Экзамен зачет учебный год 2023 / Protecting the 3-d party in Land Registration act 2002

Interests which override

It is not the purpose of this analysis to rehearse the arguments in favour of, or against, retaining a category of non-registered but binding property rights in a system of registered title. Suffice to say that this author believes that there are powerful policy arguments in favour of ensuring that some pre-existing rights bind all transferees of land irrespective of registration. The more pertinent question, given the law we have and the policy of the LRA 2002, is where to draw the line and which interests to exclude from such protection. To that end, it is necessary to examine whether the alleged reduction of overriding interests by the LRA 2002 (particularly in Schedule 3) will make a significant difference in practice to the operation of the registered land system. The apparent narrowing of the scope of overriding interests is a much lauded aspect of the 2002 Act - at least from those who see overriding interests as a threat to security of title and e- conveyancing – but it is not at all clear that there were significant problems in this regard or that the “solutions” will make much practical difference.

(i) Exclusions

Schedules 1 and 3 exclude from overriding status a number of matters that would have overrode under the old law, save that generally if a person already held an overriding interest on 13 October 2003 (the entry into force of the LRA 2002), that status will continue. Rights which no longer qualify for automatic protection include: the rights of adverse possessors per se; the rights of a person in receipt of rents and profits; equitable easements and profits; in rare cases impliedly created legal easements;53 and three types of short legal lease.54 In reality, however, none of these are problematic and barely caused problems under the old law. Some concern has been expressed above about adverse possessors out of occupation, but most are likely to be in actual occupation within the meaning of the Schedule and their entitlement or accrued rights are likely to be protected for that reason. Likewise, not only are equitable easements and profits relatively rare, the intention in 1925 was that they should be registered in order to be protected and so the LRA 2002 merely returns the situation to one of orthodoxy by effectively reversing Celsteel v Alton.55 The removal of the overriding status of the rights of persons in receipt of rent and profits (not also being persons in actual occupation) could affect some intermediate landlords under a head lease, as might the removal of overriding status for the special (and rare) short leases. Yet again, however, both rights commonly arise in situations where it is very likely that professional advice has been taken and registration of the interest by means of a Notice will be very normal. Finally, there may be some surprise that in certain situations impliedly created legal easements will not enjoy overriding status, for that seems to cut against our notion that legal rights

53. See below text accompanying footnote ??

54. A reversionary lease take effect more than 3 months after granted, a lease granted out of right to buy legislation, and certain leases granted to former secure tenants under preserved right to buy.

55. Registration under an Agreed Notice would be normal.

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are pretty well indestructible.56 As we shall see, however, it may be that this exclusion is more apparent than real and, in any event, very few transactions taken under competent advice will generate impliedly created legal easements.57 In other words, while it is true that a number of matters have been excluded from overriding status where previously they were included within the old section 70(1) LRA 1925, in reality we will have to search hard to find anyone adversely affected by these changes.

(ii) Re-defining overriding interests

The 2002 Act re-defines the old conception of overriding interests in three areas, although once again interests which overrode before the Act came into force generally are not affected.58 First, it is now the case that only legal leases for 7 years or less will override,59 but this is no more than the counterpart to the rule that legal leases over seven years must be registered with their own title. There is no real problem here, although it is true that lawyers are advising clients to grant business leases of no longer than seven years in order to avoid compulsory registration.60 Secondly, it is no longer true that every circumstance in which a person is in “actual occupation” will trigger overriding status for that person’s interest. This requires a fuller analysis as it is important to appreciate that this change does appear to rebalance priorities in favour of a purchaser when compared to the position LRA 1925.

In respect of a first registration of title, Schedule 1 provides simply that a person’s interest shall override by reason of actual occupation, so far as relating to the land occupied and excluding an interest arising under the Settled Land Act 1925.61 The exclusion of rights under settlements mirrors the LRA 1925,62 but there is an additional condition which reverses the decision in Ferrishurst v Wallcite 63by restricting the priority of the claimant’s right to the land they actually do occupy.64 In reality, this is but a small matter, again affecting very few interests,65 and in substance Schedule 1 mirrors the position under the old law. For dealings with a registered estate, however, Schedule 3 appears to make some substantive changes of more significance.66 As well as

56. Expressly created easements may only be “legal” if entered on the register and so, by definition, will be protected by the register entry. If they are not so registered, they default to equitable status, section 27 ???

LRA 2002.

57. Their creation should be excluded by the terms of any (every!) conveyance. The exception may be future prescriptive easements

58. There are other relatively minor changes to the operation of overriding interests not dealt with elsewhere in this article. We should note that the very special and uncommon interests specified in paras. 10-14 and 16 LRA 2002 will override only for 10 years from the entry into force of the statute. During this time, they must be entered on the register to ensure their priority against a future purchaser. No fee will be charged

59. Save for the three exceptions noted above at note

60. There seems to be no reason for this, otherwise than to avoid the extra fees (surely often passed on to the tenant?) and extra work. A rationale reason would be to avoid disclosure of the terms of the lease to other tenants in multi-unit developments where different tenants may have negotiated different terms.

61. Schedule 1, para. 2

62. Section ?? (82?)

63.

64. Thus occupation of one flat in a building would give priority to the rights over that flat, but not the entire building, see Ferrishurst.

65. There were very few cases raising the issue before Ferrishurst. 66. Schedule 3, para. 2

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incorporating the exclusion of settlement interests and the reversal of Ferrishurst,67 Schedule 3 provides that actual occupation does not give rise to overriding status unless either, the actual occupation would have been obvious on a reasonably careful inspection of the land prior to the disposition, or (assuming actual occupation) the disponee has actual knowledge of the interest for which protection is claimed. The point of these changes is, of course, to protect the purchaser from interests about which he was not aware nor could not suspect. This seems perfectly reasonable, especially as there is no requirement that a purchaser should actually inspect (although a prudent one will), and no escape if the purchaser inspected and did not discover the occupation if he should have. The test is objective. However, there are concerns. First, we might disagree fundamentally with the policy that weighs the scales in favour of the purchaser in this manner. It is not axiomatic that a purchaser should prevail over an occupier simply because the occupier (or his interest) was undiscoverable. We might think that there are some interests worthy of priority irrespective of whether the purchaser was aware of them.68 The 2002 Act here appears to take a different view, but it remains to be seen whether in the interpretation of this legislation the judiciary hold firm to the propurchaser policy. The history of the 1925 property Acts is replete with examples of constructive interpretation that appears to thwart the purpose of the legislation in order to achieve a result more consonant with social or economic needs.69Secondly, the Schedule does not permit consideration of why the right holder may have been undiscoverable in her occupation. If the right holder has hidden themselves away, few would argue that we should protect the purchaser, but what if the undiscoverability of the occupier is because of action – innocent or otherwise – by a third party? In Chhokkar v Chhokkar, the reason for the purchaser’s inability to discover the right-holder had nothing to do with Mrs Chhokkar, and everything to do with the seller who hid all evidence of her existence.70 It is unfortunate that the reasons for any “undiscoverability” are not overtly relevant in deciding questions under Schedule 3 para. 2, although we can speculate that Chancery judges might well silently consider them when applying the Schedule to the facts of the case before them. Thirdly, we do not know yet when the disponee will be taken to have “actual knowledge” of the interest, or what amounts to “a reasonably careful inspection” so as to render the occupation undiscoverable. These are not conceptually certain phrases and the only way to clarify the meaning of para. 2 Schedule 3 is through judicial interpretation. In this sense, the law change generates uncertainty and will generate litigation as parties – mainly purchasers – seek to avoid overriding interests by arguing that they have escaped Schedule 3. Previously, here was little or no room for argument and no convincing evidence that this certainty was causing any practical difficulties. There are very few reported cases under the old law where a purchaser was caught by an

67. In addition, there is no overriding status if the right holder fails to disclose their interest in response to an inquiry, when it is reasonable to so disclose. This seeks to mirror the position under the 1925 Act, but it raises the tantalising prospect that it is sometimes legitimate to conceal an interest from a purchaser when questioned and still retain overriding status!

68. The Act accepts this with respect to the other, relatively low impact overriding interests specified in paras. 10 – 16 of Schedule 3.

69. For example, a quick reading of section ?? LPA1925 does not seem support the imposition of a trust in cases of implied co-ownership and there is always Celsteel v Alton.

70. It was of course the seller who stood to gain from a trouble free sale.

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undiscoverable overriding interest (as opposed to one that was undiscovered)71 and it is difficult to see why it was necessary to do anything at all. Undoubtedly, it fits well with the ethos of the LRA 2002 and it “solves” the one of the “problems” caused by the existence of overriding interests, but there is the suspicion that this is the triumph of form over substance. All in all, it may well be that this re-definition of the “actual occupation” provision has been for little practical effect, except to introduce uncertainty and generate litigation. This is not in the interests of purchasers, especially mortgagees who can deal with most eventualities provided the law is clear.

The third substantive issue around Schedule 3 concerns the treatment of impliedly granted legal easements and profits.72 As we have seen, equitable easements are required to be registered to achieve priority over a purchaser of a registered estate73 and all new expressly created legal easements will by definition have been entered on the register.74Easements created by prescription, or implied into a conveyance through necessity, common intention, the rule in Wheeldon v Burrows or section 62 of the LPA 1925 may be substantively registered,75 but also can qualify for overriding status under para. 3 of Schedule 3.76 Once again, however, the matter is not straightforward and since 13 October 2006,77implied legal easements will override only if they satisfy one of the additional conditions found in the Schedule. Unfortunately, this paragraph has not been drafted with the reader in mind and it is not so much impenetrable as indecipherable. It is meant to provide78 that impliedly granted legal easements will override if, but only if, they are either: registered under the Commons Registration Act 1965; or have been “exercised” at any time within one year prior to the transfer over which priority is claimed; or would have been obvious on a reasonably careful inspection of the burdened land; or are within the actual knowledge of the disponee. A careful reading of the paragraph may well reveal this meaning (on a good day), but putting aside this concern in the hope that courts will interpret the paragraph in the light of its intended purpose, there remains two issues. First, once again we have questions of interpretation that can only be settled by litigation. What is “actual knowledge”, how extensive must use of the easement have been to qualify as “exercised” and what is “obvious on a reasonably careful inspection”? Secondly, actually it is quite difficult to think of situations when an impliedly granted easement would not qualify under this paragraph. Commons Act Registration is a specialist matter, but at least one of the other three conditions is likely to be satisfied as a matter of course. No doubt, there could be a case outside of the provision– perhaps even within the next fifty years – and one could invent scenarios in order to illustrate how the provision would work. But the reality is that it is hard to see

71. None are cited by the Law Commission, and this author has found four or five.

72. The analysis will concentrate on easements, as not only are there doubts about the precise circumstances in which profits can be impliedly created, examples are extremely rare.

73. Unless they were overriding when the2002Act came into force

74. Else they will be equitable. Note that expressly created legal easements in short eases are required to be registered, even though the lease (being for seven years or less) is not.

75. For example after being disclosed on an application for registration of the burdened estate.

76. They also qualify under para.3 Schedule 3, but the problematic extra conditions applicable to Schedule 3donot apply.

77. A three-year transitional period expired on this date during which all impliedly granted easements were protected.

78. See Law Commission Report

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what type of easement is going to fall out of overriding status because of these provisions

– not only because the provision encompasses virtually all impliedly granted easements, but because impliedly granted easements are rare anyway. The point may well be that the legislation will protect a purchaser in rare cases, but we should ask why it was necessary to go to these lengths, with such a complex provision, which has abandoned certainty, in order to protect the “once in a blue moon purchaser”. It cannot be in the general interest for parties to have to litigate simply to clarify a provision which in the vast majority of cases will lead to the same result as that which existed under the 1925 Act.

Protected interests

As has been discussed above, registration by means of the entry of a Notice on the register of title is intended to become the default mechanism for protecting third party rights. It is already true that some third party rights cannot exist as legal interests without such registration,79and by virtue of section 93 LRA 2002, when e-conveyancing is in operation fully, many interests will not exist at all unless entered on the register at the time of creation.80 When combined with the duty of disclosure, the Registrar’s power to enter Notices and the reduction in the number and extent of overriding interests (even if this is not as substantial as might first appear), it is clear that the 2002 Act does indeed signal a sea change in the deliberate protection of third party rights.81 There is no concept of “minor interest” in the 2002 Act and this is perfectly in accord with both the philosophy and reality of the legislation. Similarly, the process of registering third party rights has been simplified and the effects of registration have been clarified. Of course, there are circumstances in which a registrant can “play the system” by opting for a Unilateral Notice instead of the Agreed variety, and thereby defeat the pubic information aspects of the legislation, but this is a small point and may not prove significant if the "exempt document” provisions are applied sympathetically to protect applicants’ legitimate commercial concerns. Further, while there is no convincing evidence from the 1925 Act that spite or fraudulent registrations are common, section s.77 (1)(b) LRA 2002 provides that the application for entry of a Notice must be made with reasonable cause. All in all, therefore, the Act can be regarded as providing successfully for the efficient and effective deliberate protection of third party interests. It may even be, as the Law Commission hope, that this will reduce the impact of overriding interests as property professionals come to appreciate the value and simplicity of disclosing and registering third party interests.

79. For example, expressly created profits and easements, even if contained in unregistrable dispositions such as short leases.

80. Thus, for many third party rights, there will be no distinction between “legal” and “equitable” interests because the only valid interest will be one created by registration – according to section 93, all other … are “without effect”.

81. Certain rights are excluded from protection by means of a Notice - section 33 LRA 2002. Even here, however, there is consistency because such rights are either protectable by well-established other means, or are within discoverable overriding interests, or should never defeat a purchaser who overreaches.

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