The Land Registration Act of 2002 - Case Study Example

Prior to the enactment of the Land Registration Act 2002, the interest of actual occupiers of land of those en d to receipt of rents and profits were regulation by Section 70(1) (g) of the Land Registration Act 1925.1 Under Section 70(1)(g) these interests were capable of binding a bona fide purchaser if he had notice of the interest and such notice was capable of construction based on reasonable facts. This was so whether or not the interest was registered or not.2 The Land Registration Act 2002 attempted to overcome the difficulties created by the doctrine of construction notice as implied by Section 70(g)(1) of the 1925 by narrowing the list of overriding interests. The Law Commission in its Report No. 271 which gave way to the 2002 Act stated that the aim of the 2002 Act was to create a conveyancing climate in which: “...the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land on-line, with the absolute minimum of additional enquiries and inspections.”3 Obviously the 2002 Act aimed to ascertain, as far as it is possible to do so, that the registry of records reflected an accurate picture of all interests connected to the property in question. Section 70(1) of the Land Registration Act 1925 contained what can be described as a comprehensive list of property rights that could possible bind a bona fide purchaser. The greatest difficulty for a potential purchaser under the Land Registration Act 1925 was that although an overriding interest was not registered, it could bind the purchaser if the interest could be discovered by a reasonable investigation of title and inspection of the property. The list of these overriding interests under the Land Registration Act 1925 can be summarised as follows: 1- Profits and easements. 2- Rights acquired by virtue of the doctrine of adverse possession. 3- The rights of persons in actual occupation of the land in question or the rights of persons entitled to the receipt of profits and/or rents in respect of the land except where reasonable inquiries are made and the right of these persons are not discovered. 4- ‘Leases granted for a term not exceeding 21 years.’4 The Land Registration Act 2002 narrowed the list of these overriding interest as contained under Section 70(1)(g) of the Land Registration Act 1924 and goes on to function in such a way as to encourage the voluntary registration of these rights.. The revised list of overriding interests under the Land Registration Act contains a proviso that the rights are overriding upon first registration and by doing so expanded the list of those interest that are capable of registration. The new list of overriding interest include leases that terminate at the expiration of a seven year period, the rights of occupiers, those obtaining easements as well as those entitled to the receipt of rents and/or profits in respect of the registered land. Previously only a lease expiring at the end of a 21 year term was capable of registration under the Land Registration Act 1925 and the change to a 7 year lease under the 2002 obviously represents a dramatic departure from the 1925 Act. The shorter list of interests that override on a subsequent sale of the property provided they were previously registered include seven year leases, rights of occupiers, easements and those entitled to receipt of rents and/or profits. The over all impact of the new provisions under Section 70 of the Land Registration Act 2992 is that failure to register an overriding interest could defeat the doctrine of constructive notice.5 Although the Land Registration Act 2002 attempted to reverse the pre-existing position in respect of construction notice, it failed to do so entirely. Although Section 70(2)(c) of the 2002 Act purports to dispense with the doctrine of constructive notice by mandating that an interest will not be overriding if it could not have been discovered upon a reasonable inspection of the property6 it is doubtful that such is the case. As Dixon noted Section 70(2)(c) is left for the courts to interpret with respect to the doctrine of constructive notice.7 By virtue of Section 71(b) of the 2002 Act an applicant for registration of a disposition is required to inform the registrar of any or all rights or interests in the land subject to the disposition that the applicant is aware of provided those rights are consistent with the makes it mandatory for an applicant for the registration of a disposition to inform the land registry of any rights that he or she might be aware of that are consistent with the interests delineated under Schedule 3 of the 2002 Act. Those interests include unregistered interests in registered disposition and include seven year leases, rights of occupiers, easements and those entitled to receipt of rents and/or profits.8 Obviously Section 71(b) of the Land Registration Act 2002 has far reaching implications. The law Commission anticipated that the consequences of Section 70(1)(b) would lead to the registration, albeit voluntary, of the registration of overriding interests in land are more and more dispositions are executed and registered under the provisions contained in the Land Registration Act 2002. The underlying goal is that the registry would contain a complete reflection of the title to registered land and thereby dispense with the necessity of having the judiciary invoke the doctrine of constructive notice when it appears to be fair to do so. The obvious intent of the Act of 2002 is that by widening the list of interest capable of registration, failure to do so would operate in favour of a bona fide purchaser who could not have discovered the interest unless it appeared on the land registry. Moreover, it is also possible that some might lose their interests and rights on first registration following a subsequent disposition.9 The application and introduction of the Land Registration Act 2002 have narrowed the application of the doctrine of constructive notice by leaving some rights and interests that were previously overriding under Section 70(1) of the Land Registration Act 1925 incapable of overriding or binding a bona fide purchaser. These rights are defined under Schedules 1 and 3 of the Land Registration Act 2002. The rights under Schedule 3 have already been accounted for above. Under Schedule 1, the list include “unregistered interest which override first registration.”10 For example, an equitable easement whether granted expressly or impliedly by operation of some equitable principle is no longer capable of being an overriding interest. This principle was enunciated in Celsteel v Alton House Holdings Ltd [1985] 1 WLR 204 which ruled that an unregistered easement that was openly exercised was an overriding interest binding a purchaser.11 The list of unregistered interest that can override a first registration under Schedule 1 of the Land Registration Act 2002 include: 1. Leaseholds that do not exceed seven years “from the date of the grant” .12 2. Persons in “actual occupation”.13 3. Easements and profits. 4. Customary rights. 5. Public Rights. 6. Local Land Charges. 7. Rights to mines and minerals. 8. Franchises. 9. Manorial rights. 10. Rents that reverted to the Crown. 11. “Non-statutory” rights to embankments “or sea or river walls.”14 12. “A right to payment in lieu of tithe.”15 The interests and rights of persons in receipts of rent in respect of the property in question no longer have over riding interests. While these rights were overriding under Section 70 of the Land Registration Act 1925, that is no longer the case under the provisions of the Land Registration Act 2002.16 Minor rights or third party rights previously provided for Under the 1925 Act, were not capable of binding a bona fide purchaser even if they had been registered had no consequences for the doctrine of constructive notice. Registration would constitute constructive notice whether or not the purchaser inspected the registry or not. There were two distinct third party interests, one of which fell under the Land Charges Act 1925.17 If such an interest was registered a purchaser would be deemed to have notice of it and would be bound by it. However, if the charge was not registered, the purchaser could take title to the property whether or not he had notice of the charge.18 The second third party interests pertained to interests held by beneficiaries under a trust settlement and strict settlements. These rights were capable of being bypassed despite registration. The Land Registration Act 2002 does very little to modify the position of persons holding an interest under a trust of the land. It offers limited protection by virtue of making provision for a restriction to be entered on the land Registry which might be overreaching but it does not offer protection of the interest.19 Therefore the doctrine of constructive notice does not arise in respect of these types of interests. The most problematic area for the doctrine of constructive notice arose in situations where an actual occupier was concerned under the application of the Land Registration Act 1925. Under the 1925 the occupier was at liberty to elect one of two methods for protection of his interest in the property. He could either enter his interest in the Land Registry, or he might simply rely on his actual occupation to function as notice.20 The difficulties for a bona fide purchaser with respect of the doctrine of constructive notice and the application of the 1925 Act were illustrated by the ruling in Williams & Glyns Bank v Boland [1980] 2 All ER 406. In this case the House of Lords held that a bank seeking to foreclose on a home that it held as security for a loan was bound by the third party interest of the homeowner’s wife who was in occupation and was therefore not entitled to vacant possession. The result of this finding is that a beneficial interest existing under a trust in real property and which might or might not have been registered was capable of binding a bona fide purchaser.21 The obvious implications were that a person could be protected even if he or she failed to register his or her interest under the Land Registration Act 1925. This juxtaposition required that a bona fide purchaser conduct an aggressive investigation of title. He or she would be required to go beyond the registry and physically inspect the property. This requirement demonstrates the injustice associated with the doctrine of constructive notice and obviated the implementation of the mirror principle contemplated by the Land Registration Act 2002. Ironically, when a purchaser paid the proceeds of sale in respect of land to two or more trustees, the interests of any beneficiaries under the trust would have been overreached. It made no real difference whether or not the beneficiaries were actually occupying the property or not.22 Under the Land Registration Act 2002, the pre-existing ambit of the doctrine of constructive notice with respect to actual occupation takes on a slightly different character under the Land Registration Act 2002 although the new Act fails to define actual occupation. The rights and interests of the actual occupant of premises are overriding only insofar as those rights coincide with actual occupation. The impact of this right under the 2002 Act reverses the decision in Ferrishurst Ltd v Wallcite Ltd [1999] 05 EG 161 The spirit and intent of the 2002 Act suggest that actual occupation does not guarantee the existence of any right, but a mere warning.23 In this sense the doctrine of constructive notice has not departed from its previous application in any material form. While the provisions contained in the Land Registration Act 2002 do function to improve upon the Land Registration Act 1925 the doctrine of constructive notice has not been abrogated and remains a judicial function. The only appreciable improvement gleaned from the provisions of the Land Registration Act 2002 is its intent to provide for a registry that reflects an accurate representation of the title to land and all interest impacted by it. However, since the registration of these rights are purely voluntary the doctrine of constructive notice remains a matter primarily for the judiciary and as such remains substantially unaffected by the 2002 Act. Bibliography Celsteel v Alton House Holdings Ltd [1985] 1 WLR 204 Dixon, M. (2003) “The Reform of Property Law and the Land Registration Act 2002: A Risk Assessment.” Conv. 136 Fenn, Katherine. (2003) “Land Reform.” Lawyer. Nov. 17. Vol 17 Issue 45 p. 7 Ferrishurst Ltd v Wallcite Ltd [1999] 05 EG 161 Jackson, N. ‘Title by registration and concealed overriding interests: thecause and effect of antipathy to documentary proof’ LQR (2003), 119 (Oct), pp. 660–691 Land Charges Act 1925 Land Registration Act 1925 Land Registration Act 2002 Law Commission’s Report No. 271 entitled, Land registration for the twenty-first century: a conveyancing revolution http://www.lawcom.gov.uk/lc_reports.htm#1998 Viewed February 16, 2008 Williams & Glyns Bank v Boland [1980] 2 All ER 406 Read More