Third Party Rights Lecture

OVERVIEW

You will notice from the discussion of this topic that you will be going over material that you have already examined elsewhere, such as with easements, concepts of notice, covenants etc. What you will get from this section of the syllabus is, therefore, not going to be much different. Instead, it gives you the chance to focus on all of these disparate components of land law - easements, covenants etc. - within the context of third party rights.

The first part is concerned with Notices, specifically in the context of registered land. The second part, which follows to some extent from the first, is to do with unregistered land and bona fide purchasers. The third part examines restrictive covenants. The fourth part looks at easements. The fifth, final part is about licences. Again, all of these parts examine their impact on third party rights, and how third party considerations impact these areas.

PART ONE: NOTICES

Notices are the primary means of protecting third party rights in registered land. This is distinct from the doctrine of ‘notice’, a concept that relates to unregistered land. To avoid confusion, discussion of Notice in registered land is capitalised, whilst notice in the context of unregistered land is uncapitalised.

Under the Land Registration Act 2002, a Notice may be entered onto the register to protect most types of interests in land. Examples include easements, restrictive covenants, and short leases.

The Land Registration Act 2002 had intended to allow as many interests in land as possible to be entered on to the register. The policy reason for this was to ensure purchasers of land knew exactly what they were buying, and also that rights of non-owners of the land who nonetheless have interests in the land are protected.

The rationale therefore is to:

  • Maximise the knowledge of current interests for purchasers
  • Protect third party rights in the land.

A Notice will, therefore, not only record the interests, but also explain what they are. Once interests are registered, priority is given to the interest so protected. This means that in a subsequent registered disposition of the registered title (for example, a sale), the third party interest will bind that disposition, meaning the purchaser of the land will be bound by that interest (Land Registration Act, s.32). That said, if the underlying interest is not valid - for example, if it is based on a contract that itself is not valid - then the entry of the Notice will not validate the interest.

A Notice may be either ‘agreed’ or ‘unilateral.’ An Agreed Notice has to satisfy a number of conditions in order to be entered on by the Land Registrar. The Agreed Notice has to be applied for by a registered proprietor or a person entitled to be registered as such; alternatively the registered proprietor agrees to the Notice being entered on to the Register; or, the Land Registrar is satisfied by evidence that he applicant does have a valid interest which is now claimed for.

This means, despite the name (Agreed Notice) a registered proprietor does not actually have to agree to a Notice being entered (though they can agree to do so, as mentioned). If the registered proprietor objects, they may apply for the Notice to be cancelled, upon provision of appropriate evidence.

A Unilateral Notice can, like Agreed Notices, be applied for without the consent of the registered proprietor of the land. To be successful in their application, the applicant must provide evidence of the existence of their interest in the land. Upon the application being made, the Land Registrar must inform the registered proprietor of the application.

Restriction

These are third party interests in land which cannot be protected by Notice, and are instead listed as restrictions (Land Registration Act 2002, s.33). Restrictions include, among other things: freezing injunctions granted over a registered property; noting that the registered proprietor, typically a corporation or statutory body, has limited powers of disposition; where the chargor under a registered charge agrees with the chargee to exclude his or her statutory power of leasing as per the Law of Property Act 1925, s.99.

Examination consideration:

Remember to distinguish between Notices for registered land and notices for unregistered land in an exam setting. Also, consider what type of Notice you are dealing with: is it agreed or unilateral? And in a problem question, remember whether you are advising a person seeking to bind another party, or a party that is hoping not to be bound by a Notice. As a final recap: do Notices automatically render an interest as valid?

PART TWO: UNREGISTERED LAND AND BONA FIDE PURCHASERS

As you will recall from the chapter on Unregistered Land, equitable rights for unregistered land are not enforceable against any and all bona fide purchasers of a legal estate for valuable consideration without notice. For the purpose of clarity, our discussion here of bona fide purchasers treats the person seeking to enjoy the equitable interest as the third party rather than the bona fide purchaser.

Typically, where a purchaser seeks to purchase unregistered land that is hitherto subject to unregistered equitable interests, the overriding interest of the third party seeking to enjoy their equitable interest can do so by relying on the doctrine of notice (Holaw (470) Ltd v Stockton Estates Ltd(2001) 81 P. & C.R. 29). However, such overriding interests of the third party cannot take precedence over the rights of the bona fide purchaser so long as certain requirements are met:

  1. The purchaser’s absence of notice was ‘genuine and honest’ (Midland Bank Trust Co Ltd v Green (No. 1) [1981] A.C. 513);
  2. The purchaser has to take a legal, not equitable, estate in the land;
  3. The purchaser took ownership via the act of another person, such as an act of transfer, meaning the bona fide purchaser must be bound by the third party’s equitable interest if the purchaser took ownership by an operation of law;
  4. They take ownership of the property without notice.

In order to show that the bona fide purchaser has taken the property without notice, their conduct will be assessed with respect to three kinds of notice: actual notice, constructive notice; and imputed notice.

  1. Actual notice: the purchaser is actually aware of the relevant matters of the third party’s equitable interest at the time of purchase, in particular the third party’s occupation of the land in question. Such matters must be shown to be ‘within his [the purchaser’s] own knowledge’ (Law of Property Act 1925, s.199(1)(ii)(a)).
  1. Constructive notice: Matters which the purchaser ought to have been aware of, i.e. matters of which they would have been aware had they taken reasonable care to inspect both the land and title (Law of Property Act 1925 s.199(1)(ii)(a)).
  1. Imputed notice: Knowledge which is attributable to the purchaser where the relevant matters become known to their agent; an agent in this instance is likely to be a solicitor (Law of Property Act 1925 s.199(1)(ii)(b)).

If an interest of a third party is held to be non-binding and not operative against a bona fide purchaser, then if the bona fide purchaser subsequently transfers the land to another party, then the interest of the third party will also be non-binding and not operate against the latest owner of the land, even if that latest owner has actual notice of the arrangements (Wilkes v Spooner [1911] 2 K.B. 473).

Examination consideration: When discussing bona fide purchasers and two other parties, always be clear when writing your problem question who the third party is, i.e. the person relying on the prior interest, not the bona fide purchaser.

PART THREE: RESTRICTIVE COVENANTS

No restrictive covenant can bind third parties unless the restrictive covenant is intended by those who created it to have a wider than purely personal effect (i.e. one which is between two parties). In other words, third parties would not, unless the initial parties agree otherwise, be bound by a restrictive covenant. Typically, for covenants created in or after 1 January 1926, this requirement of express agreement to bind the whole world is satisfied. So unless a covenant is phrased in such a way that it clearly and expressly binds the original covenantor (the person agreeing to be bound by the covenant) only, there is a statutory presumption that any restrictive covenant relating to land of the covenantor was intended to be made on behalf of the covenantor’s successors in title, on behalf of all persons deriving title from him or them, as well as ‘owners and occupiers for the time being’ (Law of Property Act 1925 s.79(1)-(2)) of the land affected.

This means that the covenantor effectively binds any party that subsequently takes ownership of the title formerly owned by the covenantor. Therefore, ordinarily, a restrictive covenant is not simply a contract between two parties: it also binds subsequent third parties that take the place of the covenantor. And as indicated, this is a rebuttable presumption, meaning it is presumed that third parties taking the place of the covenantor will be bound by the terms of the covenant, but the covenantor can agree with the covenantee not to have third parties bound by the covenant.

The rebuttable presumption is said to operate as a ‘necessary condition, but not a sufficient condition, for making the burden of the covenants run with the land’, per Robert Walker LJ in Morrells of Oxford Ltd v Oxford United Football Club Ltd [2001] Ch. 459. Therefore, in order that a covenant may bind third parties, other conditions need to be fulfilled.

A party seeking to enforce a restrictive covenant against a third party must establish two things:

  • He, the person enforcing the covenant, is entitled to the benefit of the covenant, and
  • The person against whom he is enforcing the covenant is subject to the burden of the covenant.

It is insufficient to prove only one of these elements. If only one, and not both, can be proven, enforcement of a restrictive covenant must fail (J Sainsbury plc v Enfield LBC [1989] 1 W.L.R. 590). Therefore, unless he is himself the original covenantee, the onus for proving both of these elements lies with the enforcer to demonstrate that the promise made to the original covenantee is now effectively a promise made to him, and the original covenantor’s obligation has since passed to the current owner of the servient land.

In regards to restrictive covenants and Notice requirements (see the above section ‘Notices’), restrictive covenants cannot rank as any category of overriding interest. For unregistered land, the transmission of burden now depends on the registration of the covenant against the name of the covenantor as a Class D(ii) land charge (Land Charges Act 1972, ss.2(5), 4(6)).

Examination consideration: When examining restrictive covenants in the context of third parties, it is important to find out whether it was created before or after January 1926. Further, in the case of a problem question regarding restrictive covenants and third parties, you will want to see if the original parties to the covenant agreed that it would not bind subsequent owners of the registered title formerly owned by the covenantor. As a recap, what effect would it have on such subsequent owners if the original parties agreed the covenant applied only between themselves?

Discharge of restrictive covenants

Restrictive covenants are not necessarily perpetual and unlimited in duration. In the case of Jaggard v Sawyer [1995] 1 W.LR. 269, Sir Thomas Bingham MR said the restrictive covenant, like any form of real property, ‘cannot be regarded as absolute and inviolable for all time.’ Given this view, it is therefore possible to modify or discharge a restrictive covenant.

Following changes of circumstances, such as the interests of general social utility, restrictive covenants may become obsolete, because of the constraints they impose on land. For example, proposed developments that would benefit the wider community may be hindered or prevented by the existence of restrictive covenants. The Lands Tribunal has, under s.84 of the Law of Property Act 1925, a discretionary power to discharge or modify restrictive covenants, either with or without the provision of compensation. For third parties, therefore, it is possible that they can avoid being bound by restrictive covenants, so long as they are able to convince the Lands Tribunal of their case. The Tribunal may do so discharge or modify a restrictive covenant of the following grounds:

  1. The restrictive covenant ought to be deemed ‘obsolete’ (Law of Property Act 1925 s.84(1)(a));
  1. The continued existence of the restriction impedes ‘some reasonable user of the land for public or private purposes (s.84(1)(aa)) and the restrictive covenant can no longer secure ‘any practical benefit of substantial value or advantage’ to the relevant dominant owners (i.e. those who have the benefit of the covenant) or has become ‘contrary to the public interest’ (s.84(1A));
  1. The persons entitled to the benefit of the restrictive covenant have agreed to its discharge or modification (s.84(1)(b)); or
  1. The proposed discharge or modification ‘will not injure’ the persons entitled to the benefit of the restriction (s.84(1)(c)).

Case in focus:Re Quaffers Ltd’s Application(1988) 56 P & CR 142, Lands Tr.

The Lands Tribunal agreed to discharge a restrictive covenant that prohibited the sale of alcohol and other trader or business user. The discharge was made because after the creation of the covenant, the immediate environment - at the time of the covenant’s creation, an area of open land - was devastated following its envelopment by dual carriageway roads. The restriction as per s.84(1)(a) was deemed obsolete.

Takeaway points:

  • A restrictive covenant prevented the successor in title - our third party - from conducting any sales or trade.
  • The fact that supported the existence of this covenant was open land, and now no longer applies.
  • Because the applicant was able to show the covenant was obsolete, the restrictive covenant - and the burden it imposed on the third party - was discharged.

Planning permission and discharges/modifications of restrictive covenants

Planning permission is a common reason for seeking the discharge or modification of a restrictive covenant, and planning permission will of course be sought by third parties. However, the mere granting of planning permission in respect of a proposed development of land subject to a restrictive covenant does not mean the Lands Tribunal must discharge or modify the restrictive covenant in question (Re Martin’s Application(1989) 57 P & CR 119, CA; Re Cordwell’s Application [2008] 2 P & CR 570).

Indeed, despite the foregoing comments about s.84 being used to maximise social utility, it has been argued (e.g. in Land Law by K. Gray and S.F. Gray (2009)) that large corporations sometimes use s.84 to undermine restrictive covenants that in fact were intended to promote the environmental quality of urban areas for the benefit of the wider community. Given this is the case, the Lands Tribunal has not hesitated in refusing to relax or discharge restrictive covenants that had been intended to protect an amenity which is then threatened by proposed development (Re Page’s Application(1996) 71 P & CR 440, Lands Tr).

Examination consideration: Revise the grounds on which the Lands Tribunal may revise or discharge a restrictive covenant. Depending on the difficulty of a relevant problem question, it may or may not be obvious as to which category (if any) a restrictive covenant would fall under.

PART FOUR: EASEMENTS

Easements are proprietary rights because once created they annex a benefit to the dominant land and impose a corresponding burden on the servient land. Because the rights accrue to the land rather than the persons involved, it means the rights would subsequently pass on to the successors in title. Indeed, easements cannot be transferred independently of the land they are conceived to benefit: the right remains vested in the land, not the original parties to the easement.

Legal easements

As with many other interests in registered land, the benefit of an easement needs to be entered in the property register of the dominant title. The proprietor of the estate in the registered land also becomes the proprietor of the ‘estate’ of the easement, and that proprietorship is to be set down in the register of title (Land Registration Act 2002, s.59(1), Schedule 2, paragraph 7(2)(b); Land Registration Rules 2003, rule 3(1)). Therefore, upon any subsequent transfer of the dominant title, the benefit of the easement, having become an intrinsic part of the relevant property register (Land Registration Rules 2003, rule 5(b)(ii)) automatically passes to the transferee. This applies to implied and prescriptive easements also (Land Registration Rules 2003, rule 73A).

In unregistered land also, the benefit of the easement passes with a subsequent conveyance by deed of the land concerned (Law of Property Act 1925, s.62 (1)-(2)).

Other third parties can benefit from an easement: any occupier for the time being of the dominant land can enjoy the benefit, even if they are a mere lessee of the land (Thorpe v Brumfitt(1872-73) L.R. 8 Ch. App. 650) or are a subtenant.

For servient land, the position is much the same: successors in title will be bound by the easement to their detriment, just as successors in title of the dominant land would take on the benefit of the easement. In order for them to be bound in the case of registered land, the registered estate’s status as servient land must be recorded in the charges register of that (servient) estate. Such registration binds every subsequent transferee of the servient estate (Land Registration Act 2002, ss. 29(1), (2)(a)(i)).

Note that if an easement has failed to fulfil the registration requirement, any disposition of an expressly created easement cannot take place by ‘operation of law’, and the effect takes place only in equity (Land Registration Act 2002, s.27(1)).

For easements that arise by way of implication or prescription, the easement would ‘override’ a registered disposition of the land, so long as the easement would have been ‘obvious on a reasonably careful inspection of the land.’ Therefore, if a third party takes ownership of the servient land, they are bound by the easement, whether implied or made by prescription. As for unregistered land, a third party taking ownership of the estate in the servient land is bound by the easement, just as in registered land.

Examination consideration: When does ‘overriding’ occur? Also, consider highlighting in your exam statute book the relevant sections referred to above. Including references to the correct sections for questions on easements and third parties will undoubtedly strengthen your mark.

Profits à prendre

For both registered and unregistered land, the benefit of a profit à prendre which is appurtenant to the dominant tenement land will ordinarily pass to the subsequent owner of the dominant tenement land upon its transfer. It is capable of being registered as a ‘registered estate.’ Note that for profits in gross they may only be transferred as a ‘piece of real property’ (Lovett v Fairclough(1991) 61 P. & C.R. 385).

As for servient tenement land, the burden if expressly created out of a registered estate will be included in the charges register of the servient estate, and therefore binds all subsequent transferees of the land over which it is can be exercised (Land Registration Act 2002, s.29(1), (2)(a)(i)). As with legal easements, profits à prendre that exist by way of implication or prescription constitute and overriding interest in the land (Land Registration Act 2002, s.29(1), (2)(a)(ii), Schedule 3, paragraph 3(1)). In the case of unregistered land, the burden of a legal profit will automatically bind any subsequent purchasers of the servient tenement.

Equitable easements

Any transfer of the dominant land, whether registered or unregistered, is sufficient to transfer the benefit of equitable easements to the transferee (Law of Property Act 1925, s.62(1)-(2)), because these equitable rights are part of the dominant realty no less than the legal rights (Leech v Schweder(1873-74)  L.R. 9 Ch. App. 463). Equally, the burden of equitable easements is capable of being passed to third parties where they are the transferee of the servient land.

For registered land, equitable easements are binding on a transferee even if they take land without valuable consideration (Land Registration Act 2002, s.28(1)). In all other cases, however, the relevant burden is enforceable against a registered disponee of the servient land only if the burden was the subject of a Notice that had been entered in the charges register of the servient land prior to the disposition in question (Land Registration Act 2002, s.29(1),(2)(a)(i)). Equitable easements that are created after the commencement of the Land Registration Act 2002 cannot rank as interests which override registered dispositions of the servient land, whereas equitable easements that were created before its commencements will continue to override such registered dispositions of the servient land (Land Registration Act 2002, Schedule 12, paragraph 9).

For unregistered land, equitable easements created after 1 January 1926 can be rendered enforceable against subsequent purchasers of the servient estate via the registration of a Class D(iii) land charge against the name of the estate owner who granted the right in question (Land Charges Act 1972, s.2(5)). Any equitable easements created prior to 1 January 1926 are governed by the equitable doctrine of notice.

Examination consideration: As you will have seen, there are overlaps between legal and equitable easements, and between registered and unregistered land. Revise the requirements of “notice”, whether under the old equitable doctrine of notice or via an entry in the charges register, depending on the circumstances.

PART FIVE: LICENCES

Licences - such as the right to enter a person’s land for the specific purpose of retrieving a certain material or item(s) from the land - are relevant to third parties because they have a perpetually binding effect. Licences bind not only the licensor (the party who granted the licence over their land) but also all the licensor’s successors in title (Webb v Paternosters Case(1619) 78 E.R. 165), and is capable of assignment to third parties (Muskett v Hill and Tozer(1839) 132 E.R. 1267).

Contractual licences

Not all licences would bind a third party, such as bare licences. Licences coupled with grant of an interest or an equity will be those with greater proprietary significance. They appear to be sufficiently proprietary in nature to constitute an overriding interest (Land Registration Act 2002, s.116(a)). The main issue is contractual licences.

There has been some disagreement about the status of contractual licences. According to the court in several cases, such licences ‘do not create a property interest’, and therefore cannot bind third parties (Ashburn Anstalt v Arnold [1989] Ch. 1 per Fox LJ; Lloyd v Dugdale [2001] EWCA Civ 1754 per Sir Christopher Slade). Fox LJ said in Ashburn Anstalt v Arnold the reason they do not is because (in somewhat circular reasoning) of ‘an important and intelligible distinction between contractual obligations which gave rise to no estate or interest in the land and proprietary rights which, by definition, did.’

Some of the older case authority for this point comes from the House of Lords in the case of King v David Allen & Sons Billposting Ltd [1916] 2 A.C. 54, in which their Lordships said contractual licences are personal rights only, and therefore cannot bind third parties. This orthodoxy did for a time come under scrutiny. Lord Denning MR suggested that contractual occupation licences could ‘override’ transactions in registered land, particularly in relation to long-term residential licences (National Provincial Bank Ltd v Hastings Car Mart Ltd [1964] Ch. 665), and the House of Lords at first did not rule this out (e.g. in National Provincial Bank v Ainsworth [1965] A.C. 1175 per Lords Upjohn and Wilberforce). However, following Ashburn Anstalt and Dugdale, the case authority has swung back towards the view that contractual licences do not create a proprietary interest in the land. This applies to both registered and unregistered land.

Constructive trust

There may be limited circumstances where the disponee of an estate - registered or unregistered - is bound by a constructive trust that requires them to give effect to a prior contractual licence. This may arise where a purchaser of land has ‘burdened his own title’ with an independent conscientious obligation towards the contractual licence (Bahr v Nicolay(No. 2) (1988) 164 CLR 604 (HC of Australia); for example, a contractual licencee may bind a subsequent purchaser if they were induced, at lower than market value, by the transferee’s agreement to take title expressly subject to the contractual licence (Ashburn Anstalt v Arnold per Fox LJ). The court is imposing a constructive trust to counter unconscionable conduct; therefore, more emphasis is placed on the conscionability of the party’s conduct as opposed to intrinsic, inherent rights of the contractual licence (Melbury Road Properties 1995 Ltd v Kreidi [1999] 3 E.G.LR. 108).

Case in focus: Binion v Evans [1972] Ch. 359.

In a written agreement, Evans (E) was allowed by the trustees of the estate (T) for which E’s late husband had worked to reside rent-free for the remainder of her life in a cottage on that estate. She had already lived at the property for around 50 years. T later conveyed the property to Binion (B) expressly subject to the rights of residence enjoyed by E and at a reduced price given E’s occupation. The Court of Appeal refused to grant a possession order that had been brought by B against E (then 79 years old). Lord Denning MR suggested E’s rights amounted to a contractual licence. Given the property was conveyed by T to B ‘expressly subject to’ E’s contractual rights, Lord Denning MR determined there was a constructive trust which estopped B from revoking the terms of the contractual licence. To allow for such revocation would be ‘utterly inequitable’ according to Lord Denning MR. Note that both LJ Megaw and LJ Stephenson analysed the circumstances per the Settled Land Act 1925.

Takeaway points:

  • Prior to the conveyance to B, there was a subsisting right granted by T to E to live rent-free in the property.
  • The conveyance was made ‘expressly subject’ to this ongoing arrangement for E to live rent-free.
  • The conveyance, in view of E’s continued occupation, was made at a lower than market value price.
  • Given these circumstances, Lord Denning MR said it would be ‘utterly unconscionable’ to allow B to rescind on the terms of the “licence.”
  • Only Lord Denning MR stipulated this was a constructive trust upon a contractual licence. Other Lordships decided it according to the Settled Land Act 1925.

Examination consideration: What is the current status of contractual licences vis-à-vis third parties? In what circumstances could a licensee invoke a licence to protect against, for example, a possession claim brought by a third party?

Enforceability by register entry

In Donington Park Leisure Ltd v Wheatcroft & Son Ltd [2006] EWHC 904 a contractual licensee had been ‘guaranteed’ parking rights on a defined lot. The court held the licensee could legitimately expect that the parking right may be defined as a ‘restriction’ in the licensor’s register of title. The effect of that restriction was to protect the licensee against the loss of his rights by reason of a transfer of the lot in question. The result is that any subsequent third party purchaser of the licensor’s title would be subject to the restriction of the parking right.

Invoking licences against third parties

The original position was that a licensee, lacking both exclusive possession of the land and the proprietary estate, cannot sue to recover possession from a stranger (Allan v Liverpool Overseers(1873-74) L.R. 9 Q.B. 180; Street v Mountford [1985] A.C. 809 per Lord Templeman). According to that position, the licensee had no right to take action against a third party in respect of any disturbance of the licensee’s rights, because the licensee’s remedy lay only against the party which granted the licence (Hill v Tupper(1863) 159 E.R. 51).

However, exceptions have emerged to this rule. For example, a licensee may sue in trespass if they have exclusive possession (Hounslow LBC v Twickenham Garden Developments Ltd [1971] Ch. 233).

Case in focus: Manchester Airport plc v Dutton [2000] Q.B. 133

The National Trust owned a portion of woodland that was adjacent to Manchester Airport. The airport was going to build a second runway, and the National Trust granted the airport a licence to lop and fell some trees. However, before they could enter the land to fell the trees, protestors entered the woodland and built a tree camp that prevented the airport company from removing the trees. The National Trust did not intervene. The Court of Appeal held by a majority (LJ Chadwick dissented) that the airport was entitled to a possession order against the protestors, deemed to be trespassing, even though the company had neither rights of exclusive possession nor occupation of the land.

Takeaway points:

  • Despite lacking rights of exclusive possession and occupation, the airport company (the licensee) had a right against the third party to remove them.
  • The court granted the possession in order to give effect to the licence, and the remedy was limited to enforcement for giving effect to the licence only.
  • The terms of the licence (entry onto the land to remove trees) was deemed a sufficient interest.
  • The court reached their judgment on the basis of an old civil procedure rule.

LJ Chadwick dissented, on the basis that a) the airport company did not and could not enjoy exclusive possession; b) had no personal claim against the trespassers; c) the case law of Allan, Mountford etc. was clear.

Examination consideration: The general presumption is that contractual licences do not grant rights against third parties. The decision of Manchester Airport notwithstanding, the rules which prevented claims of licensees against third parties are also well-defined; Street v Mountford and Allan are still good law, for example. As a brief point of revision, what do the judgments of Lord Denning MR and Chadwick LJ contribute to the framework of licences and third parties?


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