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Issue of Overreaching and Overriding Interests in Modern Land Law

Info: 3620 words (14 pages) Essay
Published: 3rd Nov 2020

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Title: ‘In the registered land system, overreaching and overriding interests represent opposing trends in modern land law. While overreaching operates to benefit purchasers and mortgagees, they can be unfairly disadvantaged by the overriding interests of those in actual occupation of the land.’

Critically discuss this statement.

Introduction

To critically discuss and evaluate these opposing trends in modern land law, it is first necessary to establish the original purpose of each in the registered land system. This essay will acknowledge that, historically, the advent of overreaching and overriding interests denoted the challenges and disadvantages between purchasers and mortgagees, and those in actual occupation of the land. Examining the dynamic between the two concepts in modern land law through cases and their unique circumstances, this essay will determine that each intends to protect different party rights. The ultimate aim is to determine whether purchasers and mortgagees are truly unfairly disadvantaged by the overriding interests of those in actual occupation of the land. This essay will ultimately demonstrate that, although overriding interests disadvantage purchasers and mortgagees, they are not dealt with unfairly since their purpose is to protect significant third-party rights. Therefore, the claim that purchasers and mortgagees are unfairly disadvantaged by overriding interests of those in actual occupation is ultimately flawed.

Literature Review

In 1925, as part of the United Kingdom began a progressive and transitional stage of reform in land law, a system of registration of title was created by the Land Registration Act 1925 (LRA)[1].  Under this system, ownership and any burdens on that land are documented and placed on the Land Register[2] (which is currently governed by the updated and improved Land Registration Act of 2002[3]). This reform responded to problems of uncertainty for purchasers under the old system, who often could not easily determine whether the land they wished to purchase was burdened by third party interests. The rationale was that it was absurdly unrealistic to expect purchasers to go above and beyond inspections to become aware of these existing interests in land. On the contrary, this reform sought to protect third party interests, such as those persons in actual occupation since it was similarly considered unreasonable to require these interests to be entered in the registry in all circumstances. Hence, registration of land was introduced in 1925 in order to ensure and stabilise every party’s rights and to have a ‘complete and accurate reflection of the state of the title of any land at any given time, so that it is possible to investigate title to land online, with the absolute minimum of additional enquiries and inspections[4] which is expressed as the ‘mirror principle’[5].

Overreaching, which gives effect to the mirror principle, is the process provided for in Section 2 of the Law of Property Act 1925 (LPA)[6] whereby a conveyance[7] to a purchaser of a legal estate can overreach an equitable interest affecting the same land if the completion monies are paid to at least two trustees.[8] Overreaching can occur whether or not the purchaser of the legal estate has notice[9] of the equitable interest.[10]

By contrast, the concept of overriding interests acknowledges that interests that are not registered at the Land Registry, in some circumstances, third-party rights should bind a purchaser or mortgagee, even if they have not been registered.[11] This concept clearly opposes that of overreaching. It might also be considered controversial since it does not necessarily interpret the precise aim of 1925’s land registry stage of reform. One might even suggest, as has been done in the title statement, that purchasers and mortgagees are being unfairly disadvantaged by overriding interests of those in actual occupation of the land. However, few recognize that the aim of overriding interests is not to advantage purchasers and mortgagees, but to protect those in actual occupation of the land which is allegedly fairly dealt with where “an attempt is made to balance the protection for purchasers against the rights of those enjoying equitable interests in the land.[12] Correspondingly, this clearly demonstrates that both concepts are vital in land law and most importantly, in favour of protecting the rights of all parties, which will be further demonstrated throughout this essay.

‘Defence Mechanism’[13] 

Overreaching acts as a ‘defence mechanism’[14] since it facilitates conveyancing, assists purchasers, and ensures efficient dealings with land that is subject to a trust. This mechanism ensures that a purchaser of land who satisfies the conditions of overreaching[15] will not be bound by the interests of beneficiaries under a trust. The interests of beneficiaries are kept ‘behind the curtain’. This is clearly advantageous to the purchaser: they avoid being fixed with land that is subject to unwanted proprietary burdens, and this “lowers transaction costs by limiting the inquiries that purchasers need to make”[16]which is often described as a “wearisome and intricate task”.[17]

However, cases such as City of London Building Society v Flegg[18], Pritchard v Briggs[19], and Mortgage Express v Lambert[20]suggest that the concept of overreaching may be considered unfair to beneficiaries. Their overriding rights to land are converted to rights to money without any control or consent required[21] even though their ‘particular attachment might be to the land that no amount of money could compensate’. [22] This ultimately weakens the argument that purchasers are unfairly disadvantaged by the overriding interests of those in actual occupation.

Although actual occupation has never been precisely defined in legislation, it has been clarified on the basis that occupation gave notice of the rights of the occupier[23], or has been formulated more widely in a range of cases.[24]  Lord Wilberforce’s judgement in Williams & Glyn’s Bank Ltd v Boland[25]indicated that his definition of actual occupation “are ordinary words of plain English, and should, in my opinion, be interpreted as such… Given occupation, i.e., presence on the land… it merely emphasises that what is required by physical presence, not some entitlement in law.”[26]This gives clear effect[27] to the LRA 1925 in Schedule 3[28]; where actual occupation should be ‘obvious on reasonably careful inspection of the land at the time of the disposition.’[29]This strictly highlights that purchasers are not only being advantaged by overreaching, but are further protected providing that the rigorous qualifications[30] of an overriding interest will not be met unless the requirements of actual occupation are met[31] before and on the date of the disposition[32]. If they are not, overriding interests will not bind a future purchaser and disadvantage them unfairly[33], refuting the title question.

‘The Crack in the Mirror of Title’[34]

Overriding interests are often considered to be the ‘crack’ in the mirror principle which introduces criticism on a number of bases: the existence of overriding interests means that absolute title cannot be absolute in the true sense, because the register may not be a true mirror of the state of the title. Additionally, overriding interests are not necessarily discoverable from a reasonable inspection of land. A purchaser of registered land may find that they are bound by a right that has not been protected by an entry on the register, hence, disadvantaging purchasers. It is acknowledged that the burden of overriding interests rises in cases such as Hodgson v Marks[35], where purchasers are considered disadvantaged, however they are not unfairly disadvantaged as they are in fair protection of those in actual occupation. However, it is important to reform and enhance overriding interests’ definition with as much precision and clarity as Staughton LJ commented that “it is desirable that overriding interests should be in a narrow rather than a wide class and should be clearly defined.”[36]

Static Security vs. Dynamic Security Dichotomy[37]

The transition from the old conveyancing system to registration of title parallels the rise of ‘dynamic security’ in the law of personal property.[38] This is ‘provided by legal rules that protect reasonable expectations of those who purchase in good faith… by reducing or eliminating the risk that the purchaser’s title will be the subject to unknown prior claims and title defects.’[39]Static security represents the ‘protection of the rights of existing interest-holders.’ De Soto argues that the security and protection of purchasers and mortgagees are actually favored rather than being disadvantaged: “while the law in Western countries seeks to promote both types of security, dynamic security is favoured because of its greater economic importance.” After further exploration by Owen, it is concluded that in fact, “overreaching favours too strongly dynamic security and the interests of the purchasers at the expense of beneficiaries and should be reformed to redress this imbalance.[40] Indeed, O’Conner notes[41]modern land law favours the view of land as dynamic security protecting purchasers in order to ensure the free alienability of the land.”[42] Thus, this vast academic literature rectifies the criticism and advances the claim that purchasers are not disadvantaged, but – on the contrary – pragmatically protected and favoured in modern land law over overriding interest holders.[43]

Opposing Trends for a Reason  

The ultimate purpose of overriding interests to protect third party interests must not be underestimated.[44]Overriding interests provides protection for third-party right holders in a number of ways. Most notably, they provide a means of accommodating rights which may be created informally (such as rights rising by estoppel or constructive trusts where persons are in actual occupation), provide protection for rights which would be inconvenient to register, and acknowledge that there may be rights which are not registered as they are otherwise protected. The orthodox explanation for the existence of overriding interests is that they are ‘it is unreasonable to expect the person who has the benefit of the right to register it as a means of securing its protection.’[45] Although the distinction is clear between overreaching and overriding that both could disadvantage one another, each sole purpose of each concept is ultimately not meant to advantage the other party, but rather to protect opposing parties. Although opposing, both concepts are therefore vital in modern land law and must be maintained at all costs.

Conclusion

There is therefore evidence that all parties involved including purchasers, mortgagees, and third-party interest holders could disadvantage one another, and are meant to advantage their respective party which has weakened the claim that purchasers and mortgagees are solely unfairly disadvantaged. Although overriding interests do not reflect the mirror principle precisely and thus disadvantage purchasers, it has been demonstrated that purchasers are essentially favoured and protected in land law. Nevertheless, both concepts have proved to be necessary in modern land law in order to protect significant rights of opposing parties.

Bibliography:

Legislation:

  • Land Registration Act 1925
  • Land Registration Act 2002
  • Law of Property Act 1925

Cases:

  • AIB Group v Turner [2015] EWHC 3994
  • Baker v Craggs [2016] EWHC 3250 (Ch)
  • Barnhart v Greenshields [1853] 14 E.R. 204
  • City of London Building Society v Flegg [1988] A.C. 54
  • Hodgson v Marks [1971] 2 WLR 1263
  • Holmes v Powell [1856] 44 E.R. 510
  • London & Cheshire Insurance Co. Ltd. v. Laplagrene Propertry Ltd [1971] Ch 499
  • Mortgage Express v Lambert [2016] EWCA Civ 555
  • Overseas Investment Services Ltd v Simcobuild Construction Ltd [1995] 3 WLUK 335
  • Pritchard v Briggs [1980] Ch 338
  • Strand Securities Ltd v. Caswell [1965] Ch. 373
  • Thompson v Foy [2009] EWHC 1076 (Ch)
  • Williams & Glyn’s Bank Ltd v Boland [1981] A.C. 487

Books:

  • Bevan, C. “Land Law” (1st edn, Oxford University Press 2018)
  • Brickdale and Stewart Wallace’s Land Registration Act 1925 (4th ed 1939)
  • Cooke, E. “Modern Study in Property Law” (Volume 2, Hart Publishing 2003)
  • Demogue, R. ‘Security’ in A. Fouileé et al. (eds), Modern French Legal Philosophy (Boston: The Boston Book Co., 1916). [translated by Mrs Franklin W Scott and Joseph P Chamberlain.]
  • Ruoff & Ropper, “Registered Conveyancing” (Property & Conveyancing Library) (6th edn, Sweet & Maxwell 1991)
  • Sayles, V. “Land Law Concentrate: Law Revision and Study Guide” (6th edn, OUP Oxford 2008)

Journal Articles:

  • Bevan, C, ‘Overriding and Over-Extended? Actual Occupation: A Call to Orthodoxy’ (2016) Conv.
  • Cooke, E. and O’Conner, P. ‘Purchaser liability to third parties in the English land registration system: a comparative perspective.’[2004] Law Quarterly Review 120(Oct).
  • Jackson, N. ‘Title by registration and concealed overriding interests: the cause and effect of antipathy to documentary proof’ (2003) 119(Oct) Law Quarterly Review.
  • Jackson, N. “Overreaching in Registered Land Law” 69 Mod. L. Rev. 214 2006.
  • Mattsson, L. ‘Harsh but fair?’ N.L.J. 2015 165(7635), 14.
  • Owen, J. G. and Cahill, D. ‘Overreaching – Getting the Right Balance’ [2017] Conv 26.
  • O’Conner, P. ‘Registration of Title in England and Australia’; A theoretical and comparative analysis 2003.

Online Articles:

Command Papers and Law Commission Reports:

  • Law Commission Report, Land Registration for the Twenty First Century: A Conveyancing Revolution (No 271, 2001)

[1] Land Registration Act 1925

[2] Ibid.

[3] Land Registration Act 2002

[4] Law Commission Report, Land Registration for the Twenty First Century: A Conveyancing Revolution (No 271, 2001) 1.5

[5] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 69.

[6] Law of Property Act 1925 Section 2

[7] Ibid., Section 205(1)(ii)

[8] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 69.

[9] Land of Property Act 1925 Section 2(1)

[10] Ibid., Section 27

[11] Land of Registration Act 2002, Schedule 3.

[12] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 68.

[13] Gwilym Owen and Dermot Cahill ‘Overreaching – Getting the Right Balance’ [2017] Conv 26.

[14] Ibid.

[15] Law of Property Act 1925 SS 2, 27

[16] Pamela O’Conner, Registration of Title in England and Australia,’ 2003, 85-6.

[17] Williams & Glyn’s Bank Ltd v Boland [1981] A.C. 487 (Lord Scarman)

[18] City of London Building Society v Flegg [1988] A.C. 54

[19] Pritchard v Briggs [1980] Ch 338

[20] Mortgage Express v Lambert [2016] EWCA Civ 555

[21] Ruoff & Ropper: Registered Conveyancing (Property & Conveyancing Library) (6th edn, Sweet & Maxwell 1991), page 102.

[22] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 68.

[23] Barnhart v Greenshields [1853] 14 E.R. 204

[24] Holmes v Powell [1856] 44 E.R. 510

[25] Williams & Glyn’s Bank Ltd v Boland [1981] AC 487

[26] Ibid. (Lord Wilberforce)

[27] Land of Registration Act 1925, Section 70(1)(g)

[28] Land of Registration Act 2002, Schedule 3 Paragraph 2.

[29] Ibid. (c)(i),(ii)

[30] Land of Registration Act 2002, Section 29(1),(2), Schedule 3, Paragraph 2.

[31] Strand Securities Ltd v. Caswell[1965] Ch. 373

[32] Thompson v Foy [2009] EWHC 1076 (Ch) per, Lewison J.

[33] AIB Group v Turner [2015] EWHC 3994.

[34] The Law Gazette,  “The mirror cracked – the contradiction between the idea behind registered land and the concept of overriding interests” (1994) <https://www.lawgazette.co.uk/news/the-mirror-cracked-the-contradiction-between-the-idea-behind-registered-land-and-the-concept-of-overriding-interests-/19462.article> accessed 19 November 2019

[35] Hodgson v Marks [1971] 2 WLR 1263

[36] Overseas Investment Services Ltd v Simcobuild Construction Ltd [1995] 3 WLUK 335

[37] René Demogue, ‘Security’ in A. Fouileé et al. (eds), Modern French Legal Philosophy (Boston: The Boston Book Co., 1916). [translated by Mrs Franklin W Scott and Joseph P Chamberlain.]

[38] Elizabeth Cooke, “Modern Study in Property Law” (Volume 2, Hart Publishing 2003) page 86.

[39] Pamela O’Conner, Registration of Title in England and Australia,’ 2003, 85-6.

[40] Gwilym Owen and Dermot Cahill ‘Overreaching – Getting the Right Balance’ [2017] Conv 26.

[41] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 69.

[42] Pamela O’Conner, Registration of Title in England and Australia,’ 2003, 85-6.

[43] Lina Mattsson, ‘Harsh but fair?’ N.L.J. 2015 165(7635), 14.

[44] Chris Bevan, “Land Law”(1st edn, Oxford University Press 2018) page 68.

[45] Brickdale and Stewart Wallace’s Land Registration Act 1925 (4th ed 1939) page 190.

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