The Aim of Any System of Registered Land

Consequently overriding interests are those interests which are not on the register yet bind any person who comes into ownership of the land. These overriding interests are governed by Schedule 3 of the Land Registration Act. There are quite a number of interests of which the main ones include short legal leases for less than 7 years found in paragraph 1, interest of persons in actual occupation found in paragraph 2 and easements and profits a prendre found in paragraph 3.

Short legal leases of either 7 years or less included in paragraph 1 of schedule 3 is one such overriding interests. As to be qualified as an overriding interest, all the formalities for the grant of a legal lease should be complied with.

Schedule 3 of paragraph 2 details the overriding interests of actual occupation. Thus, here a transferee is bound by those interests of individual(s) who reside in the premises, irrespective of them not being on the register. An interest holder under such type of an interest can only claim his right provided he/she satisfies the criteria listed. Firstly, the interest holder should actually have a proprietary interest over the land which should be present at the time of the disposition. Subsequently and secondly, the latter should also be in actual occupation whilst the fact of actual occupation alerts the purchaser of the possible existence of an overriding interest. Therefore it is necessary that both should be present at the time of the disposition. Thirdly a claim for actual occupation can be brought provided the aforementioned criteria are satisfied unless this interests cannot be discovered by undertaking a reasonable careful inspection of the land or if the purchaser did not have actual knowledge of the existence of such an interest, or either if the claimant had not disclosed of their interests when enquired where it was not reasonable for the former to have done so.

Moreover, Schedule 3 paragraph 3 concerns legal easements and profits a prendre. Yet not all such legal interests qualify, only certain legal interests which has been acquired either impliedly or by prescription qualify. But it is a requisite criteria that the transferee actually knows about its existence or obvious on a reasonable careful inspection of the land or either this interest has been exercised at least one year prior to the disposition.

Consequently, it is invariably the case, that registered land should clearly state all those interests including the beneficial as well as the burdened interests the land is being subjected to, on its register. The purpose behind being to protect a prudent purchaser from those interests which he/she is not aware of at the time of the purchase. Unfortunately, this whole concept of overriding interests results in the deviation from this rules. This was affirmed in Strand Securities v Caswell [1] , which stated that,

“It is vital to the working of the Land Registration System that notice………” [2]

Hence a purchaser could find himself bound by those interests which he/she was not aware of at the time of the purchase. This in itself poses a problem in the Land Registration System as it is in turn based on the mirror principle whereby it is stated that all those interests which affects the land should be on the register, so that the register could be a true mirror of the land in question. thereby denoting a crack in the mirror. Therefore, it is always the case that any prudent purchaser will know of the existence of such rights either by making a physical inspection of the land or by making enquiries. This in itself poses a problem because sometimes even though the purchaser might actually inspect the land, he might not be able to discover the existence of an overriding interest or even in the case of enquiries the person whom he enquired of may not always give the right answer. Yet the purchaser would still be bound by these interests. Similarly, provided that an individual had failed to do those inspections or make enquiries, he/she would still be bound by these interests. As illustrated in Overseas Investment Services Ltd v Sim Co build Construction Ltd judicial opinion was also one for change. In this case Peter Gibson LJ stated,

“as overriding interests constitute an exception [to the mirror of title principle] the court should in my opinion, bet be astute to give a wide meaning to any item constituting an overriding interest.”

Therefore, all of these aforementioned overriding interests in one way or another poses a problem. Consequently even though short legal leases are not on the register, it is always the case that a transferee would be bound by such interests. Alternatively, it is necessary for a purchaser to undertake a physical inspection of the land so as to discover such rights. Nevertheless, as actual occupation is not a criteria under this interest, there could be a tendency for a purchaser to be bound by a lease which was not discoverable by actual occupation.

Say for example, A owns the freehold to Brambles, whereby he grants a legal lease of 6 years to B. Subsequently A sells the freehold to C. Had C gone to inspect the land but failed to find the existence of such rights as B was not present in the property, it is inevitable that C would still be bound by it. Consequently, the former cannot evict B from the property. Had C known of this existing interest, it is likely that he would not have purchased it. Therefore it is very much unfair on the purchaser. Yet it is always the case that in such circumstances, the transferee will usually be protected as it is always the case that the interest holder would be in occupation as the lease is granted for a short period. Therefore, the mere fact that the purchaser inspects the land is in itself sufficient as it is likely he would discover the existence of the lease.

In terms of establishing a proprietary interest in actual occupation once again problems arise as it is not a tangible right but rather a intangible one. Illustrated in Williams and Glyn’s Bank v Boland [3] , where a wife jointly contributed with the husband to the purchase of the matrimonial home, whilst the husband went on the register as the legal title holder where both of them retained the beneficial interests. Subsequently, the husband without consultation from the wife took out to a mortgage. When he fell in arrears, questions arose as to whether the wives interest should take priority over the banks mortgage, where it was held that the wives interest took priority as the bank had failed to make the necessary enquiries. Yet this decision can be criticized as the bank would not know of the existence of such proprietary interests as it was not on the register and cannot even be found by a physical inspection.

Yet a transferee can be rest assured if there are two legal owners as the beneficiaries interest will be overreached which inevitable means that the latters interests will be transferred to the purchase money thus safeguarding the purchaser. Evidenced in City of London Building Society v Flegg [4] ,where the beneficiaries as well as the legal owners contributed to the purchase, but subsequently the legal owners failed to keep up with their mortgage payments which resulted in the bank gaining possession thereby defeating the beneficiaries interests though the latter was not enquired of their interest as it was stated to be overreached. But the problem arises to the transferee in circumstances where there is only one legal owner.

Illustrating the problems in actual occupation, it has been stated that just because an individual is away for some time it does not necessarily mean that they are not on occupation. This can pose problems for a potential purchaser. Illustrated by the case of Chhokar v Chhokar, [5] where a woman who was in hospital during the time she gave birth to a baby, irrespective of the fact that she did not live in the property in question, it was held that she was in actual occupation. Yet once again the problem arises that had the prudent purchaser carried out a thorough search she would have found traces of someone else living there as the womans clothes were there. Therefore, once again there would be no problem for a diligent purchaser.

The fact that both these criteria should be present at the time of the disposition poses problems too. Illustrating a scenario from the same aforementioned case, the fact that the woman had gone into labour inevitably means that she was not in actual occupation at the time of the disposition. Therefore, the transferee was unable to find out about her interest. Yet under the 2002 Act in dud course this problem will be solved with the move towards e-conveyancing where it said that the transfer and registration would take place simultaneously.

Considering the three exceptions to actual occupation, in terms of the first criteria, the Act implies an objective test. Therefore the problem arises as to what type of a search would constitute reasonableness. The other side to it is that provided the purchaser has gone into real pains of discovering the overriding interests which constitute to being more than a reasonable inspection, this does not bind the former though he/she is aware of its existence. This can be very unfair on the interest holder. Had the purchaser not undertaken a reasonable inspection, he still would be bound by the interest. Yet, this in itself does not pose a problem because it can be evident that any prospective purchaser would scrutinize the land in detail to discover these overriding interests, otherwise it is the fault of the transferee if he/she had failed to do so.

Considering the second criteria with regards to the actual knowledge of the transferee, it is the latters knowledge of the right that matters and not the interest holders physical existence.

With reference to the third and last criteria, the possible question arises as to the circumstances in which it would be reasonable for an interest holder to disclose their interest. Another question is that it depends on the interest holder himself, what if it is a senile or mentally unstable person, how far is it possible to expect him to provide an answer? As it would not be reasonable to consider his response therefore the transferee would still be bound by such interests.

In relation to easements, the same problems faced by actual occupation applies to its first and second criteria, but in relation to its third criteria a subsequent purchaser would find themselves in a fix. This is basically owing to the fact that the interest has to be exercised at least one year prior to the disposition which inevitable means that the transferee might not really know of its existence.