overreaching and so does not resolve most of the problems that arise when overreaching does not occur: that is, when the purchaser has to look behind the curtain. The 2002 Act does confirm that legal owners

31

Principles of Land Law

of land have all the powers of an absolute owner, subject only to restrictions on their powers placed on the register (s 23 of the LRA 2002), and this will support the overreaching mechanism where there are the required minimum of two legal owners. It may well be that more equitable interests that currently exist behind the curtain of the trust (for example, a wife’s equitable share of ownership of the family home) come on to the register because of the duty on the registered proprietor to disclose such rights if he knows of them (s 71 of the LRA 2002), and this will serve to alert the purchaser that he must either overreach or take some other action to obtain priority (for example, extract a consent from the equitable owner). However, this does suppose that the registered proprietor is aware of the rights of the claimants and is aware of the duty under s 71 of the LRA 2002.

2.3.3The insurance principle

The insurance principle was one of the most ambitious of the motives underlying the LRA 1925. It encapsulates the idea that if a title is duly registered, it is guaranteed by the State. This guarantee is supported by a system of statutory indemnity (that is, monetary compensation) for any purchaser who suffers loss by reason of the conclusive nature of the Register.

The original scheme of indemnity provided by the LRA 1925 was quite narrow. The details of the original indemnity provisions, and their subsequent amendment by s 2 of the LRA 1997 are considered later in this chapter (below, 2.10). The point to be grasped here is that any registration system that guarantees title effectively will need to provide a system of compensation for those persons who suffer loss by reason of the application of the system. A register of land titles, especially one that is designed to be absolutely conclusive for most purposes, will always generate cases where loss is caused to innocent parties simply because of the way the system works. If A is the ‘true’ freehold owner of land, but B is registered with the title by innocent mistake, and then C buys the land from B on the basis of his registered title as guaranteed by the LRA 1925, it is obvious that either A or C will suffer loss by reason of the application of the registration system. The ‘insurance’ principle stipulates that a registration system must compensate in such cases. As we shall see, the indemnity provisions of the amended LRA 1925 remain open to criticism but they do go a long way to make the insurance principle a reality. Necessarily, the indemnity provisions are carried forward to the LRA 2002 (see Sched 8) and it may well be that the more stringent registration requirements of the new Act lead to more claims of indemnity. However, given that the rules were modified in 1997, the LRA 2002 makes little change to the operation of the ‘insurance principle’ as it works under the LRA 1925 (as amended).

32

Registered Land

2.4An overview of the registered land system under the Land Registration Act 1925

Land is registered land when title to it is recorded in the Land Register, provided that the title is either the legal fee simple absolute in possession (freehold) or the legal leasehold of over 21 years duration (or with over 21 years left to run). These are the two important titles in current land law which, when registered, are known as ‘registered estates’ and the owner is the registered proprietor. Title is registered usually because of some dealing with the land (for example, a sale or mortgage) and after an official of the Land Registry has checked the validity of the title from the documents supplied by the person asking to be entered as the registered proprietor. The Register is housed in District Land Registries throughout England and Wales and the Register itself is now an open public document (LRA1988). Each registered title is given a unique title number and its entry is divided into three parts:

(a)the property register, which describes the land itself, usually by reference to a plan, and which notes the type of title (that is, the estate) which the registered proprietor has;

(b)the proprietorship register, which gives the name, etc, of the proprietor and describes the grade of their title. The grade of the title varies according to the extent to which the Land Registry is satisfied that the title has been established (below, 2.5); and

(c)the charges register, which gives details of all third party rights over the land (except overriding interests) that detract from the registered proprietor’s full use and enjoyment of the land.

An important feature of the land registration system is that it largely discards the old distinction between legal and equitable interests as a method of regulating dealings with land. It also completely abandons the doctrine of notice as a method of assessing whether any third party rights over land bind a purchaser of it. In fact, the LRA1925 establishes four categories of proprietary rights (below, 2.4.1, 2.4.2, 2.4.3 and 2.4.4) and the crucial issue in any given case is to identify the category into which a person’s right falls and not to ask whether that right is legal or equitable. Not surprisingly, the 1925 Act utilises the legal/equitable distinction as a method of assigning specific rights to one of these different categories, but it is not the nature of the right that is ultimately important, it is the category into which it falls.

Under the LRA 2002

In general terms, this pattern is replicated in the LRA2002, although in matters of detail there are some differences. Two points in particular are worthy of note. First, under the LRA 2002, legal leaseholds of over seven years (or with

33

Principles of Land Law

more than seven years left to run) are registrable in their own right. There is also a power to reduce this threshold further and ultimately the trigger for registration will be for leases over three years, so corresponding to the period for which legal leases may be created without a deed (see Chapter 6). The reasons are to ensure that the register is a more accurate mirror of all rights concerned with the land and in recognition of the fact that in practice commercial leases are rarely longer than 10 years. Secondly, the LRA 2002 does not specifically refer to all the categories of right about to be discussed, although the categories still exist in substance. Thus, ‘minor interests’ are not specifically singled out but in substance are those rights which should be protected by a ‘notice’ against the registered title (see Pt IV of the Act and ss 28–30). Likewise, the LRA 2002 does not carry forward the name ‘overriding interests’, although in substance these are rights which may override a first registration or a registered disposition under Scheds 1 and 3 of the LRA 2002 respectively.

2.4.1Registrable interests (including titles) under the Land Registration Act 1925

Registrable interests are those estates and interests that are capable of existing at law (that is, as legal rights: s 1 of the LPA 1925 and s 2(1) of the LRA 1925) and which may be registered in their own right with a unique title number. Two of the registrable interests are the legal estates already discussed and these are what are commonly referred to as registered titles or registered estates. These form the very great majority of registrable interests, viz:

•legal freeholds (legal fee simple absolute taking effect in possession); and

•legal leaseholds granted for more than 21 years and, on the occasion of a ‘trigger’ (see above, 2.1), legal leaseholds with more than 21 years to run.

The third registrable interest is the ‘legal rentcharge’. Arentcharge is a periodic payment charged on land, paid by the owner, to another person, where the payee has no superior title to the land: as where A sells the freehold to B (A therefore keeping no interest in the land), but B promises to pay A an annual sum charged against the land. Clearly, this is an interest in another person’s land(soisnotcommonlyreferredtoasa‘title’)butexceptionallymayberegistered in its own right with a title number. The registration of rentcharges in their own right is very rare and most take effect as ‘minor interests’, registered against the land against which they are charged (that is, against its title number). In essence then, and putting aside rentcharges, the category of ‘registrable interests’ under the LRA 1925 is where title, or ownership, is registered. Indeed, if the freehold or long leasehold is to take effect as a legal estate at all, it must be registered in this category, otherwise it operates in equity as a minor or overriding interest.

34

Registered Land

Under the LRA 2002

Once again, the pattern is familiar under the LRA 2002, although with some changes. Under s 3 of the LRA 2002, five legal estates may be registered with their own titles, although the first two categories will remain the most important. They are the freehold (as before), legal leases of over seven years (or with more than seven years left to run consequent upon a ‘trigger’ for registration), a rentcharge (as before), a franchise (being a right granted by the Crown to hold a fair, collect tolls etc) and a profit á prendre in gross (being a right independent of the ownership of any land which enables the right holder to enter another’s land and take something from it, such as fish, game, wood, pasture, turf). It is also important to appreciate that legal titles will be the type of right most affected by principles of electronic conveyancing. There are two points here. First, that it will be possible in the future to execute a deed electronically (s 91 of the LRA 2002). Given that deeds are the principal way in which legal estates are created and conveyed, a legal title holder will have the choice of either executing a paper deed (as now) or an electronic version. The electronic version will not actually be a deed, but it ‘is to be regarded for the purposes of any enactment as a deed’ (s 91(5) of the LRA2002). Secondly, in due course no creation or transfer of a registrable title will be effective at all unless it is entered on the register and this will be required to be done electronically (s 93 of the LRA 2002). Consequently, it will not be a case of creation/transfer by deed followed by registration (as now): electronic registration will be the act of creation or transfer of the legal estate.Any attempt to create or transfer a legal estate that is specified in the Rules by other means will be void both at law and in equity.

2.4.2Registered charges

Registeredchargesderivefromthepoweroftheregisteredproprietortomortgage thelandinordertoreleaseitscapitalvalue.Thesearelegalmortgagesofregistered land. The easiest way to execute a mortgage of registered land is by ‘a charge expressed to be by way of legal mortgage’ and the category of registered charges refers to this. Mortgages are considered in depth in Chapter 10. For now it is enough to note that legal mortgages must be registered as registered charges against the relevant title if they are to retain the character of legal interests with the priority that this entails (see, for example, Barclays Bank v Zaroovabli (1997)).

Under the LRA 2002

The LRA 2002 makes some changes to the way in which registered charges will work, although there is nothing that is truly fundamental. After the Act enters force, it will no longer be possible to create a mortgage of registered land by the ‘long lease’ method (see Chapter 10). Mortgages of registered land will have to be executed by ‘the charge’ and there is a power to stipulate a standard form of charge. In addition, the ‘charge certificate’, currently the mortgagee’s

35

Principles of Land Law

evidenceoftitle,willbeabolished,astheRegisteritselfwillprovidefullprotection for the mortgagee. Finally, the creation of registered charges will be subject to the same principles of electronic conveyancing as other registrable dispositions of registered land: for example, electronic deeds and simultaneous creation/ registration of legal estates and interests.

2.4.3Overriding interests

Overriding interests are interests which are statutorily defined in s 70(1) of the LRA1925.Asnotedpreviously,theydonothavetobeenteredontheLandRegister at all in order to bind a purchaser of registered land—s 20(1) and s 23(1) of the LRA 1925. In fact, if they are so registered, they lose their overriding character and become a registered interest or a minor interest as appropriate. Moreover, it is immaterial whether such interests are legal or equitable, so long as they fall within one of the classes defined in s 70(1) of the LRA1925. Originally, such rights would have been obvious to a careful purchaser who undertook a physical inspection of the land and this is one of the reasons why their registration is not required. The purchaser would see the interest on inspection and could act accordingly—perhaps abandoning the transaction or offering a lower price. To a considerable extent, however, this is no longer true and the ‘undiscoverable’ overridinginterestisoneoftheproblemsofthe1925system.Again,forthemoment, the crucial point is that an overriding interest is not actually registered on the Registeragainstthetitlebutneverthelessremainsbindingonthelandirrespective of who purchases it.As with all registered land, the doctrine of notice is irrelevant.

Under the LRA 2002

The LRA 2002 adopts a similar policy to the 1925 legislation in that there is a class of right that will bind a future owner of registered land (that is, the registered proprietor of an estate or a registered chargee (mortgagee)) without that right being entered on the register. However, there are significant changes. First, the LRA 2002 does not actually refer to ‘overriding interests’ and there is no exact equivalent of s 70(1) of the LRA 1925. Instead, the LRA 2002 talks of interests which ‘override’ a first registration of title or a registered disposition. The effect is the same, but the style is different. Secondly, ‘interests that override’ (and perhaps we will still call them overriding interests) are dealt with in two ways. There are, in Sched 1 to the LRA2002, interests that override a first registration of title. These are those rights that will bind a registered proprietor or registered chargee of the land when it is registered for the first time, the land having previously been of unregistered title. Schedule 1 rights are generally wider in scope than Sched 3 rights, the latter being rights that will override a registered disposition of registered land. That is, Sched 3 rights are those that will bind a new registered proprietor or registered chargee following a disposition of land that is already registered. This divergence is in part intended to reflect the fact that many rights that override a first registration will actually come on to the

36

Registered Land

register (or should come on to it) by the time the land is transferred again. Thirdly, the definitions of the existing classes of overriding interests of s 70(1) of the LRA1925 are changed, primarily to narrow their scope so that fewer rights (or fewer examples of rights) bind without being entered on the register. In other words, some of the existing categories of overriding interest are abolished or reduced in scope. Fourthly, some classes of rights will cease to override dispositions after a set period of time: in other words, a right that once overrode a registered proprietor will cease to have this status simply by effluxion of time and will either have to be entered on the register or will become void.

2.4.4Minor interests

Minor interests are those proprietary rights (legal or equitable) that are not within any ofthe othercategories considered above—s3(xv) ofthe LRA1925.Essentially, they form a residuary category of rights (see the negative definition in s 3) and as such there is no exhaustive statutory list. In practice, many of the rights that qualify as minor interests could have been overriding interests had the facts of the particular case been different. The essence of minor interests is that they are either protectable by entry in the charges section of the Land Register or subject to statutory overreaching under the curtain principle.Again, the doctrine of notice is irrelevant.

Under the LRA 2002

TheroleplayedbyminorinterestsintheschemeoftheLRA1925iscarriedforward to the system of the LRA2002. There will remain a class of right that will need to be entered on the register in order to be binding against an owner of the registered land or an interest in it. Necessarily, given that the definition of ‘interests that override’ is narrower than its counterpart in the 1925 scheme, more interests will have to be entered on the register under the LRA 2002 if they are to continue to affect the registered land. It is, of course, an aim of the LRA 2002 that as many interests as possible should be so entered. In addition, the method by which these interests can be protected is going to change (see below), although in essence this is driven by the need to simplify the process rather than any major change in policy. Again, we should note that in due course, many of these third party rightswillbecapableofcreationeitheronpaperorelectronically.Moreimportantly, there will come a time when we will not be able to speak of rights being created and then entered on the register. Under s 93 of the LRA 2002, certain specified rights will not exist at all until they are electronically registered.

This reclassification of proprietary rights into four different statutory classes is fundamental to the land registration system under the LRA 1925. It enables owners, purchasers and third parties to know in advance how to protect their rights and what will happen to those rights if the land over which they exist should be sold, mortgaged or transferred. Such a radical shift away from the old legal/equitable distinction and the abandonment of the doctrine of notice

37

Principles of Land Law

was designed to eliminate the conveyancing dangers for purchasers that were so prevalent pre-1926. It also brings certainty and stability for persons who have rights in land which is owned by someone else. The categorisation and the philosophy are continued under the LRA 2002, with perhaps even more emphasis on providing purchasers of land with certainty about the land they are acquiring. The intended introduction of electronic conveyancing will also reduce even further the old legal/equitable distinction. It will still be important to know whether certain rights would have been legal or equitable (for example, we can register as titles only legal estates), but of more importance will be the status of a right as an entry on the electronic register or as an interest that overrides a registered proprietor or chargee.

2.5The operation of registered land: titles

Theregistrationoftitlesistheheartofregisteredlandandthisiswhatdistinguishes it from unregistered land where title is found in the title deeds. Under s 69(1) of the LRA 1925, the registered proprietor ‘shall be deemed’ to have been vested with the legal estate (that is, the freehold or long leasehold) as it is noted on the Register. This is irrespective of whether there has actually been any conveyance to him. So, a person registered as the result of fraud or mistake has a good title (Argyle Building Society v Hammond (1984)) and is able to rely on the provisions of the LRA1925 as to the conclusiveness of their interest, albeit that they may be subject to a claim to have the register rectified against them. Any suggestions to the contrary, as in Malory Enterprises Ltd v Cheshire Homes and Chief Land Registrar

(2002) where Arden LJ implies both that a registration following fraud is not conclusive as to the proprietor’s title and, if title is innocently acquired from a fraudster,isnota‘disposition’tothemwithins20oftheLRA2002,mustbeviewed with suspicion and as per incuriam. Any other view, such as that of the learned Lord Justice in Malory that such transfers are not in law of any effect, is to import principles of unregistered conveyancing into registered land and would wholly contradict the system of registration of title which sees such registration as a guarantee of title. Indeed, the raison d’être of the registration system is that title to land depends on a person being registered as the estate owner and on no other proof of ownership. On registration under the LRA1925, the registered proprietor isentitledtoalandcertificatewhicheffectivelysummarisestheentryintheRegister and constitutes evidence of title. The exception is where the land is subject to a registered mortgage, in which case the mortgagee (the lender) is currently issued with a ‘charge certificate’, being very similar to a land certificate save only that the mortgage document is attached. In any event, the registered proprietor is able to keep watch on the status of his property by requesting an official copy of the Register.As we shall see, the registered title may be subject to other rights as regulated by the land registration system (s 69 of the LRA 1925), and there may beanopportunityforrectificationoftheRegister,buttheimportanceoftheRegister is typified by the presumed conclusiveness of it as proof of ownership.

38

Registered Land

For example, under s 123A of the LRA 1925 (as inserted by s 1 of the LRA 1997), the new estate owner is required to apply for first registration of title (having purchased or otherwise dealt with unregistered land: see above, 2.1), and failure to apply within the ‘applicable period’ (currently two months from completion of the transaction) means that the purchase, etc, becomes void as regards the transfer or creation of the legal estate. This means that in the case of an outright transfer to the new owner, the legal title actually remains in the transferor, who will hold on trust for the new owner (s 123A(5)(a) of the LRA 1925, illustrated by Pinkerry Ltd v Needs (Kenneth) (Contractors) Ltd (1992), and in the case of the creation of a legal long leasehold or legal mortgage, the new mortgagee or lessee obtains only equitable title to the lease or mortgagee (s 123A(5)(a), illustrated by Leeman v Mohammed (2001)). In either case, if no proper registration of the estate is undertaken subsequently, the new owner will have to rely on the other mechanisms of the LRA 1925 to protect his interest, such as relying on the category of overriding or minor interests. Failing this, the estate could be lost if the land is then transferred to another. Similar penalties of nullity apply where an estate in land that is already registered is conveyed. This is well illustrated by Brown and Root Technology Ltd v Sun Alliance and London Assurance Co Ltd (1998), where the assignment of a long lease of registered land was not itself registered by the new tenant and the Court of Appeal held that the assignee had not acquired legal title. This had the consequence that the assignee had no power to give notice to end the lease and that power remained with the assignor (the original tenant) who still held legal title.

As indicated above, when land is presented for first registration, an official of the Land Registry will investigate the root of title and check the validity of theapplication.Obviously,thisisvitalgiventhatregistrationhassuchaconclusive effect. There are, however, four possible grades of title with which a person may be registered and these reflect the fact that in some cases it may be difficult to establish a conclusive title due to the absence of relevant documents or other similar factual difficulties.

2.5.1Absolute title

Absolute title is the highest grade of title possible and amounts to full recognition of the rights of the proprietor. It is available for freeholds and leaseholds, although only rarely in the latter case because the Registrar is not usually in a position to validate the landlord’s title (as required by s 8(1)(i) of the LRA 1925) as well as that of the leaseholder who actually applies for registration. Registration with absolute title to freehold land invests the proprietor with the full fee simple, subject only to overriding interests and registered minor interests (s 5 of the LRA 1925). The only exception to this is where the registered proprietor is a trustee of the legal estate, in which case they are also bound by those beneficial (equitable) interests of which they have notice at the time of first registration. However, it should be noted that this is simply to ensure that subsisting equitable rights are not lost on first registration and, after that, notice of these rights ceases

39