Impact of Law of Property Act 1925 Lecture

OVERVIEW

This guide is intended to help you with some of the more significant aspects of the Law of Property Act 1925. Because this guide is about one statute in particular, any references to sections in this guide will be highlighted in green for ease of use. This guide will not be a section-by-section assessment of the entire Act. Instead, it will examine those sections which are most often cited in a Land Law syllabus. Therefore, there will be a degree of veering back and forth between sections of the Act. The guide is structured by topics rather than the numerical order of the sections in the Act. It is hoped this will make the guide easier to navigate and understand.

It is recommended that as you go through this guide you make frequent reference to your statute exam book. It may be the case that you are allowed to annotate your exam book, in which case you can insert some of the points in this guide that are most helpful to you. However, please check to make sure that you are allowed to annotate, because some examiners will only allow highlighting and will not allow annotation.

Because this guide is all about the Law of Property Act 1925, hereinafter it will be abbreviated to the LPA. In the event that subsequent Law of Property Acts are mentioned, they will be named fully and given their year, e.g. the Law of Property (Miscellaneous Provisions) Act 1989.

CREATION OF LEGAL RIGHTS

The full range of ways in which a person can be legally entitled to and are set out in s.1 of the LPA. These are rights which are ‘authorised to subsist or to be conveyed or created at law’ (s.1(4)).

The rights are as follows:

  • The fee simple absolute in possession
  • The term of years absolute (on which more below)
  • Easements
  • Profits à prendre
  • Mortgage charges
  • Rentcharges, and
  • Rights of entry.

What should also be noted about the creation of legal rights is that any proprietary rights which are not included in this group will be relegated, irreversibly and automatically, to equitable status only (s.1(3)). Examples of rights which are equitable only include:

  • Determinable fee simple estates,
  • Restrictive covenants,
  • Estate contracts (including options), and
  • Beneficial interests existing under a trust of land.

When a party seeks to convey land to another, that conveyance of land, or of any interest in land, must (with exceptions) be made by deed or some formal writing, otherwise the conveyance is void (s.52(1)).

Certain estates can however subsist at law without any of the usual requirements for compliance with form or due registration. In the LPA, a good example of such estates are those leases which are granted for a term of not more than three years (s.54(2)).

Definitions

The LPA provides a set of key definitions in s.205

Conveyancing it is said to include mortgages, charges, leases, and other various other methods of ‘assurance of property or of an interest therein by any instrument, except a will;’ and it defines disposition as including ‘a conveyance and also a devise, bequest, or an appointment of property contained in a will’ (s.205(1)(ii)). So in lay terms, a conveyance is any transfer of land that takes place with no will, and a disposition is a transfer of land via a will.

Property is defined as including ‘anything in action, and any interest in real or personal property (s.201(1)(xx)).’

Purchaser is defined as ‘a purchaser in good faith for valuable consideration and includes a lessee, mortgagee or other person who for valuable consideration acquires an interest in property (s.205(1)(xxi)).’ The subsection then goes on to list a number of exceptions.

Terms of years absolute, as found in s.1(1)(b), is comprised of several parts. The “term of years” is commonly known as a “leasehold estate” and the owner is referred to a leaseholder rather than a freeholder. The term of years is a granting by the lessor (the landlord) to the lessee (the tenant) a right of exclusive possession of land for a period of pre-arranged maximum duration.

The period can either be fixed and therefore self-determining, or periodic and therefore capable of extension or termination by agreement of the parties. A term of years does not even have to last for a year or more: it can be for one week or 10 million years (s.205(1)(xxvii). Further, any area, regardless of size, can constitute a tenancy if granted for a defined period as the ‘exclusive domain of a particular individual’ (AG Securities v Vaughan [1990] 1 A.C. 417 per Lord Oliver of Aylmerton).

Given the absence of a narrower statutory definition of a ‘term of years’ in s.205(1)(xxvii), the courts have been left to identify the core components of a leasehold. In the case of Street v Mountford [1985] A.C. 809, Lord Templeman said the essential characteristics of a leasehold are that it must grant:

  1. Exclusive possession
  2. For a fixed or periodic term certain, and
  3. In consideration of a premium (i.e. a lump sum) or periodical payments.

Two less common types of leasehold are the so-called “leases for life” and “leases until marriage”, and these are statutorily converted into a 90-year term determinable on the death or marriage of the original lessee (s.149(6)).

Examination consideration: Although the creation of legal rights is not likely in itself to form a self-contained question, nevertheless it is useful to have these sections as a framework, particularly the definitions, such as the one of purchasers. This definition is pertinent to the subject of bona fide purchasers, for example.

FORFEITURE

Where a tenant has breached any covenant other than the covenant to pay rent, the landlord must adhere to the special notice procedure laid down by LPA’s s.146. The landlord is not permitted to exercise any right of re-entry or forfeiture of the property until they have served a valid statutory notice under this section.

The s.146 notice is intended, by its notice requirements, to instil notions of due process and proportionality upon the compulsory divesting of a substantial property asset. The requirements of such a notice are that it (per s.146(1)(a)-(c)):

  1. Specifies the tenant’s particular breach of which complaint is made by the landlord;
  2. Require that the tenant remedy the breach ‘if the breach is capable of remedy’, and
  3. Normally require that the tenant make compensation in money for the breach.

The purpose of the notice and its procedure is ‘to give even tenants who have hitherto lacked the will or the means to comply with their obligations one last chance to summon up that will or find the necessary means before the landlord re-enters (Expert Clothing Service & Sales Ltd v Hillgate House Ltd1985 WL 1167522 per Slade LJ).

Capable of remedy

Where a breach is ‘capable of remedy’, the tenant must remedy their breach ‘within a reasonable time’ after the service of the notice. If they take these steps, the tenant may apply to the court for relief against forfeiture if necessary (i.e. if they remedy the breach within a reasonable time yet the landlord nevertheless pushes for forfeiture). The court retains a broad statutory discretion for the granting of relief against forfeiture for breaches of covenant other than non-payment of rent (s.146(2)).

Breaches of negative covenants are regarded as ordinarily capable of remedy, so long as the ‘mischief caused by the breach can be removed’ by belated compliance with the tenant’s covenants (Savva and Savva v Hussein(1997) 73 P. & C.R. 150). However, any negative covenants which are ‘once and for all’, for example not to assign without consent, are irremediable, which leaves the tenant entirely dependent on the court’s discretion to exercise relief from forfeiture (Scala House and District Property Co Ltd v Forbes [1974] Q.B. 575, also see below). Generally, the approach is that negative covenants, if breached, are nevertheless capable of remedy (and if so remedied would preclude forfeiture) if the harm inflicted on the landlord can be effectively removed by due compliance in tandem with the provision of compensation by the tenant (Bass Holdings Ltd v Morton Music Ltd [1988] Ch. 493).

Case in focus: Billson v Residential Apartments Ltd [1992] 1 A.C. 494

The House of Lords ruled that the s.146 jurisdiction to relieve against forfeiture remained available to the tenant (T) even after actual re-entry by the landlord (L) where the landlord did not have a court order. The House of Lords (and Lord Nicholls LJ, dissenting in the Court of Appeal), were concerned that allowing forcible re-entry to have the same standing as complying with the s.146 procedure would frustrate the policy aims of that section, i.e. ensuring due process and proportionality. They wanted to avoid a so-called ‘charter for forcible entry’, which would otherwise encourage L to ‘keep away from court and to pounce on the property, in the evening or at the weekend, and change the locks and then sit back secure in the knowledge that forfeiture is complete (per Nicholls LJ).

Key points:

  • Where the landlord has not yet instituted possession proceedings against the tenant
  • Or, the landlord has obtained a court judgment for possession against the tenant, but has not yet executed this judgment by physical re-entry
  • Or, where the landlord elects to forfeit the lease, not by obtaining and executing an order for possession but instead by exercising his simple right of practicable re-entry upon the demised premises,
  • Then in any of the above circumstances the tenant can ask the court for relief from forfeiture.

Not capable of remedy

Where the breach is not ‘capable of remedy’, the object of the notice procedure is simply to enable the tenant to ask for the court’s discretion to grant relief. The court would examine the gravity of the breach and the disparity between the value of the property of which forfeiture is claimed and the extent of the damage caused by the breach. Things which are of relevance may include the demeanour of the tenant, particularly where they have been evasive and/or aggressive about the breach (Akici v LR Butlin Ltd [2006] 1 W.L.R. 201).

Relief will only be available to the tenant if the landlord’s position has not been ‘irrevocably damaged’ by the breach (WG Clark (Properties) Ltd v Dupre Properties Ltd [1992] Ch. 297). Relief is normally granted in cases of relatively minor or unintentional breach or where a breach has been effectively remedied, whereas irremediable breaches will almost always preclude and prevent the availability of relief from forfeiture (Dunraven Securities Ltd v Holloway (1982) 264 E.G. 709).

Returning to negative covenants, it may be the remedy is irremediable if the breach is of such a nature that it cannot be remedied by the mere cessation of the prohibited activity (and potentially even the provision of compensation by way of payment). In these cases it is a question of whether ‘the taint lingers on and will not dissipate within a reasonable time’ (Expert Clothing Service & Sales Ltd v Hillgate House Ltd 1985 per O’Connor LJ). If such is the case, forfeiture is inevitable.

Cases in focus: Governors of Rugby School v Tannahill [1935] 1 K.B. 87

The Court of Appeal held that the use of the demised premises in breach of covenant as a brothel was irremediable because even a complete ceasing would not remove the ‘stigma’ which the tenant’s wrongful activity had caused to attach to the premises.

Van Haarlam v Kasner Charitable Trust(1992) 64 P. & C.R. 214

A tenant’s conviction for offences committed under the Official Secrets Acts was held to be irremediable of a leasehold covenant that prohibited use of the premises for illegal purposes. Much of the illegal spying activity for which the tenant had been convicted was undertaken on the premises.

Key points:

  • Illegal activities if carried out on the premises are likely to be irremediable. Cessation of illegal activity was not sufficient to grant relief from forfeiture.
  • Convictions under related statutes will provide the requisite evidence for the need to claim forfeiture.
  • Activities which are not illegal yet carry a certain social stigma and are prohibited by covenant are also likely to be irremediable.

Examination consideration: There are several points to remember about forfeiture. The first is that it applies in a situation of any breach of covenants other than a breach of the covenant requirement to pay rent. Second, under s.146 there is a requirement for the provision of proper notice. This gives the tenant an opportunity to rectify the breach; the statute itself provides that the tenant may obtain relief if the breach is ‘capable of remedy.’ The third point is to ask whether or not the breach is in fact irremediable. The fourth point is to balance the degree of the breach with the conduct of the landlord, because s.146 as interpreted by the courts prohibits the forcible re-entry of the landlord onto the premises in the absence of a court order.

STATUTORY REQUIREMENTS

Wherever a trust is declared relating to land, that trust is enforceable only if it is ‘manifested and proved’ by some writing signed by the person declaring the trust (LPA s.53(1)(b)). (You may recall that this section is discussed in your Equity & Trusts Law syllabus.) This requirement for complying with formalities dates back to the Statute of Frauds 1677, and performs two related functions. First, it can prevent or mitigate litigation that would otherwise arise from allegations of mistake or fraud relating to beneficial ownership, especially where those allegations are raised many years after the disputed events. Second, it is consistent with English land law in the sense that informal arrangements tend to be seen as having inferior status.

The requirement of written evidence also serves the purpose of discouraging the use of informal and colloquial language for giving rise to (perhaps unintended) trust relationships, especially in the domestic context. Without the presence of writing, as required by s.53(1)(b), a trust ‘does not come into being merely from a gratuitous intention to transfer or create a beneficial interest’ (Austin v Keele(1987) NSWLR 283, PC per Lord Oliver of Aylmerton). The result is that a failure of complying with the formalities under s.53(1)(b) will be a ‘merely voluntary declaration of trust… unenforceable for want of writing’ (Gissing v Gissing [1971] A.C. 886 per Lord Diplock). Some have argued there is a degree of ambiguity about this section as to what it means: the argument is that this section requires ‘that the declaration of trust be evidenced in writing rather than that it be in writing’ (JD Feltham, ‘Informal trusts and third parties’ (1987) Conv. July-August 246). In other words, the section may require that a reference to the agreement is satisfactory, even if the agreement was oral, provided at least that the reference to the agreement is in writing.

That said, s.53(1)(b) is supported by the subsection which immediately follows it, in that ‘a disposition of an equitable interest or trust subsisting at the time of the disposition must be in writingsigned by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will’ (s.53(1)(c)). This means that the agreement must include a signature from the declarant of the trust, otherwise the trust will be unenforceable for want of compliance with the formalities.

Exceptions to the formalities requirement

Despite the aforementioned concern in English land law with maintaining consistent adherence to formality, the LPA does incorporate a recognition of the need for equity to sometimes go beyond formalities and to therefore make certain trusts enforceable even if they do not comply with the typical formalities requirements. This is based on the principle that compliance with the rule may result in an act which is unconscionable and against equitable principles.

The result is that certain types of trusts are recognised by the LPA as valid and enforceable even if they do not comply with the formalities requirements. In the LPA, s.53(2) indicates that the requirement for documents being ‘manifested and proved’ does not affect the ‘creation or operation of resulting, implied or constructive trusts.’ Therefore, a trust which would otherwise be held unenforceable as an express trust can be upheld as an implied, resulting or constructive trust.

One instance where this applies in land law (rather than purely equitable) context is where the requirement for documents to be proved in writing is abrogated in order to prevent the commission of a fraud by the trustee. Where A acquires a title in land from X on terms of A’s express oral (and unwritten) undertaking that he will, at the time of acquisition, hold the land on trust for B, A is subject to a fiduciary obligation towards B, because it would be fraudulent and inequitable for A to rely on the writing requirement to avoid the consequences of the fiduciary obligation that had been placed on him and thereby profit from his own fraud (Rochefoucauld v Boustead [1898] 1 Ch. 550).

Examination consideration: Even though this formalities requirement is more likely to be a topic of discussion in an Equity exam rather than a Land Law exam, it can be helpful in a Land Law exam to at least have this section to hand. There may be an opportunity to score easy points if you note in a problem question that a transfer of land is taking effect by means of a declaration, meaning it is to be done in a will, and yet there is no express indication that the formalities requirements have been complied with. When you cite s.53(1)(b) here, you show your awareness of this requirement in land law.

MORTGAGES

When a mortgagee (the lender) obtains a charge over the mortgaged property against the mortgagor (the borrower), the mortgagee obtains the power of sale in respect of the estate which has been so charged (ss.87-108). If the mortgage pertains to an unregistered estate, the mortgage must be created by a deed (s.52(1)).

There are one of two ways in which such a mortgage (i.e. over unregistered land) entered by deed can take form. The first is a charge by way of legal mortgage: the recipient of the charge by way of legal mortgage (the recipient being the lender) is deemed to have the ‘same protection, powers and remedies (including the right to take proceedings to obtain possession’ as if a leasehold term of 3,000 years had been created in their favour (s.87(1)). The first legal mortgagee of an unregistered estate is thereafter entitled throughout the term of the mortgage to retain the title deeds pertaining to the mortgaged property (s.85(1)).

The second is a charge by way of demise or subdemise. Under this type of mortgage, the security granted to a lender is in the form of a long lease in the borrower’s land, usually for a term of 3,000 years, though there is usually no intention that the lender would be assuming physical possession under the lease (s.85(1)). If the mortgaged estate is itself a leasehold, then any mortgage by long lease (again, 3,000 years), must take effect by subdemise. This subdemise is carved out of the leasehold estate for a period ‘less by one day at least than the term vested in the mortgagor’ (s.86(1)). This method is somewhat archaic and is less likely to be seen in everyday mortgages.

Accelerated sale procedure

A mortgagee, once their power of sale has accrued, is prima facie entitled to exercise it for their own purposes at any time of their own choice (Parker-Tweedale v Dunbar Bank plc [1991] Ch. 26 per Nourse LJ). However, there is one crucial limitation on the mortgagee’s power to determine the date and time of the sale. A defaulting mortgagor (borrower) can accelerate the sale of the mortgaged property by invoking the court’s discretion under s.91(2) to order sale at the request of either the mortgagor or the mortgagee, notwithstanding that ‘any other person dissents.’ In other words, a mortgagor can set a date for sale that is earlier than the mortgagee would have intended.

Case in focus: Palk v Mortgage Services Funding plc [1993] Ch. 330.

The husband and wife (H and W) had defaulted on their mortgage, but had managed to negotiate a private sale for £283,000. Their mortgagee refused to agree to the sale, because the total debt amounted to £358,000, i.e. almost £100,000 more than the private sale amount. The mortgagee proposed instead to let the property on short-term leases until such time as the housing market improved. By this approach, the borrowers’ debt would increase by £30,000 per year, which (in the event the housing market did not improve) would only exacerbate the difference between the proposed private sale amount and the debt owed by H and W. Therefore, W sought a court-directed sale under s.91(2) to prevent further substantial increases in the debt owing. The Court of Appeal ordered the sale, notwithstanding that H and W were in negative equity (meaning the debt exceeded the value of the property) and that £75,000 of the mortgagee’s debt was left unsecured and outstanding. Nicholls V-C considered it a ‘manifest unfairness’ in allowing the mortgagee to gamble on a rising market while also levelling the risk almost solely on the part of the borrowers.

Key points:

  • S.91(2) provides a kind of lifeline to mortgagors who are otherwise finding it difficult to escape a mortgage which imposes ever greater and unsustainable debt obligations.
  • This acceleration of the sale timetable can therefore act as a counter to the mortgagee’s power of sale which is otherwise relatively unchecked.
  • This does not however extinguish the debt obligations. H and W in this case still had to pay the debt owing.

The use of s.91(2) by the mortgagor can also be an effective means of pushing forward with a sale where there is otherwise a conflict of interest on the part of the mortgagee. A sale by the mortgagee to himself for example is ‘no sale at all’ and is invalid, even if the sale price is the full value of the mortgaged property (Farrar v Farrars Ltd(1888) 40 Ch. D. 395). Here, an application under s.91(2) may be the only means of sale where the only potential purchaser is the mortgagee.

Foreclosure

Foreclosure is an especially, perhaps the most, draconian and strongest remedy open to the mortgagee in the event of default by the mortgagor. Foreclosure effectively leaves the entire value of the mortgaged land in the hands of the mortgagee, thereby taking from the mortgagor any of their equity in the land, and this remedy would be used irrespective of the mortgage debt. Because of its drastic nature (compare for example a mortgagee exercising a power of sale and thereafter giving a portion of the proceeds of sale to the mortgagor), the remedy of foreclosure is only available on an application to the court (ss.88(2), 89(2)). Given this, foreclosure actions are ‘almost unheard of today and have been so for many years’ (Palk v Mortgage Services Funding plc [1993] per Nicholls V-C).

Equitable mortgagee

For an equitable mortgagee, the remedies available to them will differ from those which are open to a legal mortgagee. This is because most owners of an equitable security have no automatic power of sale; instead, they must apply to the court for an order permitting sale of the property charged (ss.90(1), 91(2)). The mortgagee may also opt to appoint a receiver, though the statutory power to do is only available in respect of mortgages created by deed (s.101(1)(iii)).

Examination consideration: There are two sections from the LPA of note here: s.91(2), and s.88(2). They deal, respectively, with an application from the mortgagor to exercise a sale, and with forfeitures. These are both measures which are infrequently used, yet are important feature of mortgages. It is therefore helpful to be able to recall these sections in the event that a problem question arises which raises the possibility of either of these events happening.

CHATTELS AND FIXTURES

In the LPA, s.62 deals with fixtures in particular. The section defines fixtures as any item that is included as part of a conveyance of land, and is said to be part and parcel with all the other rights and obligations that are transferred to the person in receipt of the estate in the land. The result of this transfer is that the fixture becomes a part of the land, inextricably tied to it, and therefore cannot be removed from it. So the person who formerly owned the land, or whomever formerly owned the item(s) defined as a fixture, will lose ownership of the item(s), as the item(s) are now owned by the new and present owner of the land.

Much of the discussion in chattels and fixtures is found in case law, and a fuller discussion of those cases can be found in the other syllabus revision guide entitled ‘Chattels and Fixtures. For now, it should suffice to give a brief definition of fixtures.

The test for examining whether something was a fixture or not comes in two parts (Elitestone v Morris [1997] 1 W.L.R. 687 per Lord Lloyd of Berwick). The first part is undertaken by examining the degree of attachment or annexation of the item to the land; that is, if the item has ‘merged’ with the land. The greater the degree of attachment, the more likely it is that the item is a fixture. The second part refers to the purpose for which the item was attached to the property.

You will recall that in contrast an item that is defined as a chattel is in a sense defined by its non-status as a fixture: it is not attached to the land, and it was not intended to be attached to the land. In those instances, where the item is the chattel, the person who owns the item will continue to be the owner of the item even after the land on which it rests, or rested, has been conveyed to another person. For an item to be deemed as a fixture, the purpose of the item would need to have been intended to add value to the property (D’Eyncourt v Gregory(1866) LR 3 Eq 382). Conversely, if the object was only affixed to the land because such affixing was the only means for the person to enjoy the item, then the item is likely to be a chattel (Leigh v Taylor [1902] A.C. 157).

Examination consideration: Chattels and fixtures can be a likely topic for problem questions because this area of the law is relatively self-contained and factually dependent. That being said, it is vital that you remember the importance of s.62 to the law of chattels and fixtures, because s.62 operates in such a way as to transform the ownership of any goods defined as fixtures. Therefore, when answering a problem question on chattels and fixtures, be sure to cite this section.

OVERRIDING INTERESTS

Restrictions

Restrictions are commonly entered in the register in order to make sure that over-reachable trust interests are in fact overreached. The rationale for entering restrictions is the fact that any subsequent disposition of the registered estate held on trust, which results in payment of capital money to the registered proprietors (being at least two in number) automatically overreaches the equitable interests of the trust beneficiaries (ss.2(1)(ii), 27(2)). The beneficiaries therefore only are entitled to the money held by the trustees. This means that a subsequent disponee (the person in receipt of the disposition of the land) takes title absolutely free of the beneficial trust interests. However, the beneficial interests are preserved in an equivalent money form in the capital proceeds of the disposition.

The benefit is therefore twofold. First, it ensures that the disponee takes the title of the property absolutely free of any encumbrances. Second, it ensures that the beneficial interest is paid to the beneficiaries in money form.

Bona fide purchasers

Bona fide purchasers of a legal estate for valuable consideration without notice are able to avoid the impact of overriding interests in unregistered land if certain conditions are met. The full list of requirements are found in the syllabus revision guide entitled ‘Unregistered Land.’ For our purposes here, the LPA applies in several ways for the conditions that a party must fulfil in order to benefit from the bona fide purchaser rule that was referred to in Pilcher v Rawlins(1871-72) L.R. 7 Ch. App. 259).

According to the LPA, the purchaser must take a legal estate in the land concerned; if they take a charge ‘by way of legal mortgage’, they are regarded as having ‘the same protection’ as if a legal estate had been created in their favour (s.87(1).

Next, the LPA applies to the crucial doctrine of notice in the context of the bona fide purchaser rule. The LPA defines the varying types of notice: actual notice is where the purchaser is consciously aware of all the relevant matters at the time of purchase, and such matters of which they are aware are said to be ‘within his own knowledge’ (s.199(1)(ii)(a)). That section also defines constructive notice as relating to matters of which the purchaser may or may not be consciously aware but would have been consciously aware had they taken reasonable care to inspect both land and title (s.199(1)(ii)(a)). Finally, imputed notice is attributed to a purchaser where the knowledge of relevant matters is held by an agent of the purchaser (s.199(1)(ii)(b)).

Unlike the above instances, a notice that is registered binds everyone (s.199). Even if a purchaser of the land does not locate the notice in their search, they are still bound by it if the notice is valid.

Examination consideration: Of these various situations, arguably s.199 provides the most important statutory guidance, because it refers to notice requirements. This is something that can easily be provided for in a problem question.


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