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JOSHUA HO ‘Overriding Interests’ 2015

INTRODUCTION

The Land Registration Act 20021 has been received with much critical acclaim. Law

Commission Report No. 2712 was itself the last in a long series of Reports discussing changes

to the fundamentals of the land registration system established by the Land Registration Act

19253. The purpose of the registration system is to make the transfer of land simpler,

quicker, cheaper and more reliable. Each property will have a unique title that will appear

on all documents relating to the land.

The ambition of registered conveyancing is to avoid onerous requirements of

repeated examination of title deeds on successive sales. In its place, there is a three part

register which provides for the purchaser:-

a) A description of the land

b) The name of the registered proprietor

c) Any other third party rights which are registered to the land.

In this way, the purchaser has a complete and up-to-date picture of the state of the

title which, if accompanied by enquiries of the vendor and a physical inspection of the land,

should provide adequate protection. However, these are questioned with the availability of

some rights overriding a registered disposition and are binding upon a purchaser even

though they are not recorded on the register. The registered system has undergone major

overhaul as can be seen in the Land Registration Act 2002. This Act repeals the Land

Registration Act 1925 in its entirety. As is well known, the 2002 Act is designed to

1 Land Registration Act 2002, hereinafter referred to as ‘LRA 2002’ or ‘the 2002 Act’

2 Land Registration for the 21

st Century: A Conveyancing Revolution LC271

3 Land Registration Act 1925, hereinafter referred to as ‘LRA 1925’ or ‘the 1925 Act’

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revolutionize conveyancing in England and Wales and to bring the lad registration system

established by the 1925 Act into the modern age.4

It is often said that there are three fundamental principles that governs the ideal

system of registered title.

a) The Mirror Principle,

b) The Curtain Principle, and

c) The Insurance Principle.

The Mirror Principle, which is the most important principle to note with regards to

this paper, dictates that the register should reflect the totality of the rights and interests

concerning a title of registered land. The point is simply that if the register reflects the full

character of the land, any purchaser and any third party can rest assured that they are fully

protected. The purchaser will know what he is buying and the person with an interest in the

land will know that it will be protected. However, ‘overriding interests’ which are a category

of rights which affect the land and which bind any transferee of it (purchaser) without ever

being entered on any register compromise the status of the mirror principle.5

The Curtain Principle operates to hide any interest arising under a trust behind the

curtain of registration. This means that beneficial interests that can be overreached by a

purchaser6 are not detailed on the register. Instead, the existence of a trust interest might

be disclosed by the entry by a beneficiary, a trustee or the Land Registrar of a restriction in

the proprietorship register. This will alert a purchaser that there is a trust interest that must

be overreached, i.e. the restriction demonstrates that a prior condition must be fulfilled

4 WG Hart, ‘The Conveyancer and Property Lawyer’ (2002) University of London

5 Overriding interests are not a mistake. It is impractical to make everything subject to express register. The

purchaser always needs to inspect the land to make sure that there are no adverse rights over that land. 6 By not paying the purchase money to two trustees or a trust corporation.

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before a disposition can be registered. It is also noted that a beneficial interest is one of the

five stipulated property rights that cannot be protected by the entry of a notice.7

Lastly, the Insurance Principle relates to the state guarantee as to the accuracy of

title as declared on the register. The State will pay compensation or indemnity to any person

who suffers loss as a result of an error or inaccuracy on the face of the register.

7 Section 33 (1) of the Land Registration Act 2002.

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OVERRIDING INTERESTS

Overriding interests in Schedule 3 of the 2002 Act8 constitutes a category of property

rights that do not appear on the register but which are immune from the defence of lack of

registration. Overriding interests are unregistered interests which has the ability to prevail

over registered interests.9 It is also known as the ‘crack in the mirror’ title10 because it is the

exception to the general rule of registration11. The Law Commission’s reason for their

continued existence albeit reduced in power is simple: the category acknowledges that

there are circumstances in which it is unreasonable to expect another person to register his

property right to secure its enforcement. Hence, it is seen to be more practical to retain

overriding interests in the 2002 Act because Parliament is of the view that it cannot be

reasonably expected of everyone to register their interest on the registry. However, the

2002 Act Has reduced the number of overriding interests12 from the previous legislation.

The policy that was brought into the Act from the Law Commission was that interests

should only have overriding status where protection against buyers was needed but it is

submitted there that it is not reasonable or sensible to require any entry on the register.13

The 2002 Act provides two separate lists of overriding interests:-

a) Those overriding at first registration14, and

b) Those overriding on a disposition of a registered estate.15

8 Land Registration Act 2002, Sch 3 refers to this category as ‘interests which override registered dispositions’.

9 Overriding interests are interests that are not protected in the register but are, nonetheless, binding on any

person who acquires an interest in registered land, whether on first registration or where there has been a registrable disposition of a registered estate that has been completed by registration. This definition is offered in the Law Com Rep No. 271 10

D Hayton, Registered Land (3rd

edn, Sweet & Maxwell 1981) 76 11

The general rule upholds the ‘Mirror Principle’ as discussed earlier. 12

The 2002 Act coined a different term from ‘overriding interest’ which was used in the 1925 Act to ‘interests that override’. For the purposes of this paper, the ‘term overriding interest’ shall be used. 13

Law Commission Report No 271 (2001) 14

As per Schedule 1 of the Act

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First registration is to be treated separately because the intention is to reflect the

state of the title at that time as per the mirror principle. The full list of these overriding

interests is contained in Sch 3 of the 2002 Act.

Overriding interests are further divided into 4 groups16:

- Interests which remain overriding17

- Interest which remain overriding for a period of 10 years18

- Overriding interests which are redefined and substantially reduced19

- Interests omitted from Sch 3 which cease to be overriding20

Overriding interests which are redefined and substantially reduced:

a. Short Term Leases

Short term leases are one of the rights upheld in the Land Registration Act 2002.

With only limited special exceptions, legal leases originally granted for seven years or less

will override a first registration.21 However, any existing lease that was an overriding

interest within s.70(1)(k) of the 1925 Act immediately before the 2002 Act came into force

preserved the overriding status under para 1: Land Registration Act 2002 Sch.12 para 12.22

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As per Schedule 3 of the Act 16

R Singh, Learning Land Law (1st

edn BAC 2011) 35 17

Paragraphs 4 to 9 of Sch 3 list the rights which were overriding under LRA 1925 s. 70(1) and which override registered dispositions under the new Act. They include customary and public rights, local land charges and rights in connection with mines and minerals. 18

Para 10-14 of Sch 3 lists a range of interest described as ‘miscellaneous’. Under s.117 these will cease to be overriding. 19

This will be further discussed after this section of the paper. 20

Sch 3 omits Rights acquired or in the course of being acquired under the Limitation Acts, Rights of a person in receipt of the rents and profits save where enquiry is made of such a person and the rights are not disclosed and Rights exceipted from the effect of registration with possessory, qualified or good leasehold title. 21

Legal leases over seven years are registrable titles. A lease granted for more than seven years which is transferred with less than seven years left is not an overriding interest and the transfer must be registered. 22

N Gravells Text and Materials Land Law (4th

edn, Sweet & Maxwell 2010) 193

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The similar use of the word ‘granted’ in the 1925 Act was interpreted as restricting the

category to legal leases only as per City Permanent Building Society v. Miller23.

b. Persons in Actual Occupation

The next right is property rights held by persons in occupation. This is governed by

Sch 3, para 2 of the Land Registration Act 2002. Property rights held by persons in actual

occupation are given the status of overriding interests in Sch 3, para 2. This category is

imperative because it is intended to protect those who live on the land or who are

otherwise in actual occupation of it.

Being in actual occupation is in itself not enough to award someone an overriding

interest in land. A person must have an interest in land to start with, which is then

accompanied with his actual occupation to create an overriding interest.

i. Interests in land capable of overriding

Interests in land must be a proprietary right that can bind third parties. If it is

not, then his actual occupation will not bind purchasers. In National Provincial

Bank v. Ainsworth24, the right of a wife to stay in her husband’s house after

he had left her was held not to be a proprietary right and so could not be an

overriding interest. 25 The legal problem involves an effort to balance

matrimonial relations and real property rights. The husband and wife have

23

City Permanent Building Society v. Miller [1952] Ch. 840. It follows that the grantor transfer of a registrable lease which has not been completed by registration and which therefore takes effect only in equity cannot be protected under the same section although it may constitute an overriding interest under para 2 where the lessee is in actual occupation of the land. 24

National Provincial Bank v. Ainsworth [1965] AC 1175 25

This was also codified in the form of statute in s. 31(1)(b) of the Family Law Act 1996.

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certain rights between themselves.26 There are other types of interests that

will suffice for actual occupation to turn them into overriding interests.

Taking Malory Enterprises Ltd v. Cheshire Homes (UK) Ltd27 as an example, it

was held that the right to rectify the register was an interest capable of being

an overriding interest. However, most cases concern rights under resulting or

constructive trusts28 and it is clear that these rights even if they are

potentially overreachable, can be overriding interests as seen in Williams &

Glyn’s v. Boland29. City of London Building Society v. Flegg30 established that

rights that have been overreached, however are no longer interests in land

and cannot be overriding.31

ii. Actual Occupation

As noted earlier, actual occupation without an interest in the land does not

give rise to an overriding interest under LRA 2002, Sch 1, para. 2 and vice

versa. Therefore, it is of great importance to know what ‘actual occupation’ is.

Lord Wilberforce in the House of Lords said in Williams & Glyn’s Bank v.

Boland32 said at 504 that the words actual occupation should be interpreted

literally; ordinary words of plain English. If the property is a dwelling house,

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Prima facie, each partner has a right to the other’s consortium and the wife has a further right to be maintained by her husband which consists fundamentally in the provisions of a matrimonial home. Lord Hodson, Upjohn and Wilberforce pointed out that at no time did the matrimonial law give the wife any property in the house in which she and her husband lived in unless there had been such settlement. Further analysis can be done in P Temelini ‘National Provincial Bank v. Ainsworth’ (1966) 4 OHLJ 133-141. 27

Malory Enterprises Ltd v. Cheshire Homes (UK) Ltd [2002] EWCA Civ 151 28

A constructive trust is an equitable remedy resembling a trust (implied trust) imposed by the Courts to benefit a party that has been wrongfully deprived of its rights due to a person obtaining or holding legal title to property which they should not possess due to unjust enrichment or interference. 29

Williams & Glyn’s v. Boland [1981] AC 487 30

City of London Building Society v. Flegg [1981] AC 487 31

S Clarke and S Greer Land Law – Direction Series (3rd

edn OUP 2012) 105 32

Williams & Glyn’s v. Boland [1981] AC 487

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actual occupation has been formed in cases in which a person supervises

builders as per Lloyds Bank plc v. Rosset33. In another case, if a person is

temporarily absent from a house but usually lives there, this will not prevent

that person from being in ‘actual occupation’ while he is away. See Chhokar v.

Chhokar34.

On the flip side, however, temporary presence in a house is unlikely to

constitute actual occupation. In Abbey National Building Society v. Cann35, a

mother tried to claim overriding interest in her son’s house. It was held that

here, it did not amount to actual occupation. The House of Lords said that

actual occupation did not have to involve physical presence and that a

caretaker could occupy the property on behalf of his employer, but it had to

involve some degree of permanence. Also, if actual occupation does not

extend to the whole of the property, the overriding interest applies to only

that part actually occupied ‘so far as relating to land of which he is in actual

occupation.’ – LRA 2002, Sch 1 para 2. This wording reversed the decision in

Wallcite Ltd v. Ferrishurst Ltd36 under the old law; the 1925 Act.

As observed from the above examples, judges have not been very rigid and strict in

defining ‘actual occupation’. Strict interpretation would exclude Chhokar v. Chhokar and

33

Lloyds Bank pls v. Rosset [1989] Ch 350 34

Chhokar v. Chhokar [1984] FLR 313. Here, a wife who had an interest in the family home went into deliver a baby in the hospital. During that time, her husband sold their house at an under-value and left the country with the money. The Courts were right here in accepting that the wife had an overriding interest in the house as her temporal absence did not mean she ceased to be in actual occupation. See also Link Lending Ltd v. Susan Bustard [2010] EWCA Civ 424. 35

Abbey National Building Society v. Cann [1991] 1 AC 56 36

Wallcite Ltd v. Ferrishurst Ltd [1999] 1 All ER 977. In this case, a person who had rights in both offices and garages was held to have an overriding interest in both, despite the fact that only the offices were occupied. However, the LRA 2002 reversed this.

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even in Kling v. Keston Properties Ltd37. Judges have managed to balance the strict

definition of ‘actual occupation’ with the equitable interpretation38 by setting up a few

conditions. For example, in Abbey National Building Society v. Cann, Lord Oliver in the

House of Lords stated that it had to involve some degree of permanence and continuity

which would rule out mere fleeting presence.39 Even though the ‘degree of permanence’

and ‘mere fleeting presence’ is not adequately defined, it is can be seen as the Courts

awarding itself more discretionary powers at the expense of a certainty in the law.

c. Easements and Profits à prendre

Paragraph 3 of Schedule 3 replaces, in relation to registered dispositions, S. 70

(1)(a) of the LRA 1925. However, the provision in Sch 3 concerning the overriding effect of

easements40 and profits against a registered disposition is not straightforward and

requires care in its application. The matter is not helped by the complicated language

used to express what a good solution is in fact.

Any easements that qualify as an overriding interest prior to the entry into force

of the LRA 2002 continue to override irrespective of the provisions of the LRA 2002.41 The

2002 Act looks forward to easements created after entering into force. Hence, in general,

para 3 of Sch 3 provides that prima facie no equitable easement or profit will override and

37

Kling v. Keston Properties Ltd (1989) 49 P & CR 212. Here, the parking of a car in a locked up garage constituted to be actual occupation. 38

For lack of a better word. 39

Abbey National Building Society v. Cann [1991] 1 AC 56 at 93. It is observed here that it was not defined as to what extent ‘some degree of permanence’ have to be fulfilled and hence will pose some difficulty for lawyers to advice their clients. 40

An easement is a non-possessory right of use and/or enter onto the real property of another without possessing it. It is best typified in the right of way which one landowner, A, may enjoy over the land of another, B. See K Gray and S Gray, Elements of Land Law (5

th edn OUP 2009) 13

41 Schedule 12, para 9 of the LRA 2002. This includes all legal easements and some equitable easements in

existence at that date.

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that only certain legal easements and profits may override.42 To be put simply, all

easements and profits expressly granted or reserved on or after 13th October 2003 out of

a registered title are not capable of overriding because their creation amounts to a

registrable disposition under Section 27(2)(d) of the 2002 Act.43 Every expressly granted

or reserved legal easement or profit out of a registered estate can be created only by an

entry against the burdened title which of course means that the interest has no need of

being overriding.

In its turn means that the only new legal easements and profits capable of being

overriding are those expressly granted out of an estate that is not itself registered44 or

more commonly, those that are impliedly granted.45 In the former case, there is no title

against which to register the interest and in the latter, there is no express grant to register.

Therefore, the easement or profit must be capable of being overriding. Further, it is clear

that not even all of this limited class may override.46 In addition to being either expressly

created out of a unregistrable estate or being impliedly created, the egal easement will

override if, but only if any one of the additional conditions are satisfied:-

i. The easement is registered under the Commons Registration Act 196547;

or

ii. The impliedly granted legal interest is within the ‘actual knowledge’ of the

person to whom the disposition is made; or

42

All other easements and profits outside of this regime require deliberate protection by an entry on the register if their priority against a registered disposition is to be assured. 43

The Commons Registration Act 1965 also has to be taken into account. See Section 27 (2)(d) of the Land Registration Act 2002. 44

For example, a lease of seven years or less. 45

Which includes easements created by prescription, necessity, common intention, the rule in Wheeldon v. Burrows or by application of S. 62 of the 1925 Act. 46

Except for a three-year grace period commencing 13th

Oct 2003 and now ended. 47

This applies to specialist easements.

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iii. The legal interest would have been ‘obvious on a reasonably careful

inspection’ of the burdened land, which, as with the similar provision on

‘actual occupation’, is an objective test, not necessarily requiring

additional inspections and enquiries to be made, but designed to ensure

that only ‘discoverable’ burdens override a registered disposition; or

iv. The person entitled to the benefit of the impliedly granted legal interest

‘proves that it has been exercised in the period of one year ending with

the day of the disposition’ over which is said to take effect as an

overriding interest.48

Even though is apparent that para 3 of Sch 3 is not the most accessible provision of

the LRA 2002, its purpose is clear; to ensure that all newly expressly created legal easements

or profits are entered on the register. Then, for easements within Sch 2, the Act attempts to

strike a balance between ensuring their protection in the face of a registered disposition

and the need for the purchaser to be aware of such interests before completing purchase.49

48

In reality, this is a safety net for those impliedly granted interests that are nevertheless used for the benefit of the interest holder while not being known of nor ‘obvious’ on a reasonably careful inspection. 49

M Dixon, Modern Land Law (9th

edn Routledge 2014) 66-67

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CONCLUSION

It is submitted here that the purpose of overriding interests defeats the purpose of

the Land Registration Act 2002. This author rejects the argument that it is more practical to

have overriding interests because it is necessary, however inconvenient to register any

interests on the land registry. A purchaser cannot be reasonably expected to be bound by

interests that he is not aware of on the land that he purchased. If the purpose of

maintaining ‘overriding interests’ in the 2002 Act is to protect those living on the premises,

it does not protect a purchaser and there is not justice for the purchasers. Practicality

should not be at the expense of justice. Having an unjust legal system will cause the people

to question the competency of the government and an unjust legal system, a term which is

viewed as oxymoronic, is ridiculous and is against the rules of law.

The concept of overriding interest defeats the very purpose of the Land Registration

Act 2002. The Land Registration Act 2002 is aimed to make the conveyancing of land more

transparent and reliable. However, with the retaining of overriding interests from the 1925

Act, a potential purchaser has no way in ensuring the property is free from any

encumbrances unless he goes and visit the land. Even then, they are not necessarily

discoverable from a reasonable inspection of the land.50 For example, to determine if a

property is subject to a liability to pay for chancel repairs,51 it may be necessary to search

the tithe records which are kept in several different branches of the Public Record Office.

The records contained there are incomplete and hence there is no certainty that a property

is free from liability even when such a search has been conducted. A purchaser of registered

land may find that he is bound by a right that has not been protected by an entry on the

50

C Brickdale and J Wallace The Land Registration Act, 1925 (4th

edn Stevens & Sons 1939) 193 51

See S. 70 (1)(c) LRA 1925

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register, not withstanding that there is no person other than the vendor in apparent

occupation of the property and that careful inspection and inquiry has failed to reveal

anything which might give the purchaser any reason to suspect that someone other than

the vendor had any rights over the property.52

Hence, the existence of overriding interest means that absolute title cannot be

absolute because the register may not be a true reflection of the property. Rights that third

parties have even if unbeknown to the purchaser can be binding upon them. This is

preposterous especially when purchasers have paid a handsome sum for the property.

Another criticism that is often made of overriding interest is rectification without

indemnity.53 Where an overriding interest exists, the register may be rectified even as

against a proprietor in possession in order to give effect to an overriding interest.54

Indemnities should be payable to purchasers who are not aware of third parties’ rights over

the land as rectification to the register does not completely solve the problem. The

purchaser will still be in a pretty pickle if a third person has binding rights over them.

Hence, if the purpose of the 2002 Act is to make the system more transparent, it is

deduced here that it has not done a thorough job by maintaining the categories of

overriding interests. A transparent conveyancing system calls for the abolishment of the

categories of overriding interests and the implementing of total registered land. However, it

should not be absolutely rigid and the Courts should have the discretion to award an

equitable solution when deemed necessary.

52

Kling v. Keston Properties Ltd (1983) 49 P & CR 212 53

E H Burn and J Cartwright Maudsley & Burn’s Land Law (9th

edn Routledge 2009) 188 54

Land Registration Ac 1925 s. 82(3). It is only in four exceptional cases listed in that subsection that the register may be rectified against a proprietor who is in possession.

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REFERENCES

Acts of Parliament

Commons Registration Act 1965

Family Law Act 1996

Land Registration Act 1925

Land Registration Act 2002

Land Registration for the 21st Century: A Conveyancing Revolution LC271

Books

Brickdale C. and J Wallace The Land Registration Act, 1925 (4th edn Stevens & Sons 1939)

Burn, E. H. and J Cartwright Maudsley & Burn’s Land Law (9th edn Routledge 2009)

Clarke, S. and S. Greer, Land Law – Direction Series (3rd edn OUP 2012)

Dixon, M., Modern Land Law (9th edn Routledge 2014)

Gravells, N., Text and Materials Land Law (4th edn, Sweet & Maxwell 2010)

Gray, K. and S. Gray, Elements of Land Law (5th edn OUP 2009)

Haley, M., Land Law (9th edn, Sweet & Maxwell 2013)

Hayton, D., Registered Land (3rd edn, Sweet & Maxwell 1981)

Singh, R., Learning Land Law (1st edn, BAC 2011)

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Cases

Abbey National Building Society v. Cann [1991] 1 AC 56

Chhokar v. Chhokar [1984] FLR 313

City of London Building Society v. Flegg [1981] AC 487

City Permanent Building Society v. Miller [1952] Ch. 840

Kling v. Keston Properties Ltd (1989) 49 P & CR 212

Link Lending Ltd v. Susan Bustard [2010] EWCA Civ 424

Lloyds Bank pls v. Rosset [1989] Ch 350

Malory Enterprises Ltd v. Cheshire Homes (UK) Ltd [2002] EWCA Civ 151

National Provincial Bank v. Ainsworth [1965] AC 1175

Wallcite Ltd v. Ferrishurst Ltd [1999] 1 All ER 977

Williams & Glyn’s v. Boland [1981] AC 487

Journal Articles

Hart, W.G., ‘The Conveyancer and Property Lawyer’ (2002) University of London

Temelini, P., ‘National Provincial Bank v. Ainsworth’ (1966) 4 OHLJ 133-141