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issue of interests

The issue of interests which are unknown to the purchaser of land have long been a problem to less cautious buyers. This essay will examine the way in which title of land has not been indefeasible through registration due to the existence of overriding interests and will seek to explain how the new provisions of the Land Registration Act 2002 limits the scope of these interests and pursues the aim of a register which mirrors interest in title.

As Gray and Gray observe, ‘disponees of registered land have long been subject to the potential burden of an extensive range of rights which, although never apparent from the relevant register of title, are statutorily declared to be binding'. According to Gravells it was never contemplated that the system of registration of title introduced by the Land Registration Act 1925 would involve the recording of all interests affecting the land. Indeed, it was suggested that registration of some interests was either ‘unnecessary, impracticable or undesirable'. The main argument lying behind this point is that such interests were usually discoverable in the course of the usual conveyancing practice used in unregistered land whereby inspection of the land and inquiries of the vendor were made.

In National Provincial Bank Ltd v Hastings Car Mart Ltd Cross J. stated (at p.15): "Overriding interests are, speaking generally, matters which are not usually shown on title deeds or mentioned in abstracts of title and as to which, in consequence, it is not possible to form a trustworthy record on the register. As to such matters, persons dealing with registered land must obtain information outside the register in the same manner and from the same sources as people dealing with unregistered land would obtain it."

Under the LRA 1925, therefore, it was provided that the first registered proprietor with an absolute title would take the land subject to both entries on the register and also overriding interests. Similarly, a transferee for valuable consideration of a registered estate would take subject to both registered and overriding interests and a list of what constituted overriding interests was contained in s. 70.

However, the courts ‘extended the range of some of the principal categories of overriding interests beyond what was almost certainly envisaged'. For example, it came to be permissible for unprotected minor interests to hold overriding status where the owner was in actual occupation of the land. This was the case even though such interests might not be discovered by a purchaser, even after careful inspection and inquiry.

In relation to the 1925 act itself, of particular significance was section 70(1)(g)7 which provided as an overriding interest:
"the rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed".

As Lord Denning MR said in Strand Securities Ltd v Caswell:
"Section 70(1)(g) is an important provision. Fundamentally, its object is to protect a person in actual occupation of land from having his rights lost in the welter of registration. He can stay there and o nothing. Yet he will be protected. No one can buy the land over his head and thereby take away or diminish his rights. It is up to every purchaser before he buys to make inquiry on the premises. If he fails to do so, it is at his own risk. He must take subject to whatever rights the occupier may have."

It had been intended that through registration the register would become a comprehensive record or a mirror image of the totality of interests affecting registered estates. Yet the principle that overriding interests were enforceable without appearing on the register detracted from the principle that the register should be a mirror of the title and these interests are often referred to as the ‘crack in the mirror'. Moreover during the closing years of the 20th century overriding interests came to be seen as a major obstacle to ‘the achievement of the ultimate goal of total registration of land rights'.

In 2001 the Law Commission stated that ‘the guiding principle' underlying the overriding interest provisions of the new Land Registration Act (2002) was the proposition that interests should have overriding status only ‘where protection against buyers is needed, but where it is neither reasonable to expect nor sensible to require any entry on the register'.

Despite the principle aim of making the register as accurate and reliable as possible and the obvious incompatibility with this of overriding interests, it is Thompson's view that "the abolition of this category of right would not be feasible'. He argues that it would not be able to engage in wholesale abolition of the rights and that the removal of overriding status without compensation carries with it the risk of contravening Article 1 of the First Protocol of the European Convention on Human Rights which provides:
"Every natural or legal person is entitled to the peaceful enjoyment of his possession. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceeding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

In order to avoid contravening this article, a cautious approach was needed. It was therefore recommended that overriding status was only removed from existing rights if one of the following conditions was met: that the rights could fairly be regarded as obsolete; those affected consented, or; there were strong policy grounds for so doing and suitable transitional arrangements were put in place15. It was also accepted that it was unreasonable to expect the holders of certain rights to have to protect them by registration. These rights have been retained under the 2002 Act as unregistered interests.

As Whitters (2004) explains, there are three main categories of overriding interest: short leases, easements and profits a prendre, and interests of persons in actual occupation. In addition there is a group of less common overriding interests such as local land charges, customary rights, interests in coal mines, and rights to mines and minerals. Further, there is a group of more obscure overriding interests that will lose their overriding status in 2013 and must therefore be entered on the Register before then to secure protection. This group includes such interests as franchises, manorial rights and liability for chancel repairs.

Overriding interests under the 2002 Act operate in different ways depending on whether the occasion is a first registration of a title or a disposition of an existing registered title. At first registration, overriding interests are listed in Schedule 1 to the Act and this list is more extensive than that operating in respect of a disposition (contained in Schedule 3). This is because the first registered proprietor should not be permitted to escape an adverse right by applying for registration. In contrast, a new owner for value should be given an opportunity to discover which rights might affect him.

Thus, although categories of overriding interests remain, through introducing a time limit after which some will lose their status, removing the ability of others immediately, and redefining the remainder, the LRA 2002 has reduced the number of potential overriding interests. In addition, when dealing with first registration or the registration of a dealing with a registered estate the registry makes every effort to note on the register any interests which would otherwise have overriding effect, and s.71 requires applicants for registration to reveal any such interests of which they know. It is to the overriding interests dealt with by the LRA 2002 that this essay now turns.

According to Gray and Gray, there are two ‘elementary preconditions' that must be met before any entitlement met before any interest falling within Schedule 3 can override a registered disposition. Firstly, an overriding interest must affect the registered estate immediately before the disposition. There can be no claim to an overriding interest unless it subsisted immediately before the relevant date and affected the estate which is the subject of the deposition. Secondly, an overriding interest must remain in existence at the date of registration. No interest will be overriding above a registered disposition unless it is still in existence, and its priority is therefore capable of being protected at the time of the registration of the disposition.

Schedule 3 of the 2002 Act provides overriding protection on most leasehold estates granted for a term not exceeding seven years from the date of grant. This is in order to safeguard the interests of vulnerable tenants whilst still providing that the register is not unduly cluttered by numerous short term leases. This is different from the 1925 Act in that, under that act, only leases granted for a period of more than twenty-one years were capable of registration. The provision does not require that the tenant is in actual occupation of the land, however it does only apply to legal leases (though equitable leases may be protected through the ‘actual occupation' provision). One problem does remain with this system as there are exceptions to the seven year rule. The most important of these is where a lease takes effect in possession after a period of three months beginning with the date of the grant (s4(1)(d)), which is required to have its own registered title. As it is required to be registered, this type of lease will not override registration. The problem may arise with student lets where it is not uncommon for there to be a long delay between granting of the least and occupation. If a purchaser then buys the freehold prior to the lease falling into possession, he will take free of the previously granted lease.

Gray and Gray state that ‘without doubt the most difficult and controversial of the unregistered interests which ‘override' registered dispositions are those which comprise the rights of occupiers of land'. Schedule 3 confirms that any ‘interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is actual occupation' will be an overriding interest.

This class of overriding interest in large part replicates the protection previously given by section 70(1)(g) of the LRA 1925. Although the 2002 Act does not expressly state that only proprietary interests in land are capable of being overriding interests, it must be assumed that the position (as it was under the LRA 1925) remains as that. In National Provincial Bank Ltd v Hastins Car Mart Ltd Russell L.J. stated:
"[S]ection 70 in all its parts is dealing with rights in reference to land which have the quality of being capable of enduring through different ownerships of land, according to normal conceptions of title to real property."

It therefore follows that it is not the fact that a person is in actual occupation of another person's land which gives him an overriding interest, as he must also establish that he has a proprietary right. For example, in National Provincial Bank Ltd v Ainsworth the House of Lords held that the ‘deserted wife's equity' was not an interest in land, thereby precluding her from establishing an overriding interest.

Under the Land Registration Act 1925, interests in registered land were categorised as either minor interests or overriding interest. A question which then arose was whether an interest which was defined as being minor would be transformed into an overriding interest if the owner of the right was in actual occupation of the land. In Williams & Glyn's Bank Ltd v Boland this issue was considered in depth. Mr Boland was the sole registered proprietor of the house he shared with his wife, who had a beneficial interest in it. Mr Boland thereby held the house on trust for himself and his wife. After Mr Boland mortgaged the house to the bank, Mrs Boland argued that as she had an equitable interest in the house and was in actual occupation of it, she had an overriding interest binding on the bank. The bank countered by arguing that, because the type of interest which she had in the land was within the definition of a minor interest, it could not be an overriding interest. Mrs Boland succeeded in her argument.

The result of this decision established that for the purposes of the 1925 act the equation of a minor interest, plus actual occupation, equalled an overriding interest. The form of this equation no longer exists, but its substance still does. This is because although the old distinction between minor interests and overriding interests has been abandoned, there is still a division between interests which are subject to an entry on the register and interests which override first registration of a registered disposition. If a right can be protected by an entry on the register, and is not specifically excluded from being able to override, then if the holder of the right is in actual occupation, the right will be protected and will override.

Furthermore, ‘it is an unspoken pre-condition of overriding status that, at the date of the registrable disposition, the interest which is alleged to override should be fully enforceable and undiminished by any estoppel or waiver'. Schedule 3 cannot therefore enhance or alter the intrinsic quality of the rights which comprise the overriding interest.

In Paddington Building Society v Mendelsohn a purchaser bought a registered title in his own name, with the purchase money being partly provided by his mother and a mortgage loan. The mother later claimed that her beneficial interest behind the implied trust, along with her actual occupation, gave her an overriding interest above the mortgage charge. However, it was held that since the mother had known and intended at the date of purchase that there was to be a mortgage charge that the ‘only possible intention to impute to the parties' was an intention that her rights were to be subject to the rights of the mortgagee.

Hanbury explains that a change ‘of some importance' in the 2002 act is the fact that those merely in receipt of rents and profits from the land are not in actual occupation for the purposes of the new act. This removes the risk highlighted in UCB v Hedworth where the non-owning beneficiary claimed an interest under a deed which had been lost. The beneficiary claimed to be in actual occupation by virtue of her receipt of rent from her husband and a tenant. Although she lost her application for summary judgment, under the LRA 1925 the outcome may have been different.

Perhaps of greater importance is the fact that the overriding interest under the 2002 Act will only relate to the land that a person actually occupies, rather than the land in which he has an interest. Under the new act this is not qualified by the words ‘save where enquiry is made of such person and the rights are not disclosed' as in the previous legislation. Schedule 3 provides that certain occupational interests are exempted from overriding status, namely: an interest which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection, and; of which the person to whom the disposition was made does not have actual knowledge at that time.

This does nothing to help the holder of an interest by way of occupation when they go away for short periods of time. In Chhokar v Chhokar the husband decided to leave the wife and to sell the house without her knowledge. He sold the house and obtained the purchase price while the wife was in hospital having a baby. It was held that the wife did have an overriding interest in the property. Under the new system, it is not at all clear whether the result would be the same.

The status of easements and profits a prendre was formerly governed by section 70(1) (a) of the LRA 1925. It appeared that both legal and equitable interests and profits were overriding interests. This has been considerably altered by the 2002 Act. As Burns analyses, the Act protects prescriptive easements which were in existence before the legislation entered into force because they constituted overriding easements at that time. However, they are likely to be subject to subsequent registration. Prescriptive easements created after the act came into force will have an overriding status for an initial period only and will lose their status after October 2006 unless it can be shown that they were: registered under the Commons Registration Act 1965; ‘within the actual knowledge of the disponee; obvious on a reasonably careful inspection of the land, or; exercised within one year prior to the date of the disposition. It follows that under the new act, far fewer easements will have overriding status than was previously the case.

Similarly, section 70(1)(f) of the 1925 act provided that ‘subject to the provisions of the Act, rights acquired or in the course of being acquired under the Limitation Acts' take effect as an overriding interest. This has also been abolished by the 2002 Act.

Rights to enforce a chancel repair liability which were formerly protected by LRA 1925, s. 70(1)(c) and which were then believed to be unenforceable under the Human Rights Act, have also been abolished.

The Act also makes provision for the removal of overriding status from some of the more obscure overriding interests, though there is a delay of ten years in which the interests will remain valid. These are: franchises; manorial rights; ‘crown rents', and; ‘corn rents'. If these are to be protected they must therefore be entered as a caution against first registration (where the title to the land is unregistered) or a notice.

The actual transfer of registered land is currently a two stage process whereby the registered proprietor executes a document in favour of the transferee, who then applies to the registry to be registered as the proprietor of the estate. The Act is explicit that if the disposition of a registered estate or charge is required to be completed by registration it does not operate at law until the relevant registration requirements are met. This means that until registration, the transferee will not acquire the legal title to the land, causing what is known as the ‘registration gap'. During this registration gap, under the LRA 1925 there was a risk that overriding interests could come into effect.

This registration gap will soon be subject to change through the method of econveyancing. Howell explains that ‘the LRA 2002 does... prepare the way for one change which has received little attention but which may have a profound effect on the law of real property'. Once the provisions are in force the completion and registration of dealings with land will be simultaneous, meaning that no interests in land will be created until they are registered. Howell goes on to say that ‘the categorisation into ‘legal' and ‘equitable' of interests affecting land which come within the scope of e-conveyancing will be devoid of any meaning, other than that given by the land registration legislation itself... ‘legal' and ‘equitable' interests still presently have a life of their own outside any registration system'. Under the system of e-conveyancing this may no longer be the case. Further ‘under e-conveyancing, it will be registration, and registration alone, that will ‘create' a property right'.

Smith asks the question whether, given the electronic entry requirements, it makes sense to maintain distinctions between equitable rights and legal rights. He concludes that registered land ‘is increasingly a self-contained system, in which it is both unnecessary and inappropriate to look back to unregistered land principles'.

From the discussion above it may be seen that, although the regime of registration of title of land may have had the aim of creating a register that was a ‘mirror' image of the interests existing in that land at any one time, the rules on overriding interests diluted the indefeasibility of title registration and went some way to destroying the fundamental principle. Since the adoption of the Land Registration Act 2002, the concept of overriding interests existing to defeat registered interests has been diluted. Indeed, many such interests have been abolished altogether, with further classes of interest due to be abolished after the passing of a certain amount of time. Moreover, the new legislation encourages the registration of interests and provides a power to the registrar to make enquiries and enter interests.

However, one of the main concerns relating to overriding interests existing under the 1925 Act still exists, although perhaps to a lesser extent, today. That is the overriding interest of persons in actual occupation of premises. Although the new Act imposes a condition that the occupation must be obvious on a reasonably careful inspection, some degree of uncertainty remains as to how the concept will continue to operate at law.

Perhaps the remaining overriding interests which still cause some doubt and uncertainty for purchasers, and continue to destroy the principle of title being indefeasible once registered, will cease to be of importance once the new econveyancing provisions come into force. In the meantime it should be remembered that although overriding interests are against the principle of indefeasible title, they have served an important function of protecting the rights of more vulnerable people and as such should not be abolished without great care.