Registration of Title: Overriding Interests and Minor Interests Lecture

OVERRIDING INTERESTS

All registered dispositions of a registered estate must take effect subject to those unregistered interests which are said by the Land Registration Act (LRA) 2002 to “override” such dispositions (LRA 2002, s.29(1) and (2)(a)(ii)). The disponee of the registered title takes the title subject to those rights even though, by definition, they do not appear on any register of title (LRA 2002, ss.29(3) and 30(3)). Schedule 3 of the LRA 2002 sets out the list of those categories of interest which qualify as overriding interests (see below, the section ‘Sub-categories of overriding interest’).

Overriding interests have a historical record as statutorily binding disponees notwithstanding their absence from the register of title (Land Registration Act 1925, s.70(1)). These types of rights would not require registration to become apparent, because they ought to be apparent to any taking the registered title of land upon a physical inspection of the land (and/or inquiring with persons residing on the land) or by reference to other evidential aids, such as the registers of local land charges maintained by local authority bodies.

Typically, those interests that qualify as overriding are those which have no other means of protection within the system of registration of land. In their unregistered status, they bind the whole world, and the registered land scheme is designed simply to replicate this principle of binding the whole world.

The “guiding principle” that underlies this aspect of the LRA 2002 (of certain unregistered interests being overriding) is that interests should be overriding interests only where ‘protection against buyers is needed, but where it is neither reasonable to expect nor sensible to require any entry on the register’ (Law Commission, Land Registration for the Twenty-First Century: A Conveyancing Revolution No. 271 (July 2001) para 2.25). This is reflected in the LRA 2002 which restricts the role of overriding interests, such as:

1. Abolition or phasing out of certain sub-categories of overriding entitlement, including equitable easements and profits à prendre; rights of persons in adverse possession; rights of non-resident landlords.
2. Incorporation of unregistered interests in the register- The LRA 2002 provides means of ensuring that pre-existing overriding interestsare brought on to the register, following which they cease to have overriding status (LRA 2002, ss.29(3) and 30(3)). The right thereafter becomes binding not due to its (now-abolished) overriding status, but by virtue of its place on the register. This can be done by the registrar entering a potentially overriding interest on the register by means of a notice (LRA 2002, s.37(1); Land Registration Rules 2003, r.89).
3. Curtailment of the circumstances in which new overriding interests can arise.
4. Finally, e-conveyancing will eventually make it impossible for the creation of rights except by the entry of those rights on the register, eventually making overriding interests at least a very limited and rare feature, at most will be non-existent.

Sub-categories of overriding interest

As per Schedule 3 of the LRA 2002 there are a variety of unregistered rights which qualify as overriding interests. These include:

1. Legal leases granted for a term not more than seven years,
2. Proprietary interests of persons in actual occupation of the land,
3. Legal easements and profits à prendre, and
4. Local land charges.

In order for any of these categories to qualify and be recognised as an overriding interest, s.29(1) of the LRA 2002 requires that no interest can claim a status of overriding interest unless the interest had existed immediately before and up to the relevant date of disposition, and up to that date had affected the estate that forms the subject of the disposition. Therefore, any interest which arises for example between the dates of disposition and registration, the so-called registration gap, can qualify for overriding status (LRA 2002, s.74).

The disponer when disposing the registered title of an estate has a duty to disclose to the disponee any subsisting overriding interests. If they fail to do so, the disponee may have contractual rights of recovery (Ferrishurst v Wallcite Ltd [1999] Ch. 355 per Robert Walker LJ). When the disponee seeks to register their title with the registrar, they must at that point disclose any subsisting overriding interests of which they are aware (LRA 2002, s.71).

The sub-categories 1, 3, and 4 are not discussed in detail here, as these would be unlikely to form part of an exam question. Instead, focus will be given on the proprietary interests of persons in actual occupation of land.

For any overriding interest, it is a given that, at the date of the registrable disposition, the interest which is alleged to ‘override’ the interests of the registered proprietor must be fully enforceable; it will not be enforceable if it was in any way made negative by estoppel or waiver.

Takeaway Points:

• An overriding interest must be unencumbered by estoppel or waiver.
• An example of an estoppel is where the person hoping to claim an overriding interest does nothing to communicate it where they are aware of the party hoping to claim an interest.
• M was estopped because she was aware of the intended charge, and because she did nothing to challenge it or to raise the issue of her intention of claiming an overriding interest.

Unregistered interests of persons in actual occupation

Briefly on the point of definition, actual occupation is intended to be interpreted as it is written, so long as they are taken as ‘ordinary words of plain English’ (Williams & Glyn’s Bank Ltd v Boland [1981] A.C. 487 per Lord Wilberforce). That being said, actual is taken to mean ‘apparent’ or ‘patent’, such that the fact of occupation would ‘put a person inspecting the land on notice that there was some person in occupation’ (Malory Enterprises Ltd v Cheshire Homes Ltd [2002] Ch. 216 per Arden LJ).

The LRA 2002 Schedule 3 para 2 confers overriding status to ‘an interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation.’ This is intended to provide protection to vulnerable occupiers whose interests in the land may have been created informally and without full regard to the usual requirements. It requires purchasers to be prudent when inspecting property, as upon a reasonable inspection the purchaser ought to be made aware of potential unrecorded interests and the need for further inquiry. By this form of protection, an occupier may simply ‘stay there [at the property] and do nothing’, because nobody can ‘buy the land over his head and thereby take away or diminish his rights’ (Strand Securities v Caswell [1965] Ch. 958 per Lord Denning MR).

In effect, the onus is on the purchaser, rather than the occupier, to determine whether the occupation constitutes an overriding interest. The disponee is required to ask any person in actual occupation of the land ‘what rights he or she has in the land’ (Winkworth v Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512 per Nourse LJ). The disponee cannot simply interrogate the disponor; they must direct this questioning to all persons they find in actual occupation of the land. It has been observed that ‘reliance on the untrue ipse dixit [meaning “he himself said it”] of the disponor will not suffice’ (Hodgson v Marks [1971] Ch. 892 per Russell LJ).

Historically, there has been some controversy surrounding overriding interests, not least because the delineation between registrable interests and those interests deemed to be overriding has ‘no firm dividing line’ (Williams & Glyn’s Bank Ltd v Boland [1981] per Lord Wilberforce). Therefore, those interests which may constitute minor interests and ought to have been recorded in the register were nevertheless preserved as overriding interests, a notion which was ‘disquieting’ to some (Kling v Keston Properties Ltd (1985) P. & C.R. 212 per Vinelott J). So although there was a system in place for registering interests i.e. the Land Registry, and although there have been policy reasons mandating occupiers to register their interests, nevertheless occupiers did not need to concern themselves with the formalities because they could in any event rely on overriding interests.

This historical concern gives rise therefore to the concession inherent in the quotation referred to above in the LRA 2002 Sch 3 para 2: ‘an interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation’ is deemed to be overriding. The concession comes from there being exceptions, i.e. those cases where the interest is not overriding. There are two exceptions. First, the actual occupier has unreasonably failed, on inquiry, to disclose his own entitlement. The LRA 2002 excludes the interest of any actual occupier ‘of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so’ (LRA 2002 Schedule 3 para 2(b)). If they fail to reveal their interest upon inquiry from the disponor, the occupier’s failure to reveal the existence of their rights is fatal for any claim of overriding interest (Holaw (470) Ltd v Stockton Estates Ltd (2001) 81 P. & C.R. 29). There is therefore an onus of sorts to be imposed on the occupier, and by that measure the LRA 2002 seeks to balance the rights and duties of the disponee and the occupier. Second, the relevant occupation was neither reasonably discoverable nor was it actually known by the disponee. The second exception is discussed below in the section ‘Curtailment: Actual Occupation’.

Curtailment

Actual Occupation

Curtailment is the effort of the LRA 2002 to put in place a restrictive understanding of what being in ‘actual occupation’ means. This is relevant to overriding interests because persons being in actual occupation can be an overriding interest, but will not qualify for that status if it ‘would not have been obvious on a reasonably careful inspection of the land at the time of the disposition’ (LRA 2002, Schedule 3, para 2(c)(i)). There is only one exception to this requirement of reasonably careful inspection, which is where the disponee of the land had ‘actual knowledge’ of the occupier’s interest at the time of the disposition (LRA 2002, Schedule 3, para 2(c)(ii)). Therefore, if a disponee neither has actual knowledge of the interest, nor could reasonably be expected to have discovered the interest, then they will not be bound by that interest. Conversely, if one of these two applies, protection is accorded to the person with the interest.

For a period of occupation to be relevant for these purposes of overriding status, the occupation must subsist both before and at the date of the registrable disposition (LRA 2002, s.29(1)-(2), and Schedule 3, para 2). This view in the LRA 2002 mirrors an earlier precedent set in case law (Abbey National Building Society v Cann [1991] 1 A.C. 56). This imposition of the required duration (i.e. before and on the date of the registrable disposition) is intended to make it easier for there to be a meaningful or ‘fruitful’ inquiry in advance of the disposition (Abbey National Building Society v Cann [1991] per Lord Oliver of Aylmerton).

Where a person in occupation of land is seeking to show their interest is overriding, it is not sufficient that they have occupied the land for only a minimal period before and on the date of the disposition. In other words, a pattern of substantial and frequent absence from the land will severely undermine a claim to ‘actual occupation’ (Stockholm Finance Ltd v Garden Holdings [1995] N.P.C. 162). That being said, a person claiming actual occupation may successfully show such occupation, even if it is intermittent, so long as they are able to point to some physical evidence or ‘symbol’ of their continued residence at the property, as well as evidence of their intention to return to the property (such as in the case of Kling v Keston Properties Ltd (1985) P. & C.R. 212 in which the presence of the occupier’s car parked at the property showed an intention to continue residing at the property).

Takeaway Points:

• Continual occupation is not necessary evidence.
• What is required is some evidence of previous occupation and an intent to return to the property; physical evidence in or around the property would be required to satisfy this requirement.
• Additionally, one might suggest that an act of deception (as with here, where the W was left unaware of the sale until after its occurrence) assists in supporting an inference of actual occupation.

What should also be borne in mind is who occupies the property. In family cases, the idea of actual occupation, if shown in fact, can successfully give rise to legal rights provided that the person claiming actual occupation can satisfy the usual conditions of that principle. In Abbey National v Cann [1990] 2 W.L.R. 833, the second defendant claiming actual occupation was a family member of the first defendant, and would have been successful but for the fact that she did not occupy the property at the required dates to satisfy the conditions of actual occupation. In Strand Securities v Caswell [1965] Ch. 958the sub-tenant allowed their stepdaughter to live rent free in the relevant property, and the court held that the stepdaughter was therefore in actual occupation, and that the right of actual occupation did not extend to the sub-tenant merely because of his stepdaughter being in occupation.But not all family members are equal: a child does not have a claim to an overriding interest because their occupation of a given property is only because their parent/carer occupies the property (Hypo-Mortgage Services v Robinson [1997] 2 F.L.R. 71). Further, the idea of actual occupation extends to businesses, even where they only occupy a portion of the land. In Ferrishurst v Wallcite [1999] Ch. 355 the claimant business was able to claim actual occupation within an office space and by that token retain an overriding interest for the purchase of a neighbouring garage, even though the claimant business occupied only a portion of the land.

Equitable easements and profits

Curtailment is also the means by which the LRA 2002 sets limits around easements and profits à prendre. The LRA 2002 provides that overriding interest protection will be confined to legal rights alone for easements and profits, and will not extend to equitable easements and profits (LRA 2002, Schedule 3, para 3(1)). Any newly-created easement or profit subsequent to the enactment of the LRA 2002 must, if it is to ‘operate at law’, be completed by registration (LRA 2002, ss.27(1) and 2(d)). The LRA 2002 is thereby acting to reduce the scope of easements for two reasons. First, if the easement is completed by registration, then it will appear on the register and by definition will cease to be an overriding interest. Second, if the interest is not so registered, the easement will merely arise as an equitable right, and such rights are explicitly excluded by the LRA 2002 from those types of easements and profits which may “override” later dispositions of the servient land.

MINOR INTERESTS

As will be seen, the term “minor interests” is a loose term used in place of the term “registrable interests.” Minor interests refer to those rights which can be applied to land, yet are secondary to the registered estate. The place of minor interests in registration of title has to be considered in the context of the Land Registration Act 2002.

The Land Registration Act (LRA) 2002, among other things, is intended to simplify the ways in which minor interests that affect registered land can be protected on the register. The LRA 2002 did away with many of the forms of protection of minor interests that existed by virtue of the Land Registration Act 1925, such as the so-called “caution against dealings” and the “inhibition.” In their place the LRA 2002 stipulated that an entry of “notice” on the register was the only means by which a minor interest can bind a disponee and their title once the disponee has registered their proprietorship.

A notice is ‘an entry in the register in respect of the burden of an interest affecting a registered estate or charge’ (LRA 2002, s.32(1)). The concept of a notice is a recognition of the variety and range of entitlements that can apply to registered land. The entry of a notice into the Land Registry protects the priority of a given interest against other interests in the land (LRA 2002, s.29(1) and (2)(a)(i)). These interests are referred to as registrable interests. It is however acceptable to refer to such interests as minor interests. Ultimately, these minor interests impose a burden on the registered estate.

Notices can vary in their duration depending on their purpose. Certain notices, such as restrictive covenants, are potentially indefinite in character and will, unless they are discharged, bind all subsequent disponees. Other notices that serve a short-term purpose, such as estate contracts, may be cancelled on an application to the Land Registry.

Means of entry

Any person that claims to be entitled to a protectable minor interest can apply to the Land Registry for the entry of a “notice” in the charges register of the title so applied for, per the LRA 2002, ss.32(2), 34(1) and the Land Registration Rules 2003 r.84(1). The notice may either be an “agreed notice” or a “unilateral notice.”

“Agreed notices” require the consent of the registered proprietor or evidence showing the applicant’s claim is valid, alternatively the registered proprietor can themselves apply for an agreed notice (LRA 2002, s.34(3)). There are certain rights which may only be protected as minor interests on the charges register as an agreed notice. Examples of such rights include “home rights” under the Family Law Act 1996, formerly the Matrimonial Homes Act 1967 and 1983, which confer upon those spouses or civil partners which qualify particular entitlements in regards to occupation of, or non-exclusion from, a dwelling-house (Family Law Act 1996, s.30(2)). Other such rights include orders made under the Access to Neighbouring Land Act 1992. The benefit of such a notice is that it provides greater protection to the beneficiary, because they are not subject to cancellation procedures unlike unilateral notices. But agreed notices can be brought to an end once the interest it protects comes to an end (Land Registration Rules 2003, r.87).

“Unilateral notices” are, unlike agreed notices, contentious, and the entry of such notices therefore commences a process of notification of and possible objection by the registered proprietor (LRA 2002, s.35, Land Registration Rules 2003, r.83). The entry of a “unilateral notice” does not require the cooperation or consent of the registered proprietor, but the registered proprietor is entitled to apply, at any time, for the notice to be cancelled. If the registered proprietor seeks for the notice to be cancelled, the applicant for the notice may in turn object to that requested cancellation (LRA 2003, s.36, Land Registration Rules 2003, r.86). As with agreed notices, the beneficiary of the notice can apply to the registrar for removal of the notice when the notice is redundant (LRA 2002, s.35(3), Land Registration Rules 2003, r.85).

The Land Registry will not however grant any notice once requested. The LRA 2002 requires that a person applying for the entry of a notice cannot do so ‘without reasonable cause’ (s.77(1)). This duty is considered in respect of any person who suffers damage in consequence of a breach of this statutory requirement (LRA 2002, s.77(2)). As for the status of the right protected by the notice, it (the right) is not rendered as valid simply because it is protected by a notice. All that the notice does is protect the priority of the interest against others (LRA 2002, s.32(3)). This means that a right, if invalid, may be removed from the register.

Aims of registration

The intention of registration and protection of minor rights under the LRA 2002 operates according to two rules:

1. Minor interests, if registered as a charge in the charges register, acquire ‘protected’ priority, meaning it binds any subsequent disponee of the registered estate, whether or not the proprietor inspects the register (LRA 2002, s.29(2)(a)(i)).
2. Protectable interests, if not registered as a charge in the charges register, are subsequent in priority to the interest which passes under any registered disposition made for valuable consideration (LRA 2002, s.29(1)), however they remain enforceable against a disponee otherwise than for value, such as a donee or a trustee in bankruptcy (LRA 2002, s.28(1)).

Unprotected - but protectable - interests and fraud

An unprotected (though protectable) minor interest, when addressing most registered estates, will be ineffective against the registered proprietor unless the entitlement in question also qualifies for protected status as an unregistered interest which statutorily “overrides” registered dispositions of the estate (LRA 2002, s.29(2)(a)(ii)). There is, according to the Court of Appeal, ‘no general principle which renders it unconscionable for a purchaser of land to rely on a want of registration of a claim against registered land, even though he took with express notice of it… a decision to the contrary would defeat the purpose of the legislature in introducing the system of registration’ (Lloyd v Dugdale [2001] EWCA Civ 1754 per Sir Christopher Slade).

That being said, if a registered proprietor seeks to rely on this principle to defraud a beneficiary, they would come up against the court’s position that it will not allow ‘a person to keep an advantage which he has obtained by fraud’ (Lazarus Estates Ltd v Beasley [1956] 1 Q.B. 702 per Denning LJ). This means that if a disponee for value of a registered estate is found guilty of fraud, they would find that the court in exercising its equitable jurisdiction will seek to protect the minor interest that was not otherwise registered as a charge in the register.

The court applied this approach, in particular when looking at the Land Registration Act 1925 in Peffer v Rigg [1977] 1 W.L.R. 285. Therefore, although registration of title as a process is intended ‘to provide simplicity and certitude in transfers of land’, equity retains the ability ‘to exercise its jurisdiction in personam on grounds of conscience (Oh Hiam v Tham Kong [1980] 2 M.L.J. 159 per Lord Russell of Killowen).

The problem for the courts is to determine a definition of fraud, particularly given this is within the civil (rather than criminal) context. For example, the Court of Appeal in Midland Bank Trust Co. v Green [1980] Ch. 590 found that fraud was apparent in the circumstances of the case, whereas the House of Lords in the same case (Midland Bank Trust Co. v Green [1981] A.C. 513) found there was no fraud whatsoever. This leads to two approaches:

1. A narrow definition of “fraud” will tend to favour the operation of the Land Register as the authoritative guide to interests and is unlikely to declare that a given act or omission on the part of the registered proprietor qualifies as “fraud.” The rationale for this approach is that hopeful beneficiaries ought to be encouraged to register their interest rather than rely on the courts. According to this view, it is therefore not fraudulent to simply exploit the incautious or negligent failure of those beneficiaries if they happen to indicate, but not register, their rights. ‘It is not fraud to take advantage of legal rights, the existence of which may be taken to be known to both parties’ (Re Monolithic Building Co. [1915] 1 Ch. 643 per Lord Cozens-Hardy MR). This view has been bluntly expressed in the following way: ‘nice guys finish last’ (Burnett’s Trustee v Grainger [2004] UKHL 8 per Lord Rodger of Earlsferry).
2. Conversely, an expansive definition of “fraud” will look more to the facts of individual cases and particularly for exceptions to the above-mentioned principle of regarding registration as the optimal means of protection. This argument has not yet reached the appeals courts, but has had some currency in legal academia (for example, Paul Finn, ‘Commerce, the Common Law and Morality’ (1989) 17 Melbourne U L Rev 87; see also Duncan Kennedy, ‘Form and Substance in Private Law Adjudication’ (1975-76), 89 Harv L Rev 1685).

That being said, it has been suggested (though is not expressly contemplated by the Land Registry) that the courts will take the view that statutory immunities from unprotected minor interests will be inapplicable if the disponee acts in bad faith to take advantage of a failure by the person possessing the interest to enter that interest in the register. An example would be a disponee is made aware of an unprotected interest and tells the person with the interest that they, the disponee, will promise to respect and prioritise that interest, but at a later time refuse to uphold that promise by pointing to a failure of the person with the interest to register the interest.

The disponee, acting in bad faith, is said to have carried out a form of ‘postponing conduct’ which displaces or reverses the special priority rule (LRA 2002, s.29(1)). As a result, the disponee takes their title subject to the unprotected interest in question by way of constructive trust (Lloyd v Dugdale).

As mentioned, there is some disagreement over any unified definition of fraud, but equity has seen fit to intervene in the following circumstances:

1. A deliberate scheme by the disponee to defeat the unprotected right, for example where the transfer of title was made to the transferor’s limited company in order to defeat a pre-existing and inconvenient estate contract (Jones v Lipman [1962] 1 W.L.R. 832);
2. An express agreement by the transferee to take title subject to the unprotected interest, such as where the transferee of an uncompleted housing development reneged on their agreement to be bound by the contractual rights of a purchaser who had already paid their deposit (Lyus v Prowsa Developments Ltd [1982] 1 W.L.R. 1044). The registration of title of system is intended to ‘protect a transferee from defects in the title of the transferor, not to free him from interests with which he [the transferee] has burdened his own title’ (Bahr v Nicolay (No. 2) (1988) 164 CLR 604 (HC of Australia) per Brennan J).

Takeaway points:

• An oral agreement to take property ‘subject to’ a pre-existing (unregistered) right can, though not necessarily will be, grounds for establishing a constructive trust that upholds the pre-existing right.
• It is important to remember who, in a case such as this, is in occupation at the relevant time.
• In order to give effect to the oral agreement mentioned above, there has to be a reflection of that on the facts, such as a reduced purchase price.

Practically speaking, given that land is increasingly subject to electronic conveyancing, it will eventually be impossible for an unprotected minor interest to exist, because the making of an entry in the register is what creates the interest.

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