Property Land Legislation

There are two systems of conveyancing in England and Wales, the registered land system, which is governed by the Land Registration Act 2002 (LRA 2002) and the older system of unregistered land, which is governed partly by the rules of common law and equity and partly by provisions contained in the 1925 property legislation. The LRA 2002 was designed to “revolutionise conveyancing in England and Wales and to bring the land registration system into the modern age.”

This paper aims to consider the shortcomings in both the unregistered and registered land systems from the viewpoint of both the purchaser of an estate in land and the owner of a third-party interest in an estate. Furthermore it will briefly consider whether the aims of the legislation have been achieved.

Prospective purchasers of an estate in land have two primary concerns. First, does the vendor have the right to sell the property in question and secondly, are there any third party rights to the land which may interfere with their intended use of the land. In order to appreciate the benefits of the modern registered land system, the old system of unregistered land must be taken into account. The fundamental distinction between unregistered and registered land is that the basis of title to unregistered land is possession, whereas the basis of registered title is the fact of registration. From a practical standpoint the difference is that, in the case of unregistered land, there is no central register and as such, the owner of unregistered land will have a collection of deeds showing an unbroken chain of transfers proving the devolution of the title. From this collection, it should be possible to ascertain whether the estate has been properly conveyed over the years and that the current vendor is the party to whom it was last vested in.

According to Megarry and Wade, “The dilemma of English land law is how to reconcile security of title with ease of transfer.” This statement is particularly relevant in relation to third-party interests in land. Clearly the holders of these rights want them to be protected, whereas the purchaser wants to take free of them. The 1925 legislation provided certainty by simplifying and codifying the existing law and introduced new systems of land holding which offered protection to both the purchaser and the owner of third-party rights. Section 2, LPA 1925 introduced the process of overreaching which converted the equitable interests of beneficiaries into money from the proceeds of the sale of the trust property, thus protecting the purchaser of trust property where the purchase money was paid to at least two trustees. Furthermore, under the Land Charges Act 1925 (LCA 1925), interests in land which affected its value had to be registered, thus providing the buyer with a simplified method to discover the existence of any encumbrances and preserving third-party interests by guaranteeing notice. However, not all equitable interests are required to be entered as land charges, and a purchaser of a legal estate in unregistered land takes it subject to all other legal estates, rights and interests, and to those equitable interests of which he or she has knowledge or notice (actual, constructive or imputed). Therefore it is imperative that the purchaser make the following searches and enquiries to protect themselves:

1) A local land charges search because under s.198(1) of the Law of Property Act 1925 (LPA 1925), registration constitutes actual notice of the interest and a purchaser will automatically be bound by those charges. However, under s.199(1)(i) if an interest is registrable but is not in fact registered, no other means of notice will affect the purchaser and they will take free from it even if they have knowledge of the interest. Thus the onus is on the third-party to ensure their interests are protected by registration as demonstrated by Midland Bank Trust Co Ltd v Green (1980) which held that an estate contract which was registrable under LCA 1972, s.2(4)(iv) but had not been so registered, was unenforceable against the purchaser even though they knew the charge existed.

2) A land charges search against the names of all the estate owners during the title period because registration is made against the name of the estate owner at the time the charge was created NOT against the address of the property. This has proven problematic where registration was made against an incorrect version of a person’s name as seen in Oak Co-operative Building Society v Blackburn (1968) where it was held that a registration in a version of an estate owner’s full names was not a nullity against a purchaser who did not search at all or searched in an incorrect name. Diligent Finance Co Ltd v Alleyne (1971) held that registering against the wrong name will not bind a third party who subsequently searches against the correct full name. In addition, under s.23 LPA 1969 a vendor is only obliged to go back to a good root of title which is at least 15 years old, meaning that a purchaser may have no means of discovering the names of previous owners who may have registered land charges as there is no requirement to produce earlier deeds. Therefore, the purchaser will be bound by the undiscoverable land charges under LPA 1925, s.198(1). However, s.25, LPA 1969 provides that where a purchaser suffers loss under these circumstances they may obtain compensation. It should be noted that this is not a significant problem as demonstrated by the lack of claims.

3) A thorough examination of the vendor’s title deeds from the root title onwards because owners of equitable interests will normally require a note of their rights be made on the deed to ensure prospective purchasers will have notice of them. Under the rule, a purchaser is bound by any right which would have been discovered by such an inspection as seen in Worthington v Morgan (1849) where no investigation was made and the purchaser was deemed to have constructive notice.

4) Undertake such inquiries and make such inspections of the property that would satisfy a reasonably prudent man of business, including a thorough physical investigation of the land and questioning any occupants as to their rights in accordance with the rule in Hunt v Luck (1902). The decision in this case demonstrates that a purchaser of an estate in unregistered land runs the risk of being deemed to have constructive notice of any rights belonging to anyone in occupation where no enquiries are made of that person.

It is quite apparent that the deduction of unregistered title deeds can lead to a myriad of problems resulting in stressful and drawn out dealings. Clearly, when dealing with unregistered titles in land the maxim caveat emptor holds great significance. Consequently the move to compulsory title registration was a vast improvement. However, the original system introduced by LRA 1925, was not without fault and proposals for a complete replacement of the existing legislation were contained in the consultative document, Land Registration for the Twenty-First Century. It was widely accepted that the 1925 legislation was both complicated and badly drafted and did not contain the necessary framework to propel conveyancing into the era of e-commerce.

The LRA 2002 is intended to shorten and simplify the conveyancing process, while promoting certainty for buyers, vendors and anyone who possesses any relevant third-party interests. The goal is to create a truly transparent, accurate and comprehensive Register which will be further supported by the development of a system that allows dispositions of registered land to be handled electronically.

Ownership of registered land is more attractive than its counterpart for many reasons. Where title is registered, it is “regulated and ascertainable from the register alone” subject to any overriding interests. Under LRAs 1925-1997 it is the register itself which is proof of ownership and therefore becomes the owner’s proof of the title to a property and this is still the position under LRA 2002. The register will set out a description of the land, name the rightful owner and identify any interests that affect the value of the land. Furthermore all records, including copies of any documents in support of interests which affect the land are kept at the Land Registry, thus there is no requirement for a proprietor to produce a bundle of deeds to prove devolution of title. Once the land is registered, there will be no difficulty proving title in the future. Therefore the investigation of title is faster and less complex. In addition, HM Land Registry guarantees title meaning that any person who suffers a loss due to a mistake on the register which requires rectification will be entitled to payment of an indemnity from the

Registry. However, compensation is not available to everyone who suffers loss. No compensation is payable where rectification is made to give effect to an overriding interest.

A further benefit is that registration reduces the risk of a purchaser being bound by undiscoverable third-party rights because a purchaser of registered land takes it free from all encumbrances except for those which are protected by an entry on the register and overriding interests, but to nothing else. However, overriding interests are a major hazard for the purchaser of a registered estate. Under LRA 1925 s.70(1), the informal acquisition of land through such methods as resulting and constructive trusts and proprietary estoppel, created rights which were not recorded and not readily discoverable by the reasonably prudent purchaser even after the requisite searches, yet they remained binding on a registered title and its successive registered proprietors. These interests have been the subject of a great deal of litigation and some examples include: Pettit v Pettit (1970) which held that a cohabiter could acquire a beneficial interest in a property where legal title was held by another. Williams and Glynn’s Bank v Boland (1981) which held that the rights of a beneficiary under a trust, in actual occupation, would be binding on the purchaser. Strand Securities v Caswell (1965) which held that a person who is in occupation can only benefit if the rights he possesses are proprietary rights known to law or equity and the person with the rights must be in actual occupation. Surprisingly, in Thatcher v Douglas (1996), the Court of Appeal, held that an equitable easement was an overriding interest under s. 70(1)(a). However, Celsteel Ltd v Alton House Holdings Ltd (1985) had previously established that it was possible for some equitable interests to become overriding interests. Another interesting case was Webb v Pollmount (1966) where the court held that an option to purchase the reversion contained in a seven-year lease was protected under s. 70(1) by virtue of the tenant’s occupation under the lease. This is an obvious example of how “every type of property right in land can be an overriding interest provided there is actual occupation at the relevant time by its owner” under s. 70(1)(g). It is clear from the range of issues covered by these decisions that overriding interests are in no way only “minor liabilities”. In addition, their existence means that absolute title cannot be absolute. Observably, the fact that third-party rights can exist, which cannot be readily discovered by referring to the register, severely undermines the complete picture approach advocated by the “Consultative Document”.

It is accepted that only the suppression of numerous third-party rights could ensure that the register would be a completely accurate reflection of the title, and as such, the Law Commission determined that overriding interests provide important protection to vulnerable individuals and must continue to have standing, particularly those where the claimant is in actual occupation.

However, one of the main purposes of the 2002 Act is to reduce the number of overriding interests which are capable of binding a purchaser of a registered title and to replace a significant number of them with registrable entries. To that end a number of inconsequential interests have been abolished while others will be deleted after ten years. In addition, the Act distinguishes between interests that override first registration (schedule1) and those that override subsequent registrable dispositions (schedule 3). The Act also encourages the entry of overriding interests on the register under s.71.

Under LRA 2002, Schedule 3, paragraph 2, occupancy itself is not overriding and the interest must be one affecting the estate. An interest is not protected “if an inquiry was made of the person claiming it before the disposition took place, and they failed to disclose it when they could reasonably have been expected to do so” or if it is “not obvious, on a reasonably careful inspection of the land, that the person claiming it is occupying the land” and/or if the purchaser of the registered title had actual knowledge of the interest. Once again, this seems to imply a notice-based test and the purchaser is burdened with the duty of questioning the actual occupants rather than the vendor in order to take free of any interests. However, the occupier is also burdened in that they must disclose their interests when asked or face revocation of the right to claim an overriding interest. Thus there is a balance between the purchaser and the occupier.

Another significant change to the range of registrable interests involves leases. Under section 3, leases of more than 7 years are now subject to compulsory registration, which means that the majority of commercial leases will now be registered, which in itself increases the accuracy of the register given that historically such leases escaped registration because only leases of greater than 21 years needed to be registered.

Furthermore, the recent case of J.A. Pye (Oxford) Ltd v Graham (2000) brought the issue of adverse possession to the forefront and it is clear that the LRA 2002 provides better protection against squatters’ rights claims than that afforded to landowners with unregistered title. Under s.96 the squatter can apply to be the registered proprietor after ten years of adverse possession. The registered owners will then be notified of the claim and will have an opportunity to object to it. Thus the Act restores a sense of balance between the landowner and squatter.

The fundamental objective underpinning the reform of the registered title system was to facilitate e-conveyancing. Accordingly Part 8 of the Act sets out the provisions necessary to make such a system an actuality. In principle, once e-conveyancing is a reality, it will remove the gap between transfer and registration (along with the inherent problems), and substantially limit the number of interests created ‘off register’, thus moving towards the ideal that the register should be a “complete and accurate reflection of the state of the title of the land at any given time”.

Overall, the LRA 2002 improves upon the unregistered system of land by attempting to balance the rights of purchasers with those holding third-party interests. However, there are still glaring “cracks” in the mirror with regard to overriding interests; only time will tell if the reforms were sufficient.