Legal Interests of a Purchaser of the Legal Estate - Essay Example

It is easy to protect legal interests against a purchaser of the legal e where the is unregistered. However, where the is registeredit is easier for a third party to protect equitable interests. Do you agree? Support your answer by reference to statutes and decided cases. The Land Registration Act 2002 (LRA) came into force on 13th October 2003 implementing an overhaul of the organisation of registered land system, repealing the Land Registration Act 1925. The Law Commission Report Number 271 highlighted the central objective of the LRA 2002 being to create a land registration system that is an accurate reflection of the true state of title to a registered estate of land at any time. As such, it is arguable that the narrow system implemented by the LRA 2002 renders the unregistered system a more useful tool to protect legal interests against purchasers of the legal estate. Furthermore, one of the central purposes of the 2002 Act was “to reduce the number of overriding interests which are binding upon a purchaser of a registered title” (Sexton 122). However, Sexton argues that the “2002 Act achieves this purpose only to a very limited degree” (122). Accordingly, whilst the overall intention of the 2002 Act is to reduce the number of third party equitable interests which are binding on a purchaser, it is questionable how far the LRA 2002 has gone to achieve this. The focus of this analysis is to evaluate whether the unregistered system facilitates the protection of legal interests against a purchaser of the legal estate with a comparative analysis of the registered land system particularly in context of the overhaul implemented by the LRA 2002. Additionally, this paper will consider whether it is easier for third party equitable interests to be protected where title is registered particularly in context of the LRA 2002. With regard to unregistered land, the general principle is that all legal interests against an unregistered title will be binding on a purchaser (Smith). As such, this general principle would appear to support the statement that it is easier to protect legal interests against a purchaser of the legal estate in unregistered land; as with registered land, legal interests are required to be registered unless they fall within the category of overriding interests (Dixon). Moreover, the system of overriding interests has been inherently complex, creating uncertainty for the purchaser vis-à-vis registered titles. Alternatively, the wider scope for protection of proprietary interests both legal and equitable in registered title undermines the above statement particularly in context of the wide range of proprietary rights falling within the ambit of overriding interests (Megarry & Wade). For example, with regard to registered land the general principle is that “all third party rights against a registered estate and all short term leases are either overriding or minor interests” (Sexton 121). With registered land, if a third party right is not overriding, then it will be a minor interest and will only bind purchasers if protected by an interest on the register, which is “roughly comparable to a registrable land charge in respect of unregistered land” (Sexton 121). As such, this would appear to negate the assertion that third party equitable rights are necessarily easier to protect with registered titles. From the outset, the statement is inherently flawed in being dogmatic and fails to account for the fact that whilst the enforceability of a third party right on a purchaser will vary depending on whether the title is registered or unregistered, ultimately the determinant factor will be the nature of the right being protected irrespective of whether it is legal or equitable. For example, if we consider overriding interests in particular, these represent a major point of contention for purchasers of registered title (Megarry and Wade). Again, the general rule is that overriding interests will bind a purchaser of registered title regardless of notice (Smith). The previous legislative framework governing registered land was the Land Registration Act 1925, which listed overriding interests in section 70(1). Whilst the intention of the LRA 2002 was to reduce the number of overriding interests binding a purchaser of registered title, it has been commented that the 2002 provisions obfuscate matters by introducing two different lists of overriding interests (Oakley). Schedule 1 of the LRA provides for “unregistered interests which override first registration”, and Schedule 3 of the LRA lists “unregistered interests which override registered dispositions”. As such, the protection of third party interests in registered title depends on whether the sale is a first compulsory registration or a disposition of a pre-existing registered title, which perpetuates uncertainty from the purchaser’s perspective. This is further compounded by the LRA’s transitional provisions regarding various types of overriding and minor interests regarding conveyances post 2003 (Abbey). The LRA 2002 abolishes “rights acquired or in the course of being acquired under the limitation acts” under the previous Section 70(1) f of the 1925 Act. With regard to easements, under the previous 1925 Land Registration Act, section 70(1) (a) provided the following: “a) A legal profit was an overriding interest. b) An equitable profit was an overriding interest. c) A legal easement was an overriding interest.”(Sexton 125) With regard to unregistered title, legal easements are binding under the general rule however this is comparable to the registered system, with the easement being an overriding interest. Accordingly, the system for protection of legal rights vis-à-vis the purchaser is the same whether title is registered or unregistered , which again suggests that the protection of rights whether legal or equitable ultimately depends on the nature of the right (Smith), thereby highlighting the inherent flaw and the dogmatic nature of the above statement. This is further evidenced by the position regarding equitable easements. Whereas unregistered title requires these to be registered as a land charge, as regards registered title, it was determined by the Court of Appeal in the case of Thatcher v Douglas ((1996) 146 NLJ 282) “by some rather strained logic” (Sexton, 123) that an equitable easement was an overriding interest within section 70(1)(a) of the 1925 Act. Whilst the unregistered title system arguably creates greater certainty for the purchaser, the Thatcher case clearly widened the ambit of protected third party rights for registered titles under the 1925 Act. Whilst the 2002 Act intended to narrow the extent of third party interests binding on a purchaser, it has been argued that “perhaps the most difficult feature of the whole 2002 Act is its treatment of easements and profits”(Sexton 123). Firstly, all easements and profits already existing against a registered title continue to be governed by Section 70(1) (a) of the 1925 Act (Schedule 3, LRA 2002). As such, in light of the Thatcher decision, all existing easements regardless of how they were created whether legal or equitable continue to be overriding interests after 12 October 2002. However, after 12 October 2006, easements are subject to certain specific rules and can potentially lose overriding status. However, these rules are inherently complex and obscure and it is questionable how effective these rules have been to reduce overriding interests binding on a purchaser (Hanbury & Martin). Moreover, the distinction between easements existing in registered titles at the date of enactment and those created after the LRA 2002 further complicates the system by creating two systems of protection for enforceability overriding interests (Abbey). Whilst this may offer wider scope for protection of third party equitable rights in contrast to unregistered titles, the complexity of the rules and creation of two separate sets of rules for equitable easements creates uncertainty which directly undermines the overall objective of the LRA 2002 reforms. Conversely, easements created after the commencement of the LRA 2002 must be registered. If a dominant owner fails to register the right, the easement takes effect as an equitable interest, which “will only bind a purchaser if the dominant owner has entered a Notice on the register protecting his right” (LRA 2002). This further undermines the veracity of the statement that third party equitable rights are better protected under registered titles as the onus is on the third party to register the right in contrast to easements already in existence. As regards legal easements, these were only binding as overriding interests until 2006. In the consultation process leading up to the implementation of the LRA 2002, the Law Commission expressed concerns regarding purchasers who buy a piece of land and then discover that it is subject to easements or profits, which have not been exercised. As a result, Schedule 3, paragraph 3of the LRA 2002 now provides that a legal easement or profit is only binding if (a) purchaser had “actual knowledge” of the easement or profit on the date of the land and transfer in his favour or evidence of the easement or profit is (b)“apparent on reasonable inspection”. Whilst these provisions in Schedule 3 appear to redress the balance between third party rights and purchasers in registered land, the new rules are complicated and it has been argued that in reality only very few easements and profits will be excluded from being overriding interests (Cooke). Indeed, Sexton argues that “the new rules exclude from being overriding only an (undiscovered) legal easement or profit which has neither left physical evidence on the land of its existence; nor been exercised at least once in the year before the land transfer” (130). Therefore, in practice it would seem that LRA 2002 only plays lip service to redressing the imbalance faced by purchasers of registered title. Moreover, Sexton’s statement highlights that this is the position irrespective of whether the proprietary right is legal or equitable and lends itself further to the proposition that registered title system facilitates the enforceability of both third party legal and equitable rights against purchasers in contrast to the unregistered title system. As regards leases, under the previous law, legal leases not exceeding 21 years were overriding interests. Moreover this was an automatic overriding interest even if the third party did not occupy the property and even if they refused to disclose what rights they had at the time of purchase (LRA 1925). In contrast, the unregistered land system relied on compliance with legal formalities and the doctrine of notice in order for these rights to be binding on purchasers. Under the LRA 2002, Schedule 3, paragraph 1 makes overriding all legal leases not exceeding 7 years. Although the period is reduced to seven years, the lease itself is overriding in the same way as under the 1925 Act. However, leases not exceeding 21 years, which are already in existence are overriding. However, if not a legal lease, the lease may still be an equitable lease and overriding under Schedule 3, paragraph 2, (rights of person in actual occupation). Therefore, again whilst highlighting the complexities of the new LRA 2002 framework, the provisions relating to third party overriding interests are applicable to both equitable and legal interests and therefore indicate wider applicability of third party rights against purchasers in registered land. With regard to the LRA 2002 provisions regarding rights of persons in actual occupation, it has been argued that the previous section 70(1) (g) provision of the LRA 1925 should have been repealed without replacement (Sexton 135). However, the legislators opted for “simplification” of the law, in the form of Schedule 3, paragraph 2 which it is submitted is similar to the previous system yet more complex; again obfuscating the inherent uncertainties facing purchasers regarding enforceability of third party rights (Smith). This is further evidenced by consideration of case law under the previous system, which is relevant to the application of the LRA 2002 regarding actual occupation. For example, in case of William and Glyn’s Bank Limited v Boland ([1981] AC 487) the House of Lords held that when considering rights of persons in actual occupation the equitable doctrine of notice did not apply to registered land. This is in direct contrast to the provision with unregistered land (Megarry& Wade) and as such, the House of Lords in the William case asserted that the Hunt v Luck ([1902] 1 Ch 428) rule of equitable notice was not the same as the section 70(1)(g) provisions regarding rights of persons in actual occupation. Moreover, it was held that rights under section 70(1) (g) of the 1925 Act covered all proprietary interests in land, which widened the ambit of protection for third party rights in registered titles outside the remit of equitable notice for unregistered land. The term “actual occupation” was construed literally as regards the interpretation of section 70(1)(g) and indeed, the House of Lords indicated that the decision in Caunce v Caunce ([1969] 1 ALL ER 722) was not relevant to the application of section 70(1) (g) as the Caunce decision related to unregistered land. Subsequently, the decision in the case of Abbey National Building Society v Cann ([1991] AC 56) clarified the meaning of actual occupation, by indicating that what was required was evidence of permanence and a degree of continuity which was not merely a fleeting presence. The decision in Webb v Pollmount ([1966] 1 Ch 584) further widened the ambit of third party rights in registered title by determining that rights of a person in actual occupation were not confined to the right by virtue of which the person occupied the land. As a result, the Webb decision meant that all property rights in land could be overriding if in actual occupation. In this case, Webb had a legal lease for seven years and an option to purchase the fee simple reversion. Options are usually minor interests and therefore protected as a notice on the register. However, in the Webb case, no such notice was entered, and as he occupied the lease, the option itself was held to be overriding by virtue of section 70(1) (g). The implications for purchasers of registered title of the Webb decision was further evidenced in the case of Ferrishurst v Wallcite ([1999] 1 ALL ER 97) where the plaintiff had a lease of part of an office block but the lease included an option to purchase the whole of the block. The Court of Appeal held that if a person had a right to whole piece of registered land, then actual occupation of part of the land was sufficient to have overriding interest in whole of land, which again supports the suggestion that third party rights are easier to protect against purchasers in registered title per se irrespective of whether the right is legal or equitable. Indeed, in the case of Malory Enterprises v Cheshire Homes ([2002] EWCA Civ 151) the Court of Appeal stated “what constitutes actual occupation of property depends on the nature and state of the property in question, and the judge adopted the approach. If a site is uninhabitable, as the rear land was, residence was not required, but there must be some physical evidence, with some degree of permanence and continuity” (para.80). The new rules on actual occupation under Schedule 3 paragraph 2 are applicable to all cases where land transfer is executed after 2003. Schedule 3, paragraph 2 maintains the core of section 70(1)(g) that potentially every type of property right can be overriding if actual occupation by the owner at the relevant time can be established, which is clearly wider than the scope for third party rights enforceable where title is unregistered. Schedule 3 fails to define actual occupation and as such, it would appear that existing case law, and the decision in the Webb remains applicable law. Moreover, Schedule 3 excludes overriding interests of those in actual occupation where the person failed to disclose the right when it was reasonable to have done so. Yet this clearly fuels further uncertainty in an inherently complex system of third party rights in registered land. It is unclear what circumstances will render it “reasonable” to have disclosed a proprietary right of a party in actual occupation, and Sexton argues that this is clearly likely to fuel further litigation again undermining the fundamental objective of the LRA 2002. . However, in some ways Schedule 3 is narrower in scope than section 70(1) (g) of the LRA 2002 as the third party enforcing the right must be in actual occupation. Furthermore, the Ferrishurst case is not applicable post 2003 and “the new provision cannot make overriding the property interest of somebody who is merely in receipt of rents” (Sexton 133). Moreover, there is a further limitation in sub-paragraph (c) whereby the interest must “have been obvious on a reasonable careful inspection of the land at the time of the disposition” (LRA 2002) and the purchaser must have known of the interest, which introduces concepts of notice akin to the unregistered title system. In conclusion, the system for protection of third party interests in both registered and unregistered land remains a potential minefield for purchasers. Furthermore, the analysis in this paper highlights the inherent flaw in the above statement as being too dogmatic. It is incorrect to simply assert that unregistered land enables easier protection of legal rights and registered land lends itself to easier protection of third party equitable rights. Ultimately, the ease with which a third party proprietary right can be protected against a purchaser depends on the nature of the right whether legal or equitable, which is further highlighted by the implementation of the LRA 2002. Bibliography Abbey, Robert M. “Blackstone’s Guide to the Land Registration Act 2002” Oxford University Press 2002. Blackstone’s Statutes on Property Law (2007-2008) 15th Edition Oxford University Press. Cooke, E. The New Law of Land Registration Hart Publishing 2003 Dixon, M Principles of Land Law, 5th Edition. Routledge -Cavendish Publishing 2005. Hanbury & Martin, Modern Equity, 17th Edition 2005. Law Commission report no.271., Land Registration for the Twenty First Century. July 2001. Available at www.landregistry.gov.uk Megarry and Wade., The Law of Real Property. 7th Edition Sweet & Maxwell 2007 Oakley, A J Megarry’s Manual of the Law of Real Property 8th. Sweet & Maxwell 2003 Sexton., R Land Law 2nd Revised Edition Oxford University Press 2006. Smith., R J Property Law. 4th Edition, Longman 2004 Smith, R J Property Law Cases & Materials 2nd Edition, Longman 2004 Todd and Wilsons., Textbook on Trusts 8th Edition. Oxford University Press 2007 Land Registration Act 2002 Land Registration Act 1925 Read More