Burn's Land Law Cases - Assignment Example

Introduction Property legislation is predicated on a system which is based on three principles. These principles are known as the mirror principle,the curtain principle and the insurance principle. The mirror principle implies that the registry of records should accurately reflect all the relevant particulars of title, although overriding interests are exceptions to the mirror principle. The mirror principle was enunciated by Phillip JA in Re Cartlidge (1987) 34 DLR 161 when he said, ‘The register is everything; an owner’s title is conclusive and persons dealing with registered owners are not required to go behind the register’:1 The curtain principle refers to trusts which are not reflected in the particulars of title so as to facilitate the smooth conveyance of the legal estate. The insurance principle implies that the state guarantees the title and any mistake in the registry is capable of rectification with compensation.2 Trust connected to registered land will typically not be subject to registration and as such will not appear on the register. This enables third parties to engage in transactions content with the knowledge that the equitable interest associated with the trust will be overreached.3 The Land Registration Act 2002 came into effect on 13 October 2003 and is designed to improve, simply and modernize the land registration process. It replaces the Land Registration Act 1925 and all previous legislation relating to land registration and introduces a system for accommodating electronic conveyance. In addition the 2002 Act introduced significant changes in land law. Among the areas affected are adverse possession, mandatory and voluntary registration of some third party interests and the creation of a new adjudicator.4 Third party interests are invariably equitable interests and are important for the purpose of this discussion. The object of the Land Registration Act 2002 as stated by the Law Commission’s Report No. 271 entitled, Land registration for the twenty-first century: a conveyancing revolution. is that ‘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 This objective is founded on the mirror principle. For the purpose of this discussion an interest in land was defined in National Provincial Bank v Ainsworth [1965] AC 1175 as an interest that ‘must be definable, capable of being identified by third parties and of being transferred to them.’6 An equitable interest is determined by a process of elimination. Section 1(2) of the Law of Property Act 1925 provides that ‘The only interests or charges capable of subsisting or being created or conveyed at law are: easements; rent charges; charges by way of legal mortgage; rights of entry. All other estates and interests and charges in or over land take effect as equitable interests.’7 The affect of an equitable interest on the title to land upon the transfer of property was enunciated in Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783. In this case it was held that unless a legal estate in unregistered land is capable of registration under the Land Charges Act 1972 it is good with or without notice. Whether or not an equitable interest is enforceable will depend on whether or not it was registrable and was registered as a land charge under the Land Charges Act 1972. If it is not registrable it will only be enforceable if it is an overriding interest. If this is not the case, the equitable interest will be subject to the doctrine of notice. The case, Kingsnorth Finance Co Ltd was concerned with upon the sale of an estate by a sole trustee the bona fide purchaser had notice of the beneficial interest under the estate.8 Property Legislation Under the previous Land Registration Act 1925, interest referred to as overriding interests have now been tagged ‘interests that override’ under the Land Registration Act 2002.9 The 2002 Act intends to ensure that, as far as it is possible to do so, the registry of records should reveal an accurate picture of all interests connected to the property in question. This of course, encapsulates equitable interests in real estate. By virtue of Section 70(1) of the Land Registration Act 1925 a list of property rights capable of binding a prospective purchaser was limited. The problem with the 1925 Act was that an overriding interest could fail to be listed and unless it was discovered by some other means a purchaser would be bound by it. The nature of these overriding interests as contained in Section 70(1) of the Land Registration Act 1925 were as follows:- 1- Profits and easements. 2- ‘Rights acquired or in the process of being acquired under the Limitation Acts.’ 3- ‘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.’ 4- ‘Leases granted for a term not exceeding 21 years.’10 The impact of the Land Registration Act 2002 on this category of overriding interests is to narrow the list and to encourage registration of these interests. The new category of interests includes a wider list of interests that are capable of overriding on first registration of the title. This list includes leases up to seven years, rights of occupiers as well as easements and profits. This represents a dramatic departure from the 1925 Act’s requirement of a 21 years’ lease. The shorter list of interests that override on a future sale of the property provided they are already listed include seven year leases, rights of occupiers, easements and profits. The result is, if the occupier fails to register his interest he could lose his occupation rights.11 Section 71(b) of the 2002 Act makes it mandatory for an applicant for the registration of a disposition to inform the land registry of any rights that he might be aware of that are capable of being caught by Schedule 3 of the 2002 Act. The consequences of Section 71(b) are far reaching. It is contemplated that over time, the numbers of interests that override will decrease as more and more dispositions are generated under the 2002 Act with more interests appearing on the land register. Moreover, it is also possible that some might lose their interests and rights on first registration following a subsequent disposition.12 Property Legislation and Equitable Interests Following the implementation of the Law of Property Act 1925 only easements with a fee simple estate in possession were recognized as legal interests.13 A legal easement is an easement which exists at law and was created at law.14 When an easement fails to be identified as a legal easement it will take effect as an equitable interest and as such is known as an equitable easement. An equitable easement constitutes a proprietary interest in an estate even if it could be transferred or created at law.15 The category of equitable easements which include easements that were created prior to the 1925 Act and would have run as legal easements, but are no longer capable of existing as legal easements by virtue of Section 1(2)(a) of the Law of Property Act 1925 will now be regarded as equitable interests.16 The equitable interest is impacted by the Land Registration Act 2002. Obviously, some rights and interests that were previously overriding under Section 70(1) of the Land Registration Act 1925 are no longer overriding under Schedules 1 and 3 of the Land Registration Act 2002. 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 holds that an unregistered easement that was openly exercised was an overriding interest binding a purchaser.17 The rights of persons in receipt or rent 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 2002.18 Third Party Interests Under the 1925 Act, there was a category of minor interests more commonly known as third party interests that could not bind a bona fide purchaser if they were not registered. There were two distinct third party interests, one of which fell under the Land Charges Act 1925.19 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.20 The second third party interests involved 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.21 There was an obvious difficulty with the interest of persons in actual occupation of land under the provisions of the 1925 Act. The Act made provision for such a person to protect his interest in one of two ways. He might either enter his interest in the Land Registry, or he might simply rely on his actual occupation to function as notice.22 A serious difficulty encountered as a result of the 1925 Act was demonstrated in the case of Williams & Glyns Bank v Boland [1980] 2 All ER 406 and Abbey. 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 under real property and which might or might not have been registered was capable of binding a bona fide purchaser.23 The implications were that a person who was negligent in protecting his interests under the Land Registration Act 1925 essentially had no real worries. Whereas a bona fide purchaser was required to conduct onerous enquiries both in the registry and at the site of the land he intended to acquire. 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.24 Another class of third party interest capable of acquiring status as an equitable interest in land is an estate contract (with an option to purchase an interest in land). Under the Land Charges Act 1972, as estate contract can be registered as a Class C iv land charge. If the estate contract is not registered as such it will be useless as against a bona fide purchaser of the legal estate in land. This is so whether or not the purchaser has knowledge of the existence of the estate contract or not provided the purchase was for money or money’s worth.25 Likewise a contract to purchase realty is capable of registration as a class C iv estate contract under the provisions of the Land Charges Act 1972. This contract for the purchase of land, if not registered, will also have no impact against a bona fide purchaser for money or like value of a legal estate. It was held in Lloyds Bank plc v Carrick [1996] 4 All ER 630 that a purchaser could not get around this provision by attempting to prove that a non-registrable equitable interest resulted from the terms of the contract for sale and was separate and distinct from the contract itself. Therefore the purchaser could not assert an equitable interest against the bank on the basis of a resulting or constructive trust or on the grounds of proprietary estoppel.26 Adverse Possession Adverse possession has also seen fundamental changes under the Land Registration Act 2002. Under the Land Registration Act 1925, Section 75, the actual owner of real property held the title upon trust for the squatter in question. The squatter was at liberty to make an application to have himself registered as the owner in fee simple of the property after enjoying continuous quiet possession for a period of at least twelve years. This section of the 1925 Act applied to registered freehold.27 Under Schedule 6 of the Land Registration Act 2002 provision is made for a new scheme in respect of adverse possession of a registered freehold. By virtue of Section 96 of Schedule 6 of the 2002 Act, Adverse Possession, no matter how long it is enjoyed, will not interfere with the actual owner’s right to apply for obtain registration of his estate in the land.28 However, under Section 97 of Schedule 6 of the 2002 Act, a person claiming Adverse Possession may make an application for registration as owner and occupier of the property after only ten years of continuous quiet possession.29 The procedure for making the application is set out under the Land Registration Rules 2003 and the squatter is required to complete a Form ADVI together with a ‘statutory declaration.’ All persons having any interest in the property including a registered chargee and a registered proprietor will be notified of the squatter’s application for registration.30 If the application for title by reason of Adverse Possession is unopposed, the squatter’s application for title to the land will be successful. If the application if opposed, the application for registration will be refused unless he can satisfy the registry of one of the following three factors: 1- That by reason of equitable estoppel the actual proprietor cannot dispossess the squatter; or 2- The applicant has some other reason supporting his application to be registered as proprietor; or 3- The applicant owns land adjacent to the land he wishes to have title registered to.31 In order to satisfy the third condition stated above, the applicant must show that for at least ten years over which he enjoyed quiet possession of the property he reasonably believed that he owned the land to which he seeks title. If the application is refused the squatter may apply again within two years if he can show that he remained in possession of the property during that period. Whether or not there is an objection to the renewed application, the squatter will obtain registration. The rationale is that if the true owner was interested he would have taken the opportunity over the two-year interval to have the squatter evicted.32 Equitable Interests of Persons in Actual Occupation The concept of actual occupation takes on a slightly different meaning under the Land Registration Act 2002 although the new Act fails to provide a definition. 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 which essentially held that a purchaser takes title subject to the interest of an occupant whether the interest is registered or not. The spirit and intent of the 2002 Act suggest that actual occupation does not guarantee the existence of any right, but a mere warning.33 Fortifying the theory that the land registry should reflect an accurate picture of registered land, the interests and rights of a person who is in actual occupation of the land in question will not function to override the interest of a purchaser where:- 1) Enquiries were made of the occupier and he neglected to disclose that information where he might be reasonably expected to do so; or 2) The occupier’s actual occupation is not evident upon an inspection of the property and the occupier did not have knowledge of his interest at the time of purchase.34 This part of Section 71 of the 2002 Act replaces and alters the provision of the Land Registration Act 1925 Section 70(1)(g) in respect of the interests and rights of occupiers of land. What the 2002 Act does is make a distinction between discoverable interests and undiscoverable interests. The Land Registration Act 1925 made no such distinction and protected the interests and rights of occupiers.35 Section 93 of the 2002 Act makes provision for electronic conveyancing which will only be effective if it is registered electronically. If the formalities for the creation and execution of electronic conveyances are not complied with there will be no right to attached to it either at law or in equity. Paper documents are becoming obsolete. In the event a purchaser fails to comply with the formalities of an electronic conveyance he might avail himself of propriety estoppel.36 Section 82(1) of the Land Registration Act made provision for the grounds upon which the land register might be rectified. Section 82(2) provided that rectification was not possible if it affected the title of an owner in occupation only in circumstances where rectification would give effect to an overriding interest or in cases of special circumstances.37 Section 83 made provision for indemnity in the event the register was rectified.38 However, there was no indemnification if the register was rectified in favor of an overriding interest since there are no losses incurred. The Land Registration Act 2002 does not alter the position as it appears within the meaning of Sections 82 and 83 of the 1925 Act. It does however provide clarification. By virtue of Schedule 4 of the 2002 Act rectification is only possible when the result is a change ‘which prejudicially affects the title of a registered proprietor’. Previously, rectification only occurred when a person had been erroneously registered as owner. Now rectification will occur against a registered owner if:- 1- the owner contributed to the mistake by fraud or by negligence; or 2- it would be unjust not to rectify the register.39 Indemnity is provided for by Schedule 8 of the 2002 Act. In a typical case, a registered owner will be indemnified in a manner which reflects his loss. However, if the registered owner is partly responsible for the mistake in the land registry he will not be indemnified.40 Conclusion In Williams & Glynn Bank Ltd v Brown et al [1981] AC 487 Lord Wilberforce explained the purpose of land legislation and the requirement that equitable interests in land be either registrable or overreached. In his view, if this was not so, a prospective purchaser would have an onerous task inspecting land he intended to buy in order to discover what equitable interest ran with the land. Lord Wilberforce said, ‘the system of land registration, as it exists in England, which long antedates the Land Registration Act 1925, is designed to simplify and to cheapen conveyancing…. In place of the lengthy and often technical investigation of title to which a purchaser was committed, all he has to do is to consult the register; from any burden not entered on the register, with one exception, he takes free. Above all, the system is designed to free the purchaser from the hazards of notice - real or constructive - which, in the case of unregistered land, involved him in enquiries, often quite elaborate, failing which he might be bound by equities. The Law of Property Act 1925 contains provisions limiting the effect of the doctrine of notice…’41 Prior to the enactment of the Land Registration Act 2002, upon first registration a bona fide purchaser who completed the sale of property by reference to only one trustee who held the legal title could actually take the title unencumbered by the equitable interest under the existing doctrine of notice. If the purchaser has conducted the necessary inspection of the registry and the property in question and did not find evidence of the equitable interest he or she will take the legal estate without notice. The affect of this is that the purchaser takes the legal estate free of the equitable interest. The beneficiary’s right of action will lie against the trustee.42 The provisions contained in the Land Registration Act 2002 certainly do improve on the Land Registration Act 1925. Obviously, bona fide purchasers are afforded more protection by the new Act’s registration requirement for interests that override.43 Even where equitable interests are not required to be registered, the purchaser is protected since an interested third party faces losing his interest if he fails to register that right under voluntary registration provisions. Prior to the Land Registration Act 2002 the land registration system was intended to make provision for a means by which land could be proved and encumbrances could be easily identified. This is the underlying principle that initiated the concept that equitable interests in land should be registered and if not registered be overreached. The Land Registration Act 2002, while it does not substantially change the position of equitable interests it makes it imperative for an equitable interest to be protected by registration by virtue of the voluntary registration scheme. The purpose of the 2002 Act is to provide a system of ‘title by registration rather than a system of registration of title.’44 Word Count 3,595 Bibliography Burns, E.H. Maudsley and Burns Land Law Cases and Materials. (2004) Oxford University Press 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 March/April, pp. 146–156 Druiff, Naomi & Garret, Taylor. Land Registration Act 2002 – An Overview. http://www.legalpractitioner.co.uk/artland1.html Viewed December 11, 2006 ER Ives Investment Ltd v High [1967] 2 QB 379, [1967] 1 All ER 504, CA Fenn, Katherine. Land Reform. Lawyer. Nov. 17. 2003 Vol 17 Issue 45 p. 7 Ferrishurst Ltd v Wallcite Ltd [1999] 05 EG Jackson, N. ‘Title by registration and concealed overriding interests: the cause and effect of antipathy to documentary proof’ LQR (2003), 119 (Oct), pp. 660–691 Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783 Land Charges Act 1925 Land Registration Act 2002 Land Registration Act 1925 Land registration Rules 2003 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 December 11, 2006 Law of Property Act 1925 Lloyds Bank plc v Carrick [1996] 4 All ER 630 Midland Bank Trust Co v Green [1981] AC 513 National Provincial Bank v Ainsworth [1965] AC 1175 Poster v Slough Estates Ltd [1969] 1 Ch 495 Re Cartlidge (1987) 34 DLR 161 Registered Land. http://nli.northampton.ac.uk/mmb/lawacc/jrm/Land-4-Registration.htm Viewed January 12, 2007 Williams & Glyns Bank v Boland [1980] 2 All ER 406 Wolfson v Reg Gen (1934) 51 CLR 300 Bibliography Burns, E.H. Maudsley and Burns Land Law Cases and Materials. (2004) Oxford University Press Read More