INTRODUCTION TO LAND LAW ( PART 3 )

By Law Teacher

THE LAW ESSAY PROFESSIONAL

3.2.1 Third Party Rights – Introduction

Welcome to the second lesson of the third topic in this module guide – Third Party Rights! Many people may have many different kinds of rights against a fee simple. This can be of relevance not only in an exam context, but can in reality reduce the value of a fee simple. As such, a comprehensive understanding of how they work is crucial.

At the end of this section, you should be comfortable understanding how third parties can bear the benefit and burden of a number of different rights against a fee simple. This section begins by discussing notices as the primary means of protecting third party interests in registered land. Then, following on from this, there is a discussion of unregistered land and bona fide purchasers. The section then moves on to deal with restrictive covenants, easements and licences in detail.

Goals for this section:

  • To understand how third party interests in an estate can be protected.

Objectives for this section:

  • To know how notices and restrictions apply to third party interests in registered land.
  • To know how third party interests and bona fide purchasers relate in unregistered land.
  • To appreciate how restrictive covenants, easements and licenses can apply to third parties.

3.2.2 Third Party Rights Lecture

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.

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 intends to:

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

Once interests are registered, priority is given to the interest so protected. This means that in a subsequent registered disposition of the registered title, 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). If the underlying interest 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.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.

PART TWO: UNREGISTERED LAND AND BONA FIDE PURCHASERS

Equitable rights for unregistered land are not enforceable against any and all bona fide purchasers of a legal estate for valuable consideration without notice.

Typically, where a purchaser seeks to purchase unregistered land that is hitherto subject to unregistered equitable interests, a third party seeking to enjoy their equitable interest can override 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);
  1. The purchaser has to take a legal, not equitable, estate in the land;
  1. 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;
  1. 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.

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).

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. Typically, for covenants created in or after 1 January 1926, unless a covenant is phrased in such a way that it clearly and expressly binds the original covenantor 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.

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).

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)).

Discharge of restrictive covenants

Restrictive covenants are not necessarily perpetual and unlimited in duration, it possible to modify or discharge a restrictive covenant.

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 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 use 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)).

Planning permission and discharges/modifications of restrictive covenants

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).

PART FOUR: EASEMENTS

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

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.

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)).

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.

PART FIVE: LICENCES

Licences 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 are capable of assignment to third parties (Muskett v Hill and Tozer(1839) 132 E.R. 1267).

Contractual licences

Licences coupled with grant of an interest or an equity will be those with greater proprietary significance, and will constitute an overriding interest (Land Registration Act 2002, s.116(a)). More of an issue regards contractual licences.

There has been some disagreement about the status of contractual licences. According to the court in several of the later 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). 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).

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).

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).

3.2.3 Third Party Rights Lecture – Hands on Examples

The following questions are designed to test your knowledge about the core elements regarding third party rights. The answers to the questions can be found at the bottom of the page, however you are encouraged to attempt to answer the questions first, based on your own recall or notes of the topic, before looking at the answers.

Always reiterate and apply the relevant legal tests and principles, derived from both statute and case law. When you have discerned what the outcome will be based on how those principles and cases apply to the question, make sure you state what that outcome is e.g. will the third party licensee be able to remove the trespasser? Will the third party who takes ownership of servient land be subject to the prior interest?

This guide will be most useful to you when you can quickly recognise that there is a third party at issue, meaning there are two initial parties to a contract (whether it is a covenant, a licence, etc.), and then another party who is in some way relying on or subject to that agreement.

Q1. Adrian has discovered that a nearby woodland, owned and run by a government agency, is going to have some of its trees felled and areas cleared to make space for a new car park. Big Business plc is the one clearing the trees and constructing the car park. It has come to an agreement with the government agency that it be allowed to do so. Adrian chains himself to one of the trees in the area, refusing to leave. Big Business plc demand that the government agency takes action, but the agency declines to intervene. Big Business plc are now contemplating taking action to remove Adrian from the woodland.

Advise Adrian.

Q2. Charlotte bought a plot of land from Douglas in the early 1950s. Douglas at the time owned some nearby land and wanted to keep the area quiet and free of traffic. Charlotte and Douglas agreed that the land owned by Charlotte would not be permitted to have any businesses on it. Nothing was said about persons who may take ownership of Charlotte’s land in future. Today, Erica, as head of a start-up company, wants to buy the land in order to establish the main outlet for her business. Erica has seen the agreement between Charlotte and Douglas (who is now deceased) and has been told the Lands Tribunal may be able to do something about it. She believes she has a good case because the surrounding areas have since been developed.

Advise Erica.

Q3. Florence wants to buy Blackacre, a plot of unregistered land, from Gareth for the purpose of occupation. Gareth informs her that no-one lives at Blackacre. Florence sends her solicitors, Sue, Grabbit & Runne to visit the property with the estate agent as part of the customary inspection. The solicitors notice there are signs of someone, named Ira, actually living at the property, and upon being asked by the solicitors, Ira informs them she has no intention of leaving.

Advise Florence.

Q4. John lived next to Karen. John owned Greenacre, and Karen owned Whiteacre. At the front of Whiteacre is a large parking area, which Karen allowed John to use to park his vehicle. This right is registered with the Land Register. John disposes the title of Greenacre to Leia, and they do not discuss the use of the parking area on Whiteacre. Karen subsequently sells the title of Whiteacre to Mike. Leia and Mike then learn of the parking right formerly granted to John. Mike would rather keep the large parking area for himself without letting Leia use it.

Advise Leia.

A1. The facts of this case indicate a licence granted by the agency to Big Business to enter the government-owned land and remove materials. Adrian is viewed by Big Business as a trespasser and they are seeking a possession order to remove him. The facts here are reminiscent of the facts in Manchester Airport v Dutton. So when deciding the outcome, talk about the orthodox position, namely following Allan, Street etc. which indicate that Big Business should have no possession claim, but then raise Manchester Airport. Point out that it is still good law, but that the dissenting opinion of Chadwick LJ is more consistent with case authority.

A2. These facts indicate a restrictive covenant. The agreement is post-1926, and no explicit discussion is made of other parties, so the agreement between Charlotte and Douglas binds the whole world. Therefore, Erica is bound by the terms of the covenant. The reference to the Lands Tribunal is a clue that this restrictive covenant could be modified or discharged. Businesses are being constructed on nearby land, so one could argue that the restrictive covenant ought to be discharged according to one of the provisions of s.84(1) of the Law of Property Act 1925. Aside from attaining the agreement of Douglas (because he has died), all the other grounds could potentially apply.

A3. Because this is unregistered land, there would not be any reference to Ira’s occupation on the register, and so Florence in this instance is hoping to qualify as a bona fide purchaser without notice. The problem is that her solicitors have learned of the existence of someone living at the property. In this case, you can reiterate all of the conditions for bona fide purchasers without notice, and discuss imputed notice, because this the solicitor acts as her agent, and therefore would fix Florence with notice.

A4. This is a case of easements. As you will recall, with legal easements, easements become affixed to the land, whether dominant or servient. Answering this question, explain that Greenacre is the dominant land, and Whiteacre is the servient land. You will note that these easements bind successors in title, so Leia would benefit from the easement, whilst Mike would be bound to comply with the easement. Note that no discussion was made of the easement, however you should point out that transfer of rights of easements are automatic, therefore upon disposition of title, both between John and Leia, and Karen and Mike, the right/burden of the easement was transferred.

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