Doctrine of Notice in Unregistered Land System

The law governing unregistered land is mostly comprised in the Law of Property Act 1925.

S 198 of the Act is clear on the impact of registration so far as it relates to notice. The Act says “the registration of any instrument or matter under the provisions of the Land Charges Act..shall be deemed to constitute actual notice…to all persons and for all purposes connected with the land affected”. The system creates a new way of giving notice of an interest to a buyer of unregistered land. Registration of a charge binds everyone because registration is actual notice. A purchaser who fails to carry out the necessary search is still bound by the registered interests. Interests that are capable of being registered under the Land Charges Act are equitable since it is not necessary to register legal interests as they bind the world.

S 4 of the Land Charges Act 1972 defines “purchasers” and makes it clear that an unregistered charge is void even if the buyer did actually know about the charge, so it is not necessary to consider if a purchaser is acting good faith. Some land charges are void for non-registration against a purchaser who provides valuable consideration, whilst others are void against a purchaser for money or money’s worth.

In the case of Midland Bank Trust v Green (1) which involved unregistered land, the son failed to register an option to purchase which was granted by his father. The option was registrable as a Class C(iv) land charge. The father sold the land to his wife at under market value and even though she knew of the son’s option, she still took free from it and the House of Lords took a strict line and said that good faith was not relevant.

This result is probably not what the legislators in 1925 wanted and actually conflicts with the position in registered land where the same facts would have resulted in a different conclusion. If the land in the case just discussed had been registered, the option to purchase would have been registrable as a minor interest. Assuming non-registration of the interest, it could have been re-classified as an overriding interest under s70(1)(g) of the Land Registration Act 1925 which protected the rights of occupiers. The son was living on the land and it was obvious to his mother that he was in occupation and his interest would have been binding.

If an interest cannot be registered under the Land Charges Act, then the equitable doctrine of notice can be applied. This is where a buyer in good faith of a legal estate for value is only bound by equitable interests of which he had notice; actual, imputed or constructive.

Despite its title, the Land Registration Act(s) (LRA) of 1925 and 2002, did not establish a system for the registration of land, but rather, for registration of titles. The statutes were designed to make the old system of conveyancing which involved investigating the vendor’s title deeds to ensure that he did in fact own the land, towards a system where titles were registered in the respective land registry. The Acts swept away the traditional effects of legal and equitable interests, with some legal interests being registered and some have overriding status.

The LRA 2002 sought to make the Register as conclusive as possible. The legislators accept that the Register cannot reflect every interest that affects the land and retains minor interests and overriding interests introduced under the earlier Act, subject to a few changes.

Dealing with what were formerly called minor interests, in the absence of a notice entry on the Register, such interests will be void against a purchaser for valuable consideration. The LRA 2002 specifically states in S 132(1) that valuable consideration doesn’t include a nominal monetary sum or marriage consideration.

The LRA 2002 doesn’t define “purchaser but it is very likely that the a purchaser will not lose his protection even if he has acted in bad faith or has actual notice.

The restriction remains the appropriate entry for beneficial interests under a trust of land and this will assist the overreaching of interests.

Schedule 3 of the LRA 2002 contains what use to be termed “overriding interests” and they are described more narrowly than under the earlier Act. This is a further attempt to protect purchasers and to reduce dangers for them, so that they can rely on the register and not have to look further and it also encourages the registering of more interests.

Section 2 of Schedule 3 says that one interest which will override is “an interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he was in actual obligation”.

S2(c) of Schedule 3 attempts to clarify what constitutes actual occupation and says that an interest will not override if :

1. it belongs to a person whose occupation would not have been obvious on a reasonable, careful inspection of the land at the time of the disposition; and

2. the transferee to whom the disposition was made did not have actual knowledge of the interest.

This means that a purchaser will not be bound by the interests of an occupier which are undiscoverable, but he will still have to make a thorough inspection of the land. Although this provision seeks to balance the interests of purchasers and occupiers more evenly, it could lead to problems when applied to factual cases. It is fairly certain that questions will arise as to whether “occupation” was apparent on a careful inspection and the courts may have to rely on the old equitable doctrine of notice in deciding cases. This may be seen as a backward step but I think it highlights that a conclusive register can never be fully realised and there will always be scope for some interpretation by the courts.

Schedule 3 s2(b) makes the doctrine of notice more pertinent in that if a purchaser asks an occupier to disclose his rights, the occupier may not be in a position to do so and his interest will not be overreached. It may not be reasonable to expect some occupiers to disclose their rights, such as minors and people who may be suffering from dementia or be of unsound mind. So an occupier’s interest will only be overreached, if it would be unreasonable for him not to disclose his interest in response to a purchaser’s enquiry and he fails to make such disclosure. So here the purchaser cannot rely on enquiries of the owner and non disclosure in certain circumstances, will mean that both the Register and further enquiries fail to protect the purchaser. The LRA 2002 has attempted to resolve the issues about what constitutes “actual occupation” which was much litigated under s70(1)(g) of the LRA 1925 with the wording in s2 (c) of Schedule 3 discussed above, but I can foresee litigation regarding when it is reasonable for a person not to make a disclosure and so equity may well be invoked to assist here.

The cases discussed below will demonstrate the immense thorny problem on whether a person is or is not in actual occupation of property, when discussing overreaching. The new wording within schedule 3 of the LRA 2002 is almost bound to lead to litigation and it will remain for the courts to try and establish principles (probably invoking the equitable doctrine of notice) and each case will be decided on its own merits.

Overreaching arises in connection with settlements, trusts for sale and trusts of land. In order for overreaching to occur whereby the interest of the beneficiaries in the land is translated into money, a purchaser must pay the purchase money to two trustees or a trust corporation. The purchaser may be unaware that a trust has arisen, for instance when two beneficiaries have contributed to the purchase price but the legal title is only vested in one, and so the purchase money is paid to just one trustee. In that case there is no overreaching of the beneficial interest of the person who has the equitable interest.

In unregistered land, the purchaser will take subject to the interest of person who is not on the legal title, unless the purchaser is a bona fide purchaser of the legal estate for value without notice. In Hunt v Luck (2) which involved unregistered land , a purchaser who has no actual knowledge of an equitable right may still be regarded by equity as having constructive notice if he could have discovered it through diligent and reasonable enquiries. The court said that a purchaser should always visit the property he is interested in purchasing, since occupation is constructive notice of an occupier’s rights.

In the case of registered land, the mechanics are different. There ought to have been a restriction registered on the title register which would alert a purchaser that the money should be paid to two trustees. If there was no restriction and payment was made to just one trustee, there would be no overreaching following the same result for unregistered land.

However, under registered land, the beneficial equitable interest could bind a purchaser if it fell within the sphere of s 70(1)(g) of the LRA 1925. As this particular section concerned and was based upon occupation, then by analogy it could be based on the identical principle of notice as laid down in Hunt v Luck . However in the later case of William & Glyn’s Bank v Boland (3) Lords Wilberforce and Scarman denied that this was the case. They said that what was crucial was the fact of occupation and notice had no application and their opinion created great difficulty for a purchaser where a person’s occupation was not discoverable. In the later case of Lloyds Bank plc v Rosset (4), the Court of Appeal thought that s 70(1)(g) was based on notice. In that case a wife was not physically in occupation of the house where builders were undertaking repairs and Purchas and Nichols LJJ thought that the wife was in actual occupation, and the former went so far as to say that in his opinion, s 70(1)(g) was based on notice. He expressly stated that the provisions of s 70(1)(g) intended to impute into registered land, the equitable doctrine of constructive notice.

The creation of estoppel licences arises when the courts believe that it would be unfair for the owner of the property to deny such an interest. In order to satisfy the requirements for an estoppel, there must have been an assurance, the assurance must have been relied upon and there must be proof of acting to your detriment.

In unregistered land it is important to ascertain whether the claimant has a right which is capable of affecting a purchaser, and if so, the circumstances when he will be bound by the right and then determine the appropriate remedy.

In E.R Ives Investment Ltd. V High (5), an equitable easement was created which should have been registered as a land charge, but as it wasn’t, it became void for non-registration. Eventually the land was sold and the conveyance specifically said that the land was sold subject to the defendant’s right of way. The plaintiff who had bought the land argued the right of way was void for non-registration. The Court of Appeal held that the plaintiff took the land subject to the defendant’s equity which had arisen though estoppel. The Court said that the equity was not registrable as a land charge and was binding upon successors in title. The doctrine of notice was applicable as to whether the purchaser was bound and he had express notice of the equity as it was written in the conveyance.

Where title is registered, the position has been clarified somewhat by s 116 of the LRA 2002. This section states that for the avoidance of doubt, an equity by estoppel and a mere equity has effect from the moment the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority). The equitable right can either be protected by the registration of a notice or it can take effect as an interest that overrides a registered disposition. The LRA 2002 has recognised that informal rights are a very common phenomenon and wants to ensure that as many interests as possible are entered on the register. Although only registered land is affected by the provision above, it would seem good practice and inevitable that the courts would recognise an equity arising from estoppel as having proprietary affect.

The recent cases of Barclays v O’Brien (6) and CIBC Mortgages plc v Pitt (7) have shown that the doctrine of notice is still significant. These cases establish that where there is undue influence over a co-mortgagor or a surety, then this may give rise to the right to avoid the transaction. This right to avoid the transaction amounts to an equity of which the mortgagee may be deemed to have constructive notice. The imposition of notice is used in a broad sense but it applies to both registered and unregistered land.

Regarding adverse possession or “squatters rights, on first registration, the proprietor will be constrained by interests under the Limitation Act 1980 if he has notice of them. So the squatters rights will only be binding on a proprietor who purchases and then registers the land if that squatter is in actual occupation or if he proprietor had notice of the squatters rights, hence the equitable doctrine of notice still has a part to play.

The Inland Revenue has power under the Inheritance Tax Act 1984 to register a charge against property to the value of the unpaid tax. If there is a failure to register the charge by a notice then it will not bind a purchaser in good faith for money or money’s worth (S31 LRA 2002). The same is true if the charge is not protected against unregistered land under the Land Charges Act 1972.

In conclusion, the doctrine of notice is still prevalent in the unregistered land system and arguably it is more relevant in the registered land system than the legislators wanted or intended. The introduction of e-conveyancing under the LRA 2002 will inevitably bring some teething problems with dispositions and rights being created in land on the push of a computer button. It is almost certain that some equitable rules will need to be introduced to govern any fraud or mistakes made.

1(1981) AC 513

2(1902) 1 Ch 428

3(1981) AC 487

4(1991) 1 AC 107

5(1967) 2 QB 379

6(1994) 1 AC 180

7(1994) 1 AC 200

Bray J, “Unlocking Land Law”, 2004

Gravells N P, “Property Law Statutes”, 2003/04

Martin J E, “Hanbury & Martin : Modern Equity”, 2005

Smith R J, “Property Law”, 2003

Thompson M P, “Modern Land Law”, 2006