By Law Teacher
THE LAW ESSAY PROFESSIONAL
3.3.1 The Impact of Law of Property Act 1925 – Introduction
Welcome to the third lesson of the third topic in this module guide – The impact of the Law of Property Act (LPA) 1925! In land law, the LPA 1925 is one of the pivotal Acts that will be referred to and initially was created to make the transfer of land easier. Contained within the Act, are sections covering the creation of legal rights, mortgages, chattels and fixtures as well as overriding interests, to name but a few. The most common elements will be discussed and outlined within this chapter.
At the end of this section, you should be comfortable understanding the impact of the LPA 1925 and its current use in modern land law. The chapter takes the more important elements in turn, and outlines the relevant rights, remedies and requirements that apply. Key cases are also highlighted throughout to demonstrate application of the law as well as how it has been interpreted.
Goals for this section:
- To understand the importance and impact of LPA 1925
- To understand the rights and requirements conveyed by the Act
Objectives for this section:
- To understand the creation of legal rights under the LPA 1925
- To understand how forfeiture functions under the Act
- To understand the different types of rights in relation to unregistered land
- To understand the relevant statutory requirements under the Act with regard to trusts in particular
- To be able to discuss mortgages in relation to the LPA 1925
- To understand how the LPA 1925 deals with chattels and fixtures
- To be able to understand how overriding interests work under the Act
3.3.2 Impact of Law of Property Act 1925 Lecture
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)).
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
Property is defined as including ‘anything in action, and any interest in real or personal property (s.201(1)(xx)).’
Purchaser is defined in 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 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). (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), in Street v Mountford [1985] A.C. 809, Lord Templeman said the essential characteristics of a leasehold:
- Exclusive possession
- For a fixed or periodic term certain, and
- 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)).
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 requirements of such a notice are that it (per s.146(1)(a)-(c)):
- Specifies the tenant’s particular breach of which complaint is made by the landlord;
- Require that the tenant remedy the breach ‘if the breach is capable of remedy’, and
- Normally require that the tenant make compensation in money for the breach.
The purpose of the notice and its procedure – 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 (s.146(2)).
Breaches of negative covenants are regarded as ordinarily capable of remedy (Savva and Savva v Hussein(1997) 73 P. & C.R. 150). However, any negative covenants which are ‘once and for all’, are irremediable (Scala House and District Property Co Ltd v Forbes [1974] Q.B. 575). Generally, the approach is that negative covenants, if breached, are nevertheless capable of remedy 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).
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 (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 (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 (Expert Clothing Service & Sales Ltd v Hillgate House Ltd 1985).
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)).
Without the presence of writing, as required by s.53(1)(b), a trust does not come intro being (Austin v Keele(1987) NSWLR 283). S.53(1)(c) then means that the agreement must include a signature from the declarant of the trust.
Exceptions to the formalities requirement
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.’
One instance where this applies in land law 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 (Rochefoucauld v Boustead [1898] 1 Ch. 550).
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 (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 (s.85(1)). If the mortgaged estate is itself a leasehold, then any mortgage by long lease 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)).
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). However, there is one crucial limitation on the mortgagee’s power to determine the date and time of the sale – s.91(2).
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 – 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 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. The remedy of foreclosure is only available on an application to the court (ss.88(2), 89(2)). They are rare (Palk v Mortgage Services Funding plc [1993]).
Equitable mortgagee
For an equitable mortgagee, the remedies available to them will differ. 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 (s.101(1)(iii)).
CHATTELS AND FIXTURES
In the LPA, s.62 deals with fixtures. 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 test for examining whether something was a fixture or not comes in two parts (Elitestone v Morris [1997] 1 W.L.R. 687).
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. 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).
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 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.
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 ifcertain conditions are met. 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 defined in 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.
3.3.3 Impact of Law of Property Act 1925 – Hands on Example
The following questions are designed to test your knowledge about several of the most important provisions of the LPA. 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 think about the facts, the relevant statutory provision, the cases that interpret that provision, and what the outcome will be based on how those principles and cases apply to the question.
Unlike some of the other guides, this of course focuses heavily on the use of select provisions from the LPA to a variety of situations. This set of hands-on examples will rely on the application of the provisions listed above that are most often cited and/or are most likely to be applicable in an exam scenario.
Remember the advice given at the top of this guide: go through your statute book and highlight the relevant provisions. Although you would not be expected to give the full citations of cases you cite (just the names of the parties and the year is usually sufficient, the name of the judge giving the ratio is even better!), you will be expected to accurately cite the relevant sections and subsections of the LPA. Simply citing ‘Law of Property Act 1925’ in your exam without the corresponding section and subsection will not be sufficient!
Q1. Amalgamated Properties Ltd owns the freehold to Blackacre. It is contemplating the provision of a leasehold over the property to Brenda. Amalgamated are concerned because they are unsure for how long the leasehold could lawfully be for, and they are also unsure of the exact terminology that applies in this situation. They are also unclear of the key ingredients of a leasehold. They ask you for advice.
Q2. Charlie bought the leasehold to Whiteacre from Developers Ltd for £400,000. There were various restrictive covenants that were contained in the lease, one of which was a prohibition on the setting-up of any kind of gambling establishment. Charlie later started a poker game with several friends, playing for money. Charlie was reminded of the restrictive covenant, but he decided to expand the poker game into a small “poker den.” The head of Developers Ltd, upon hearing about this, was furious. The head sent a notice to the property, and on the same day decided to try and get into Whiteacre in order to remove Charlie. Charlie says he will close down the poker den if only to stop Developers Ltd from taking things further.
Advise Charlie.
Q3. Daria and Elmer are currently heavily indebted to their mortgage company, Fastbuck Loans Ltd for their mortgage over Greenacre. Daria and Elmer have said they want to sell Greenacre for £250,000. Fastbuck declines, reminding them the debt is currently £350,000. Fastbuck suggest a creation of several short-term leases, at the conclusion of which the property may be sold at a better price. Daria and Elmer are worried that their debt will be compounded and only increase in size if the property is not sold until after the short-term leases conclude, because they have been assured that the housing market is unlikely to improve soon.
Advise Daria and Elmer.
Q4. Graham is the sole registered proprietor of Redacre, and he is looking to sell Redacre quickly. He currently occupies it, and his estranged wife Helen visits from time to time to teach science to their children. She sleeps in a fold-down bed. Their science equipment is kept in a cupboard in the living room, though the contents are easily visible without needing to open the cupboard. Graham arranges for a new buyer, Independent Homes Ltd, to come inspect the property. Their agent, upon inspecting the property, asks about the science equipment and the bed. Graham says it’s something his wife uses when she visits from time to time. Independent don’t want to have to buy out Helen’s apparent share of the property.
Advise Independent.
A1. You will remember that this is a reference to the ‘terms of years’ which are said to subsist at law in s.1(4)of LPA. Further, s.1(1)(b) gives some indication of the status of this type of interest. What you want to be explaining is that the phrase ‘term of years’ is in some ways a misnomer because it can be for any period of time; lasting from a week to 10 million years (s.205(1)(xxvii). Given they are asking about the essential ingredients of a leasehold, you will want to reprise the key elements discussed by Lord Templeman in Street v Mountford.
A2. This is a question about forfeiture. There is a reference to a notice. This would of course be unders.146. You will therefore need to discuss the relevant parts of that section, including whether there is a breach, whether it is capable of remedy, and whether the actions of either the tenant or the landlord ought to make relief from forfeiture more or less likely. Governors of Rugby School v Tannahilldiscussed the ‘stigma’ of certain acts which, when a breach of covenant, are irremediable. Further, Charlie has had the opportunity to prevent the breach before when he was reminded of the covenant. This adds to his moral culpability. However, the landlord has opted for forcible re-entry, which may not be looked kindly upon by the court (Billson v Residential Apartments Ltd). This question is therefore a balancing exercise.
A3. This case is on all fours with Palk v Mortgage Services Funding plc. You will recall that in that case the court allowed the debtors to accelerate the sale procedure under s.91(2)in order to avoid the punitive consequences of a series of short-term leases over Greenacre. Point out the similarities between the case of Daria and Elmer and the case of Palk.
A4. The relevant section of LPA in this case is s.199, because it deals with when purchasers are fixed with notice of overriding interests. This is a case of actual notice or imputed notice, because the purchasers are made consciously aware of the relevant matters. They are therefore bound by Helen’s interest.