Registration of Title: Overriding Interests and Minor Interests Lecture

OVERRIDING INTERESTS

A registrable disposition of a registered estate for valuable consideration, once completed by registration, takes 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 are not noted on the title affected (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’). Schedule 1 applies on first registration. For example, its actual occupation provision has no exception for an interest which was not disclosed on inquiry or for occupation which was not obvious on inspection. A gift of registered land does not attract the special priority rule for dispositions for value: earlier interests normally retain their priority under s.28.

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)). Some of these rights may become apparent to a purchaser 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 local land charges register, searched through HM Land Registry in areas where the service has migrated and through the local authority elsewhere.

Some interests can qualify as overriding even though they could also have been protected by a notice. Whether an unregistered interest binds a purchaser depends on the interest and the circumstances of the disposition.

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) paras 2.25, 8.87). 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 acquired by adverse possession and the former protection for persons in receipt of rents and profits. Schedule 12 preserves certain existing rights. Manorial rights and some other interests lost automatic overriding status on 13 October 2013; that change did not itself extinguish them.
2. Incorporation of unregistered interests in the register- The LRA 2002 provides means of ensuring that pre-existing overriding interests are brought on to the register, following which they cease to have overriding status (LRA 2002, ss.29(3) and 30(3)). The notice protects the priority of the interest if valid. Even if the notice is later cancelled, the interest cannot regain overriding status under s.29(2)(a)(ii) or s.30(2)(a)(ii). 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. Section 93 allows rules to require simultaneous electronic disposition and registration for specified dispositions. Electronic conveyancing does not make registration a condition of creation for all rights.

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. Most legal leases granted for a term of not more than seven years from the grant. Exceptions include certain leases taking effect in possession more than three months after the grant. Relevant social housing tenancies are separately protected (Schedule 3, paras 1 and 1A),
2. Proprietary interests of persons in actual occupation of the land,
3. Legal easements and profits à prendre, and
4. Local land charges.

For s.29(1) to postpone an interest, it must have affected the estate immediately before the disposition and its priority must be unprotected at registration. For actual occupation, Schedule 3, para 2 looks to the time of the disposition. An interest first acquired between the disposition and its registration, the so-called registration gap, does not for that reason override the earlier disposition. Section 74 deals with the time from which a register entry takes effect.

The disponer when disposing the registered title of an estate may be obliged to disclose known incumbrances to the purchaser under the terms of sale. 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 disclose the overriding interests of which they actually know, subject to the statutory exceptions. For example, local land charges, public rights and interests under a trust of land need not be disclosed on this application (LRA 2002, s.71; Land Registration Rules 2003, r.57).

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.

Actual occupation protects the interest the occupier already has. If the occupier has agreed that a particular charge shall have priority, occupation will not give the interest priority over that charge.

Takeaway Points:

• Actual occupation cannot enlarge the rights which the occupier has.
• An occupier can agree, expressly or by implication, that a lender’s charge will take priority. Knowledge of another party’s proposed interest does not by itself amount to consent.
• M knew and intended that S would obtain the mortgage to complete the purchase.

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). Actual occupation is a question of fact. Under the 1925 Act the visible signs of occupation were described as sufficient to ‘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). Under Schedule 3, para 2(c), whether occupation was obvious on inspection is a separate question from whether it existed.

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. Describing the protection under the 1925 Act, Lord Denning MR said an occupier could ‘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).

An inspection may reveal an occupier without revealing the nature of their interest. The purchaser should 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). Asking the seller alone is not an inquiry of another occupier about that occupier’s rights. 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) 49 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 an occupier could rely on an unregistered proprietary interest if the conditions for overriding status were met.

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. Two exceptions concern inquiry and inspection. Paragraph 2 also excludes interests under a Settled Land Act 1925 settlement and certain leases granted to take effect more than three months later which have not yet taken effect in possession. 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)). It is the inquiry of the occupier before the disposition, and what that occupier could reasonably have been expected to disclose, that matter under para 2(b). The underlying interest must also be established (compare the unsuccessful claim for rectification in 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 occupation would not have been obvious on a reasonably careful inspection and the disponee did not actually know of the interest. The second exception is discussed below in the section ‘Curtailment: Actual Occupation’.

Curtailment

Actual Occupation

The LRA 2002 limits the circumstances in which an occupier’s interest overrides a registered disposition. Paragraph 2(c) concerns an occupier whose occupation ‘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)). That exclusion does not apply 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 would the occupation have been obvious on a reasonably careful inspection, the interest does not override under paragraph 2. If either actual knowledge of the interest or obvious occupation is established, the other conditions of paragraph 2 still apply.

For a period of occupation to be relevant for these purposes of overriding status, the occupier must have an interest and be in actual occupation at the time of the 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). A purchaser should be able to make a meaningful or ‘fruitful’ inquiry in advance of the disposition (Abbey National Building Society v Cann [1991] per Lord Oliver of Aylmerton). Whether occupation must also continue until registration was left open in Prescott Place Freeholder Ltd v Batin [2023] EWHC 435 (Ch), para 118.

Where a person in occupation of land is seeking to show their interest is overriding, there is no fixed minimum period. Acts merely preparatory to moving in may be insufficient. A pattern of substantial and frequent absence from the land may undermine a claim to ‘actual occupation’ (Stockholm Finance Ltd v Garden Holdings [1995] N.P.C. 162). That being said, a person may remain in actual occupation during a temporary absence. Relevant facts include its length and cause, the nature of the property, evidence of continuing occupation and the occupier’s intention to return (Link Lending Ltd v Bustard [2010] EWCA Civ 424). Occupation need not be residential. In Kling v Keston Properties Ltd (1985) 49 P. & C.R. 212 the claimant occupied a garage used to keep his wife’s car.

Takeaway Points:

• Continuous physical presence is not necessary for actual occupation.
• The furniture in the house and the reason for W’s absence supported her claim that she was still occupying her home.
• The sale was concealed from W, but it was her beneficial interest and continuing occupation that mattered.

What should also be borne in mind is who occupies the property. In family cases, the idea of actual occupation can protect an existing proprietary interest; it does not create one. A beneficial interest which is overreached does not bind the purchaser or lender, even if the beneficiary is in actual occupation (Law of Property Act 1925, ss.2 and 27; City of London Building Society v Flegg [1988] A.C. 54). 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, but preparatory acts did not establish actual occupation. There was also no interval between acquisition and the purchase-money mortgage in which her interest could take priority. The Supreme Court applied that principle in Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52. In Strand Securities v Caswell [1965] Ch. 958 the 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. The minor children of an occupying legal owner were not in independent actual occupation merely because they lived with their parent (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 protect its option to buy the reversion to both the office and the adjoining garage under the 1925 Act. Schedule 3, para 2 of the 2002 Act protects an interest only so far as it relates to land actually occupied.

Equitable easements and profits

Curtailment is also the means by which the LRA 2002 sets limits around easements and profits à prendre. Under Schedule 3, para 3 it is legal easements and profits which can override. An express grant or reservation out of a registered estate within s.27(2)(d) must be completed by registration to operate at law (s.27(1)). Legal easements acquired by implication or prescription do not require registration. An unregistered legal easement or profit ordinarily overrides a disposition for value if the disponee actually knew of it, it would have been obvious on a reasonably careful inspection, or it was exercised in the year ending with the disposition. There is separate protection for registered rights of common. An equitable easement or profit which already had overriding status immediately before 13 October 2003 retains it under Schedule 12, para 9.

MINOR INTERESTS

The term “minor interests” comes from the 1925 Act. It is still used informally for third-party interests affecting a registered estate, such as an estate contract or freehold restrictive covenant. The 2002 Act distinguishes interests protected by entries on the register from dispositions which must themselves be completed by registration. 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.” Existing entries are subject to transitional provisions. The 2002 Act provides for notices and restrictions. A notice protects the priority of a valid interest. A restriction regulates registration of dispositions. For example, a beneficial interest under a trust of land cannot be protected by notice, but a restriction can help ensure that capital money is paid to two trustees or a trust corporation (ss.33, 40–42).

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)). An interest protected by a notice is not thereby registered with its own title. Ultimately, these minor interests impose a burden on the registered estate.

Notices can vary in their duration depending on their purpose. Certain interests, such as restrictive covenants, are potentially indefinite in character. A notice protects the priority of the underlying interest while it remains valid. Where a short-term interest, such as an estate contract, has ended, an application can be made to cancel the notice.

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” can be sought by the registered proprietor or someone entitled to be registered as proprietor, or entered with either person’s consent. Alternatively, the registrar may be satisfied by evidence that the applicant’s claim is valid (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 Acts 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. Neither home rights nor rights under an access order acquire overriding status through actual occupation (Family Law Act 1996, s.31(10); Access to Neighbouring Land Act 1992, s.5). Agreed and unilateral notices protect priority equally. To cancel an agreed notice the applicant normally has to show that the interest has ended or that the entry is otherwise unjustified. Home rights notices have their own cancellation procedure (Land Registration Rules 2003, rr.87, 87A).

A “unilateral notice” may be entered without proof of the validity of the claim. After entry the registrar must notify 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 beneficiary normally has until noon on the fifteenth working day after the registrar issues notice of the application to object and show an arguable case. An unresolved objection which is not groundless is referred to the First-tier Tribunal (LRA 2002, ss.36, 73; Land Registration Rules 2003, r.86). Alternatively, the registered beneficiary can apply to the registrar for removal of the unilateral notice without proving that the interest has ended (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 existing priority of a valid interest on a subsequent registered disposition for value (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. A valid interest protected by a notice in the charges register retains priority on a subsequent registered disposition for value, whether or not the proprietor inspects the register (LRA 2002, s.29(2)(a)(i)).
2. Protectable interests, if not protected by a notice or otherwise within s.29(2), 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, will normally be postponed on a registered disposition for value 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). That statement does not create a general exception to s.29. A purchaser may nevertheless incur a distinct obligation, for example by undertaking to give effect to the claimant’s right.

Good faith was discussed under the definition of purchaser in the Land Registration Act 1925 in Peffer v Rigg [1977] 1 W.L.R. 285. Section 29 of the 2002 Act contains no corresponding good-faith requirement. In a Malaysian appeal the Privy Council observed that, 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. An example under the land charges legislation for unregistered land is the Court of Appeal decision in Midland Bank Trust Co. v Green [1980] Ch. 590. The House of Lords reversed that decision in the same case (Midland Bank Trust Co. v Green [1981] A.C. 513) and held that the purchaser for money or money’s worth took free of the unregistered option despite knowing of it and intending to defeat it. Two approaches to the underlying policy can be contrasted:

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). In a Scottish competition over title a similar point was 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. Arguments for a wider approach to commercial conscience appear 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).

A separate obligation may arise if a disponee undertakes to the seller or the holder of an unprotected interest to give effect to that interest. For example, a disponee may obtain the transfer on the footing that they will respect the interest, then seek to repudiate that undertaking.

A constructive trust may then bind the disponee personally. The question is whether the purchaser assumed a new obligation in circumstances in which it would be inequitable to deny the interest. That does not reverse the statutory priority rule (LRA 2002, s.29(1); 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. An order for specific performance against the seller and his company 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 undertaking to honour a pre-existing right can support a constructive trust. A sale merely expressed to be ‘subject to’ a claim does not by itself establish such an undertaking.
• It is important to remember who, in a case such as this, is in occupation at the relevant time.
• A reduced purchase price on the footing that the purchaser will honour the right may be evidence of an undertaking. A price reflecting only the risk of litigation is another matter.

Electronic conveyancing does not prevent an unprotected minor interest from existing. The creation of an interest and the protection of its priority remain separate questions.

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