The Land Registration Bill - Essay Example

THE FUNDAMENTAL PRINCIPLE OF A SYSTEM OF REGISTRATION IS THAT THE ONCE REGISTERED IS INDEFEASIBLE. TO ADMIT OF OVERRIDING INTERESTS AND TO PERMIT THE REGISTER TO BE RECTIFIED IN CERTAIN CIRCUMSTANCES DESTROYS THIS FUNDAMENTAL PRINCIPLE. DISCUSS IN RELATION TO THE PROVISIONS OF THE LAND REGISTRATION ACT 2002 AND THE LEADING CASES IN OVERRIDING INTERESTS”. The Land Registration Bill (the “Bill”) was introduced in 2001 in response to the Law Commission and Her Majesty’s Land Registry consultative document entitled Land Registration for the Twenty-First Century published in 1998 (the “Consultative Document”).1 The Land Registration Bill was the final outcome of six years’ joint work by the Law Commission and Her Majesty’s Land Registry and was the largest single law reform Bill and project that has been undertaken in the Law Commission since its foundation in 1965.2 The joint Law Commission and H.M. Land Registry report, also entitled Land Registration for the Twenty-first Century3 (the “Report”) and published simultaneously with the Bill, endeavoured to assist in dissemination of the changes introduced by the Bill, reviewed the current legal position and indicated the departures from the Consultative Document. The Report quite modestly stated that the “purpose of the Bill [wa]s a bold and striking one.” The avowed objective of the Bill as stated in the Report was to create the necessary legal framework in which registered conveyancing can be conducted electronically. The Report further stated that: “the move from a paper-based system of conveyancing to one that is entirely electronic is a very major one and it will transform fundamentally the manner in which the process is conducted. The Bill will bring about an unprecedented conveyancing revolution within a comparatively short time. It will also make other profound changes to the substantive law that governs registered land. These changes, taken together, are likely to be even more far-reaching than the great reforms of property law that were made by the 1925 property legislation. Not only will the Bill introduce a wholly different method of conveyancing, but, as we explain below, it will also alter the way in which title to land is perceived.”4 The fundamental objective of the Bill was implementation and strengthening the mirror principle, i.e., 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.5 The Report envisaged that these changes would necessarily alter the perception of title to land. It will be the fact of registration and registration alone that would confer title. This is entirely in accordance with the fundamental principle of a conclusive register which underpins the Bill.6 The Bill received Royal Assent on February 26, 2002 and the Land Registration Act, 2002 (the “2002 Act”) came into effect. One significant step towards achieving the mirror principle, a step which is particularly welcome, has been the phasing out or complete removal of a number of overriding interests by the 2002 Act. This is because the 2002 Act envisages that the majority of interests in land will only be capable of being created when simultaneously registered. However, admitting to there being overriding interests undermines the ‘mirror principle’. These un-registrable rights, deemed so important that they do not require registration and which have to date been given statutory protection, dilutes the fundamental objective on which the 2002 Act is based. Lord Denning in Strand Securities v. Caswell7 spoke of the purpose of the overriding interest in Section 70(1)(g) of the Land Registration Act, 1925 (the “1925 Act”) as being to “protect the person in actual occupation of land from having his rights lost in the welter of registration”. He further stated that such a person may “simply stay there and do nothing” but will nonetheless be protected. The 1925 Act listed out the ‘old law’ overriding interests in Section 70(1). Section 70(1) consisted of a number of lettered paragraphs. Many of the types of interest listed in Section 70(1) were unimportant; in practice there were five important categories of overriding interest. The Report recognizes this conflict between on the one hand promoting the mirror principle and on the other hand recognizing overriding interests when it states: “Overriding interests present a significant impediment to one of the main objectives of the Bill, namely that the Register should be as complete a record of the title as it can be, with the result that the title can be investigated entirely on-line.” Yet in the next paragraph the Report states: “The guiding principle on which it [the Bill] proceeds is that interests should be overriding only where it is unreasonable to expect them to be protected on the Register.”8 The very fact that an individual has a right which does not appear on the Land Register or is not necessarily discoverable can create problems for a purchaser who, though prudent, has been misinformed by the vendor as to the presence of other persons on the property who may have acquired third party rights.9 The case of Williams & Glvns Bank v. Boland,10 illustrates this problem. The issue for decision of the Court was whether a husband or a wife, (in each actual case a wife) who has a beneficial interest in the matrimonial home, by virtue of having contributed to its purchase price, but whose spouse is the legal and registered owner, has an “overriding interest” binding on a mortgagee who claims possession of the matrimonial home under a mortgage granted by that spouse alone. In this case the husband misinformed the bank as to his wifes occupation of the property, while mortgaging the property to the Bank. The Court held that the wife had an overriding interest under Section 70(1)(g) Land Registration Act, 1925 which was binding on the Bank. In Malory Enterprises Ltd v. Cheshire Homes (UK) Ltd,11 the Court held that a person who purchased land from a wrongdoer and had been entered on the register as legal owner took the title subject to the right of the lawful owner to seek rectification of the register. The rightful owner has sufficient standing to sue for trespass without rectification. He was in occupation and so had an overriding interest within section 70(1)(g) of the Land Registration Act 1925. In Ferrishurst Ltd. v. Wallcite Ltd.,12 the claimant tenant had been granted an option to purchase the defendant landlords title, which comprised the land on which there was a garage, and the offices occupied by the claimant. When the claimants lease expired, it sought to exercise that option and purchase the entire title. The option was not registered against the landlords title, so the claimant had to rely on the actual occupation provisions in Section 70(1)(g) of the 1925 Act. It was conceded that these provisions made the option to purchase an overriding interest, but the question was whether it was enforceable only against the part occupied, or against the entire title. The Court of Appeal refusing to follow its previous decision in Ashburn Anstalt v Arnold,13 decided that, as the option was over the entire title, the claimant could exercise it over the entire title, even though it was only in occupation of part of the land, the rationale being that Section 70(1)(g) does not protect rights of occupation as such; rather actual occupation is the mode by which the rights of the occupier are protected against a purchaser of the land.14 As the aforesaid cases illustrate, the concept of overriding interest is contrary to the overall goal of the registration system. After all, why have a system of title registration if the registered entry is not conclusive as to important adverse interests? A number of scholars believe that there is nothing inherently wrong with a category of non-registrable binding right, even in a system of land registration.15 Property law prior to the Act of 1925 coped with the concept of legal rights ipso facto binding transferees and there was no certainty that all such rights were discoverable by inspection of the title documents or the land itself. Policy might require the existence of a class of non-registered rights that bind a registered title. Obligations of general public utility, such as the burden of maintaining sea walls and public rights of way, are an obvious example. Apart from public policy, the state has a duty to ensure that the property rights of those who do not have the protection of a formal registration of their rights, but nevertheless occupy land as their home, should be protected without the need to register. However, socio-economic conditions are significantly different today from those that existed in 1925 and with changing economic conditions and rapidly changing technology, there is a need for evolving mechanisms that ensure that conveyance is simple and transparent. Importantly, it is unarguable that the development of principles permitting (some might say encouraging) the informal acquisition of interests in land – such as resulting and constructive trusts and proprietary estoppel – have dramatically increased both the chance that an adverse right might exist and that it might be undiscoverable, being neither materially recorded nor necessarily obvious to a purchaser.16 Similarly, developments in the banking and finance sector have given rise to a substantial portion of all mortgages created, being in favour of institutional mortgagees. The importance of such lending to the domestic economy requires that these financial institutions be protected from expensive and economically inefficient litigation based on Section 70(1) of the 1925 Act.17 At this it is necessary to discuss the case of City of London BS v. Flegg18 which is a departure from the Borland principle. In this case a house was brought jointly by a couple (Maxwell-Brown) and the parents (Flegg) of Mrs. Maxwell-Brown. All four used to reside and occupy the said house. Without informing the Flegg’s the Maxwell’s took a mortgage from the Bank and the bank issued a receipt without any ascertainment of Flegg’s interest, if any. The matter went up to the House of Lords which held that the Flegg’s had no interest in the house once payment had been made to Maxwell-Brown’s since their interest has been overreached. This being the position they could not bring themselves under section 60 of the Land Registration Act, 1925. Thus, while there is some merit in continuing with the concept of overriding interests to protect certain classes of rights, there are powerful arguments in favour of reform apart from the imperative of ushering in e-conveyancing. Additionally, when the objective is to wholly re-shape the way land is transferred and to make the register both the evidence and the origin of the legal validity of a person’s title, achieved on-line with minimal additional enquiries, then any dilution in the integrity of the register has to be minimised. If one were to accept that the 2002 Act leads to a fundamental change in the way property rights are perceived,19 it is not so much that the act of transfer/creation must occur at the same time as the act of registration; it is rather that the act of registration is the act of transfer/creation. Clearly, the large category of overriding interests as currently statutorily recognized cannot survive this fundamental change in perception or rather, if they do, then the dream of e-conveyancing and title by registration cannot survive in the form found in the 2002 Act. Thus, it is with some justification that the Report sees the existence of overriding interests as a “major obstacle” to its goal.20 That having been said, the new Act is indeed a positive change towards this new perception as compared to the 1925 Act in as much as it minimises the occasions on which an “interest that overrides” can affect a registered title and encourages the registration of interests that might otherwise take effect as such. Apart from the change of name from “overriding interest: to “interest that overrides”, the first significant divergence in the new law as compared to the old law is that the 2002 Act now recognises that the effect of an interest that overrides depends on whether it is challenging a first registration of title or a disposition of a title that is already registered. Thus, interests overriding a first registration are dealt with in Schedule 1 (and made effective by sections 11(4)(b) and 12(4)(c) of the Act) and those overriding a registered disposition are dealt with in Schedule 3 (and made effective by sections 29(2)(a)(ii) and 30(2)(a)(ii) of the Act) and the simple effect of the distinction is that more interests will override a first registration and in a wider range of circumstances than will override a disposition of an already registered title. Schedule 1 is wider than Schedule 3.21 There are two primary reasons for this. First, that the act of first registration itself should neither enhance nor diminish the effect of a proprietary right over land. That which did not bind before should not bind after registration and vice versa. For instance, although paragraph 2 of Schedule 1 confers overriding status on an “interest belonging to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for an interest under a settlement under the Settled Land Act 1925”, this can refer only to those rights which, at the time of first registration, are already binding on the applicant for first registration.22 Such rights would be binding prior to first registration primarily because the applicant had notice of the rights (the rights not being registrable as land charges), or when the application for first registration is voluntary (i.e. not triggered by a dealing with the unregistered land), where the applicant is bound inter partes by the right. In neither case should the newly registered proprietor be able to escape the right by an act of first registration even if it would have become void against a purchaser had he sold the land. The second reason is that, given that a major aim of the new legislation is to ensure that the register provides as accurate a picture as possible of the legal state of the land, the interval between a first registration and a first registered disposition is seen as an opportunity to ensure that more rights come onto the register (even if they could override) and to deny overriding status thereafter to those that contradict the paramount policies of the Act. There is in consequence a duty under Section 71(b) of the Act on a person applying for registration of a disposition to disclose information about rights which may fall within Schedule 3 and, as noted above, the scope of rights within Schedule 3 is narrower than those of Schedule 1. Thus, by a re-classification of “interests that override” according to the type of transaction they are to affect and alteration of the type of right that can have overriding status in the first place, the 2002 Act seeks to achieve a considerably slimmer set of rights under both Schedules than those that take effect under Section 70 (1) of the 1925 Act. However, in my view, the Act achieves this purpose only to a very limited degree. There is only a limited practical significance of schedule 1 as it remains to be seen whether the combination of an efficient e-conveyancing system, the duty of disclosure under Section 71 of the 2002 Act or the penalty of voidness (where it operates) really does encourage registration of rights in the interval between first registration and the first registered disposition. This rather suggests a degree of knowledge and understanding on the part of right holders (and their advisers) that might not exist, and if such knowledge and understanding were to be wide-spread the rationale for protecting overriding interest would be lost. It is therefore, Schedule 3 which is of overwhelming long-term importance. The new list of overriding interests set out in Schedule 3 of the Act, consists of 14 numbered paragraphs. Schedule 3 is almost as long as the ‘old’ Section 70(1) of the 1925 Act. A number of unimportant overriding interests have been abolished. However, of the five important categories of overriding interests in the 1925 Act only one has been abolished. The one abolished is that in the old Section 70(1)(f) ‘rights acquired or in the course of being acquired under the limitation acts’. Of the remaining four important overriding interests, one, Local Land Charges, is retained unchanged.23 The other three categories are: (a) Easements and Profits; (b) Short-Term Legal Leases; and (c) Property Rights of a Person in Actual Occupation. Perhaps the most difficult feature of “overriding interests” under the new Act is its treatment of easements and profits. The relevant ‘old’ provision is Section 70(1)(a) of the 1925 Act. As far as material, this read, ‘…profits à prendre,…and easements not being equitable easements required to be protected by notice on the register’. The wording of Section 70(1)(a) was somewhat archaic, but certain consequences were clear: (a) A legal profit was an overriding interest. (b) An equitable profit was also an overriding interest. (c) A legal easement was an overriding interest. That left equitable easements. Now on the wording of paragraph (a), one may think that equitable easements were not overriding interests, but minor interests, and that to be binding upon a purchaser they needed to be protected by an entry on the register. However, in Thatcher v Douglas,24 the Court of Appeal, by some rather strained logic, managed to hold that an equitable easement was an overriding interest within Section 70(1)(a).25 Under the new Act, easements and profits already existing against a registered title (and there must be a huge number of such rights) will continue to be governed by the old 1925 Act, Section 70(1)(a) and the case law interpreting that provision.26 So all ‘old’ easements and profits, however they were created, and whether they are legal or equitable, continue to be overriding interests after 12 October 2003. So far as easements created after 12 October 2003 are concerned, Section 27(2)(d) of the 2002 Act (in effect) requires all new express grants of easements and profits (created out of a registered title) to be substantively registered. If a dominant owner of an easement or profit fails to substantively register his right, the easement or profit will take effect only as an equitable interest. Schedule 3, para. 3 refers only to legal easements and legal profits. So an equitable easement or an equitable profit which arises either: (a) because there is an express grant which the dominant owner fails to substantively register; or (b) because the easement or profit is to endure only for the life or lives of a person(s); or (c) because a written contract not in the form of a deed creates the right, cannot be an overriding interest. It follows that all equitable easements arising after the commencement of the 2002 Act will be minor interests, which will only bind a purchaser if the dominant owner has entered a ‘Notice’ on the register protecting his right. However, while equitable easements have been deliberately omitted from the Schedules, despite being recognised as overriding interests within Section 70 (1)(a) of the 1925 Act as a result of court decisions, certain types of equitable easements may nevertheless squeeze into the new categories of “interests that override” through a flexible judicial interpretation of their provisions. In this regard, we should note the recent obiter dicta in K Sultana Saeed v Plustrade Ltd.,27 which suggests that certain types of easement can qualify as an overriding interest under Section 70(1)(g) of the 1925 Act because the claimant was in actual occupation of the portion of land subject to the easement: in this case, by using the parking space that was the subject matter of the easement.28 As a result of Sch. 12, para. 10 of the 2002 Act all new legal easements and profits arising by implication or by prescription in this transitional period of three years will automatically be overriding interests for the transitional period. Once that transitional period is over (in October 2006) these implied or prescriptive easements or profits will become subject to the permanent rules set out in Schedule 3, para. 3 of the 2002 Act. In principle, a legal easement or profit arising by implied grant or prescription will only be overriding if any one of the following three conditions is fulfilled: (a) the purchaser had ‘actual knowledge’ of the easement or profit on the date of the land transfer in his favour; or (b) the existence of the right would have been apparent ‘on a reasonably careful inspection of the land over which the easement or profit is exercisable’; or (c) if the easement or profit has been exercised at least once in the year prior to the land transfer (So one journey at 0300 in the morning would be enough to preserve the overriding status of a right of way!). Thus, as a result of these new rules, only a very few legal easements and profits will be excluded from being overriding interests. The new rules exclude from being overriding only an (undiscovered) legal easement or profit which has neither: (a) left physical evidence on the land of its existence; nor (b) been exercised at least once in the year before the land transfer. As is apparent from the above discussion, rather than simplifying the situation, the new Act makes the law relating to overriding interests and particularly easements even more complicated and leads to a glaring conflict with the fundamental mirror principle on which the Act is based. The problem is further aggravated due to provisions relating to alteration of the land register. Section 65 of the 2002 Act read with Schedule 4 makes provision for alteration of the register. Under Schedule 4, the Court or the Registrar has power to alter the register for: (a) correcting a mistake, (b) bringing the register up to date, or (c) giving effect to any estate, right or interest excepted from the effect of registration. In addition, the Registrar has the power of removing superfluous entries in the register. If alteration affects the title of the proprietor of a registered estate in land, such alteration cannot be made without the proprietor’s consent in relation to land in his possession unless: (a) he has by fraud or lack of proper care caused or substantially contributed to the mistake, or (b) it would for any other reason be unjust for the alteration not to be made. Further, the Court or the Registrar, in any proceeding for alteration, where the Court/Registrar has power to make the alteration, the application must be approved, unless there are exceptional circumstances which justify not making the alteration. This is a divergence from the older law as Courts had held that although the court did have discretion under Section 82 of the 1925 Act to rectify the register it would only do so in exceptional circumstances.29 The Courts rationale for the said decision was to provide sanctity to the land register as a record of title and to refrain from rectifying the register except in exceptional circumstances where not rectifying would cause injustice or grave prejudice to someone. Thus, rectification under the 2002 Act is compulsory unless there are exceptional circumstances while it was the opposite under the 1925 Act. This further dilutes the avowed objective of establishing a system of title registration in which the title once registered is indefeasible. While this paper has attempted to clearly highlight the problems that the concept of overriding interests and rectification of the register poses to the fundamental mirror principle, one cannot at present simply wish away or eliminate these concepts in a hard handed manner, lest such measures be unjust or lead to a violation of Article 9 of the European Convention on Human Rights. Rather, measures should aim at a gradual elimination of overriding interests. While, the Act of 2002 does aim for this goal, the significant problems in the way Schedule 1 and Schedule 3 are drafted necessitates suitable amendments to eliminate uncertainty and expensive litigation. The move to electronic conveyancing, envisaged under the 2002 Act will itself facilitate the process of eliminating overriding interests as many interests in land will only be capable of being created when simultaneously registered. Such interests will never be overriding, therefore. BIBLIOGRAPHY 1. Barbara Bogusz, Bringing Land Registration into the Twenty-First Century: The Land Registration Act 2002, The Modern Law Review, Vol. 65, No. 4, (Jul., 2002), pp. 556-567 2. Belinda Fehlberg, The Husband, the Bank, the Wife and Her Signature: The Sequel, The Modern Law Review, Vol. 59, No. 5 (Sep., 1996), pp. 675-694 3. Elizabeth Cooke, The New Law of Land Registration, Hart Publishing, London, 2003 4. Gerald Dworkin, Registered Land Reform, The Modern Law Review, Vol. 24, No. 1, (Jan., 1961), pp. 135-143 5. Graham Battersby, Informal Transactions in Land, Estoppel and Registration, The Modern Law Review, Vol. 58, No. 5, (Sep., 1995), pp. 637-657 6. Jonathan Hill, Overriding Interests: Occupation of Part of the Land, The Modern Law Review, Vol. 63, No. 1, (Jan., 2000), pp. 113-119 7. Judith M. Masson, Rectification of the Land Register, The Modern Law Review, Vol. 39, No. 5, (Sep., 1976), pp. 582-585 8. Law Commission and Her Majesty’s Land Registry, Land Registration for the Twenty-first Century, Law Com No. 254, The Stationary Office, London, 1998 9. Law Commission and Her Majesty’s Land Registry, Land Registration for the Twenty-first Century, Law Com No. 271, The Stationary Office, London, 2001 10. Martin Dixon, The Reform of Property Law and the Land Registration Act, 2002: A Risk Assessment, The Conveyancer and Property Lawyer, 2003 11. Merrill I. Schnebly, “Legal” and “Equitable” Interests in Land under the English Legislation of 1925, Harvard Law Review, Vol. 40, No. 2, (Dec., 1926), pp. 248-291 12. Peter Bennett, Registered Land and Good Faith, The Modern Law Review, Vol. 47, No. 4, (Jul., 1984), pp. 476-481 13. Phillip H. Kenny, Constructive Trust of Registered Land, The Modern Law Review, Vol. 46, No. 1, (Jan., 1983), pp. 96-98 14. R. H. Maudsley, Bona Fide Purchasers of Registered Land, The Modern Law Review, Vol. 36, No. 1, (Jan., 1973), pp. 25-41 15. Theodore B. F. Ruoff, The Protection of the Purchaser of Land under English Law, The Modern Law Review, Vol. 32, No. 2, (Mar., 1969), pp. 121-141 Read More