INTRODUCTION TO LAND LAW ( PART 5 )

By Law Teacher

THE LAW ESSAY PROFESSIONAL

4.1.1 Registration of Title: Minor Interests and Overriding Interests – Introduction

Welcome to the second lesson of the fourth topic in this module guide – Registration of Title: Minor Interests and Overriding Interests. Most third party rights against a registered estate are either overriding or minor interests. If such a right is overriding, then it can bind a purchaser without appearing on the register of title. If the interest is minor and is entered onto the register, then it will be binding on purchasers of the estate. If it is not entered on the register, it will be void against the purchaser.

At the completion of this section, you should be comfortable understanding which unregistered rights will override a purchaser under the Land Registration Act 2002, including in particular how the actual occupation of a person may give rise to such overriding rights. You should also be able to understand how and why minor interests can be entered on to the register of title, including whether unprotected but protectable minor interests may still be effective if there are certain types of fraud involved.

This section begins by outlining how the Land Registration Act 2002 deals with overriding interests and why. It then goes on to break down the sub-categories of overriding interest that are still protected without registration. There is an in-depth discussion of unregistered interests of persons in actual occupation, which will result in an overriding interest only where ‘actual occupation’ can be established. The chapter goes on to consider the position of minor interests, both where they have been protected by way of notice in the register, and where they have not.

Goals for this Section

• To understand what an overriding interest is, and when one arises.
• To know what minor interests are, and how one can be protected.

Objectives for this Section

• To be familiar with ‘overriding interests’ which are unregistered interests which can override registered dispositions.
• Be able to explain how the actual occupation of a person can acquire them overriding proprietary interests.
• To understand how minor, or registered rights, relate to land and are secondary to the registered estate.
• To understand how and why minor rights can be registered.

4.1.2 Registration of Title: Minor Interests and Overriding Interests lecture

OVERRIDING INTERESTS

All registered dispositions of a registered estate must take effect subject to those unregistered interests which are said by the Land Registration Act (LRA) 2002 to “override” such dispositions (LRA 2002, s.29(1) and (2)(a)(ii)). The disponee of the registered title takes the title subject to those rights even though, by definition, they do not appear on any register of title (LRA 2002, ss.29(3) and 30(3)). Schedule 3 of the LRA 2002 sets out the list of those categories of interest which qualify as overriding interests (see below, the section ‘Sub-categories of overriding interest’).

Overriding interests would not require registration to become apparent, because they ought to be apparent to any taking the registered title of land upon a physical inspection of the land (and/or inquiring with persons residing on the land) or by reference to other evidential aids, such as the registers of local land charges maintained by local authority bodies. Typically, those interests that qualify as overriding are those which have no other means of protection within the system of registration of land. In their unregistered status, they bind the whole world, and the registered land scheme is designed simply to replicate this principle of binding the whole world.

The “guiding principle” that underlies this aspect of the LRA 2002 is that interests should be overriding interests only where ‘protection against buyers is needed, but where it is neither reasonable to expect nor sensible to require any entry on the register’ (Law Commission, Land Registration for the Twenty-First Century: A Conveyancing Revolution No. 271 (July 2001) para 2.25). This is reflected in the LRA 2002 which restricts the role of overriding interests, such as:

1. Abolition or phasing out of certain sub-categories of overriding entitlement, including equitable easements and profits à prendre; rights of persons in adverse possession; rights of non-resident landlords.

2. Incorporation of unregistered interests in the register– The LRA 2002 provides means of ensuring that pre-existing overriding interestsare brought on to the register, following which they cease to have overriding status (LRA 2002, ss.29(3) and 30(3)).

3. Curtailment of the circumstances in which new overriding interests can arise.

4. Finally, e-conveyancing will eventually make it impossible for the creation of rights except by the entry of those rights on the register, eventually making overriding interests at least a very limited and rare feature, at most will be non-existent.

Sub-categories of overriding interest

As per Schedule 3 of the LRA 2002 there are a variety of unregistered rights which qualify as overriding interests. These include:

1. Legal leases granted for a term not more than seven years,

2. Proprietary interests of persons in actual occupation of the land,

3. Legal easements and profits à prendre, and

4. Local land charges.

In order for any of these categories to qualify and be recognised as an overriding interest, s.29(1) of the LRA 2002 requires that no interest can claim a status of overriding interest unless the interest had existed immediately before and up to the relevant date of disposition, and up to that date had affected the estate that forms the subject of the disposition. Therefore, any interest which arises for example between the dates of disposition and registration, the so-called registration gap, can qualify for overriding status (LRA 2002, s.74).

The disponer when disposing the registered title of an estate has a duty to disclose to the disponee any subsisting overriding interests. If they fail to do so, the disponee may have contractual rights of recovery (Ferrishurst v Wallcite Ltd [1999] Ch. 355 per Robert Walker LJ). When the disponee seeks to register their title with the registrar, they must at that point disclose any subsisting overriding interests of which they are aware (LRA 2002, s.71).

For any overriding interest, it is a given that, at the date of the registrable disposition, the interest which is alleged to ‘override’ the interests of the registered proprietor must be fully enforceable; it will not be enforceable if it was in any way made negative by estoppel or waiver (Paddington Building Society v Mendelsohn(1985) 50 P & C R 244).

Unregistered interests of persons in actual occupation

Actual occupation is intended to be interpreted as it is written, so long as they are taken as ‘ordinary words of plain English’ (Williams & Glyn’s Bank Ltd v Boland [1981] A.C. 487 per Lord Wilberforce). That being said, actual is taken to mean ‘apparent’ or ‘patent’, such that the fact of occupation would ‘put a person inspecting the land on notice that there was some person in occupation’ (Malory Enterprises Ltd v Cheshire Homes Ltd [2002] Ch. 216 per Arden LJ).

The onus is on the purchaser, rather than the occupier, to determine whether the occupation constitutes an overriding interest. The disponee is required to ask any person in actual occupation of the land ‘what rights he or she has in the land’ (Winkworth v Edward Baron Development Co Ltd [1986] 1 W.L.R. 1512 per Nourse LJ). The disponee cannot simply interrogate the disponor; they must direct this questioning to all persons they find in actual occupation of the land. It has been observed that ‘reliance on the untrue ipse dixit [meaning “he himself said it”] of the disponor will not suffice’ (Hodgson v Marks [1971] Ch. 892 per Russell LJ).

There are two exceptions to this type of interest being overriding.

• The LRA 2002 excludes the interest of any actual occupier ‘of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so’ (LRA 2002 Schedule 3 para 2(b)). If they fail to reveal their interest upon inquiry from the disponor, the occupier’s failure to reveal the existence of their rights is fatal for any claim of overriding interest (Holaw (470) Ltd v Stockton Estates Ltd (2001) 81 P. & C.R. 29).
• Second, the relevant occupation was neither reasonably discoverable nor was it actually known by the disponee. This places a restrictive understanding of what being in ‘actual occupation’ means. An interest will not override if it ‘would not have been obvious on a reasonably careful inspection of the land at the time of the disposition’ (LRA 2002, Schedule 3, para 2(c)(i)), except where the disponee of the land had ‘actual knowledge’ of the occupier’s interest at the time of the disposition (LRA 2002, Schedule 3, para 2(c)(ii)).The occupation must subsist both before and at the date of the registrable disposition (LRA 2002, s.29(1)-(2), and Schedule 3, para 2). This view in the LRA 2002 mirrors an earlier precedent set in case law (Abbey National Building Society v Cann [1991] 1 A.C. 56). This imposition of the required duration (i.e. before and on the date of the registrable disposition) is intended to make it easier for there to be a meaningful or ‘fruitful’ inquiry in advance of the disposition (Abbey National Building Society v Cann [1991] per Lord Oliver of Aylmerton).It is not sufficient that the occupation be only for a minimal period before and on the date of the disposition. In other words, a pattern of substantial and frequent absence from the land will severely undermine a claim to ‘actual occupation’ (Stockholm Finance Ltd v Garden Holdings [1995] N.P.C. 162). That being said, a person claiming actual occupation may successfully show such occupation, even if it is intermittent, so long as they are able to point to some physical evidence or ‘symbol’ of their continued residence at the property, as well as evidence of their intention to return to the property (Kling v Keston Properties Ltd (1985) P. & C.R. 212). In Chhokar v Chhokar [1984] FLR 313, previous occupation and an intention to return to the property, with physical evidence such as furniture, meant that the occupation sufficed.The type of occupier may affect the type of occupation required. Further, the idea of actual occupation extends to businesses, even where they only occupy a portion of the land (Ferrishurst v Wallcite [1999] Ch. 355).

MINOR INTERESTS

Minor interests, or registrable interests, refer to those rights which can be applied to land, yet are secondary to the registered estate. The LRA 2002 stipulates that an entry of “notice” on the register was the only means by which a minor interest can bind a disponee and their title once the disponee has registered their proprietorship.

A notice is ‘an entry in the register in respect of the burden of an interest affecting a registered estate or charge’ (LRA 2002, s.32(1)). The entry of a notice into the Land Registry protects the priority of a given interest against other interests in the land (LRA 2002, s.29(1) and (2)(a)(i)).

Means of entry

Any person that claims to be entitled to a protectable minor interest can apply to the Land Registry for the entry of a “notice” in the charges register of the title so applied for, per the LRA 2002, ss.32(2), 34(1) and the Land Registration Rules 2003 r.84(1). The notice may either be an “agreed notice” or a “unilateral notice.”

• “Agreed notices” require the consent of the registered proprietor or evidence showing the applicant’s claim is valid, alternatively the registered proprietor can themselves apply for an agreed notice (LRA 2002, s.34(3)). There are certain rights which may only be protected as minor interests on the charges register as an agreed notice. Examples of such rights include “home rights” under the Family Law Act 1996, formerly the Matrimonial Homes Act 1967 and 1983, which confer upon those spouses or civil partners which qualify particular entitlements in regards to occupation of, or non-exclusion from, a dwelling-house (Family Law Act 1996, s.30(2)). Agreed notices can be brought to an end once the interest it protects comes to an end (Land Registration Rules 2003, r.87).
• “Unilateral notices” are, unlike agreed notices, contentious, and the entry of such notices therefore commences a process of notification of and possible objection by the registered proprietor (LRA 2002, s.35, Land Registration Rules 2003, r.83). The entry of a “unilateral notice” does not require the cooperation or consent of the registered proprietor, but the registered proprietor is entitled to apply, at any time, for the notice to be cancelled. If the registered proprietor seeks for the notice to be cancelled, the applicant for the notice may in turn object to that requested cancellation (LRA 2003, s.36, Land Registration Rules 2003, r.86). As with agreed notices, the beneficiary of the notice can apply to the registrar for removal of the notice when the notice is redundant (LRA 2002, s.35(3), Land Registration Rules 2003, r.85).

Aims of registration

The intention of registration and protection of minor rights under the LRA 2002 operates according to two rules:

1. Minor interests, if registered as a charge in the charges register, acquire ‘protected’ priority, meaning it binds any subsequent disponee of the registered estate, whether or not the proprietor inspects the register (LRA 2002, s.29(2)(a)(i)).

2. If not registered as a charge in the charges register, protectable interests are subsequent in priority to the interest which passes under any registered disposition made for valuable consideration (LRA 2002, s.29(1)), however they remain enforceable against a disponee otherwise than for value, such as a donee or a trustee in bankruptcy (LRA 2002, s.28(1)).

Unprotected – but protectable – interests and fraud

An unprotected (though protectable) minor interest will be ineffective against the registered proprietor unless the entitlement in question also qualifies for protected status as an unregistered interest which statutorily “overrides” registered dispositions of the estate (LRA 2002, s.29(2)(a)(ii)). There is, according to the Court of Appeal, ‘no general principle which renders it unconscionable for a purchaser of land to rely on a want of registration of a claim against registered land, even though he took with express notice of it… a decision to the contrary would defeat the purpose of the legislature in introducing the system of registration’ (Lloyd v Dugdale [2001] EWCA Civ 1754 per Sir Christopher Slade).

That being said, if a registered proprietor seeks to rely on this principle to defraud a beneficiary, they would come up against the court’s position that it will not allow ‘a person to keep an advantage which he has obtained by fraud’ (Lazarus Estates Ltd v Beasley [1956] 1 Q.B. 702 per Denning LJ).

The problem for the courts is to determine a definition of fraud, particularly given this is within the civil (rather than criminal) context. This leads to two approaches:

1. A narrow definition of “fraud”: ‘It is not fraud to take advantage of legal rights, the existence of which may be taken to be known to both parties’ (Re Monolithic Building Co. [1915] 1 Ch. 643 per Lord Cozens-Hardy MR).

2. Conversely, an expansive definition of “fraud” will look more to the facts of individual cases and particularly for exceptions to the above-mentioned principle of regarding registration as the optimal means of protection.

It has been suggested that the courts will take the view that statutory immunities from unprotected minor interests will be inapplicable if the disponee acts in bad faith to take advantage of a failure by the person possessing the interest to enter that interest in the register. The disponee, acting in bad faith, is said to have carried out a form of ‘postponing conduct’ which displaces or reverses the special priority rule (LRA 2002, s.29(1)). As a result, the disponee takes their title subject to the unprotected interest in question by way of constructive trust (Lloyd v Dugdale).

Equity has seen fit to intervene where there was a deliberate scheme by the disponee to defeat the unprotected right, (Jones v Lipman [1962] 1 W.L.R. 832),and where there was an express agreement by the transferee to take title subject to the unprotected interest, (Lyus v Prowsa Developments Ltd [1982] 1 W.L.R. 1044).

Practically speaking, given that land is increasingly subject to electronic conveyancing, it will eventually be impossible for an unprotected minor interest to exist, because the making of an entry in the register is what creates the interest.

4.1.3 Registration of Title: Minor Interests and Overriding Interests – Hands on Example

The following questions are designed to test your knowledge about several of the most important aspects of registration of title with overriding interests and minor interests. 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. As you may have gathered, the LRA 2002 is especially important, so make sure to 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 LRA. Simply citing ‘Land Registration Act 2002’ in your exam without the corresponding section and subsection will not be sufficient!

Q1. Aaron had entered into an estate contract with Bella. Under that contract, Aaron was permitted to occupy Bella’s land, Blackacre. Bella passes away, and Conglomerate Ltd express an interest in purchasing the registered title of Blackacre from Bella’s executors. The executors inform them of Aaron’s occupation of the property. After some haggling, Conglomerate agree to acknowledge his occupation but at a lowered purchase price. Conglomerate are now trying to evict Aaron. Aaron is in occupation for the entire duration of these negotiations.

Advise Aaron.

Q2. Daisy has bought Whiteacre with some money lent to her by her father Eric and via a mortgage loan from Fickstons Ltd, making Daisy the registered proprietor. Eric decides to take up occupation at the property, and Daisy does not disagree. Fickstons tell Daisy they intend to register a charge over the property, and Daisy tells Eric. He says he has no objection, though he never communicates with Fickstons directly. Subsequently, Eric thinks this was a bad idea, and enquires as to whether his occupation of Whiteacre would nullify that charge.

Advise Eric.

Q3. Gina and her husband Harry own equal shares in Greenacre. Gina is heavily pregnant. She goes into hospital to await the birth. Harry knows she will be in hospital and will not be leaving the hospital for several days. Harry then discusses selling off his share of Greenacre to Irvine without Gina’s knowledge. When Gina leaves hospital with her baby and returns to Greenacre, she finds the locks have been changed. When she makes enquiries, she discovers what has happened between Harry and Irvine. She hopes to challenge this arrangement, not least because she cannot get access to much of her furniture that is still in Greenacre.

Advise Gina.

Q4. James and Karen have a minor interest in Redacre. The land Redacre is owned by Laurence. Laurence informs James and Karen that he intends to sell Redacre to MegaCorp Ltd. James and Karen have not yet entered their interest in the register for Redacre. They decide that it would be easier to inform MegaCorp Ltd of their minor interest. MegaCorp Ltd acknowledge their claim, but when they purchase Redacre, they take steps that effectively ignore the minor interest.

Advise James and Karen.

A1. You may recall that this fact-pattern is similar to that of Lloyd v Dugdale. As you will recall, there is a possibility of constructive trust estoppel, but only in the event that the facts support the establishment of such an estoppel. Because this was a for a reduced purchase price, that should indicate the outcome will be different to that in Lloyd. The final sentence is intended to confirm that Aaron was in occupation at the relevant time.

A2. Like question 1, the case here is a case of estoppel, except the roles are effectively reversed. Eric is hoping to use his occupation as evidence of overriding occupation to take priority against the charge held by Fickstons. However, because he is both aware of the intended charge and impliedly consents to it – he never tells Fickstons otherwise – his claim to an overriding interest is estopped. Look to Paddington Building Society v Mendelsohn for guidance on this question.

A3. This is a reflection of the case of Chhokar v Chhokar, including the deceptive husband and the new mother locked out of the house by the party who had purchased the husband’s interest. As you will recall from that case, given the circumstances, the wife was held to have an overriding interest against the interest of the purchaser.

A4. This case goes to the question of fraud and protectable yet unprotected minor interests. As you will remember, the case law indicates that the courts take a relatively dim view about unprotected minor interests. When answering a question of this type, you would help your answer by stating the rationale; namely that, as per Lloyd v Dugdale, taking property, even if unconscionably (i.e. taking property with express notice of the minor interest while also seeking to deny its operation), would not make the minor interest an interest that takes priority against the registered estate. If there was fraud in this case, however, what would be the outcome? How severe would it need to be for James and Karen’s minor interest to be safe?