Saturday, April 9, 2016

Overriding Interests and The LRA 2002 - A Critical Analysis by Abdul Rehman Yasin

It is unsatisfactory that the Land Registration Act 2002 retained a category of overriding interests. They frustrate the ‘mirror principle’ of land registration, there is little justification for their continuing existence, and they ought to have been abolished.

The concept of registration of title under the Land Registration Act 1925 was something new when this law was enacted and was primarily introduced to simplify and rationalise the substantive law, but more importantly, it was intended to streamline the process of land conveyancing. So, one of its primary goals was to decrease the rights on land (i.e. third party) which bind it and which complicate dealings in land; thus compelling the law to balance third parties rights against the rights of the purchaser. The policy of both LRA 1925[1] and LRA 2002[2] was to simplify conveyancing by registering all titles to land in a central register, which was an option under the earlier law but now an almost inevitability under the 2002 Act, at any time one decides to deal with their land. In spite of the introduction of numerous new conditions which trigger compulsory registration and encouragements for voluntary registration of title. The Land Registry[3] estimates that “approximately a quarter of land/property in England and Wales remains unregistered because no dealings affecting it have led to compulsory registration.” However, still LRA 2002 does make life a little bit easier for the purchasers by protecting them from unforeseen rights through decreasing the number of overriding interest, by either eliminating them or providing registration where possible.
Interests in land which cannot be registered as separate titles fall into the category of either overriding interests or interests which require protection by registration on to the land register. The problem is that overriding interests are enforceable without being protected on the register and bind a registered proprietor and his subsequent transferee even when they are not aware of them.
The list of overriding interests under the LRA 1925 was exhaustive but was placed to protect those rights which were apparent by inspection of the property itself. Although, one of the main purpose of the previous act was to streamline conveyancing but at the same time they did not want to eradicate the need for the purchasers to inspect the property, but instead to discover which rights bind the land. Overriding interests were defined in s.3(16) LRA 1925 as “ …all the incumbrances, interests, rights, and powers not entered on the register but subject to which registered dispositions are by this Act to take effect, and in regard to land registered at the commencement of this Act include the matters which are by any enactment repealed by this Act declared not to be incumbrances”; and were listed in s.70(1) LRA.
Initially, the 2002 Act replaces the name overriding interest with “interests that override”, with the aim that the land register would hopefully reflect as far as possible the true nature of the rights in the land concerned. However, the alarming effects of s.70(1) of the 1925 Act have seized to exist, with the introduction of a two new and smaller category of rights which override, namely; an exhaustive category of interests which would override first registration of title, under Schedule 1 of the 2002 Act, including leases up to and including 7 years, the rights of people in actual occupation, easements and profits. The second category is a smaller list of interests which override on a later disposition or transfer of land where the land in question has already been registered, Schedule 3 LRA 2002. These include leases up to and including 7 years, the rights of people in actual occupation, easements and profits; with the exception of rights of those occupiers who are in actual occupation but their rights are not readily or easily discoverable thus in effect those persons who are in actual occupation but unreasonably fail to disclose their rights when asked about them or those whose rights are not reasonably discoverable by inspection of the land, would most likely lose their right if they do not protect it by registration on the register.
Under the 2002 Act, there is a long list of interests which can override on first registration, this is because the act of registration itself should not increase or decrease proprietary rights. Section 71(b) imposes a duty on the person/s applying for registration of a disposition to disclose information about any rights of which they were aware of and which may fall within the scope of Schedule 3, thus override. In this way, it was hoped that the number of overriding interests should decrease as more and more dispositions are made under the new law, consequently, more and more interest would compulsorily be registered. Although, M. Dixon[4] is of the view that there is a possibility that some people would most likely lose rights which were overriding on first registration but were struck out on a later disposition.
Many overriding interests under s.70(1) LRA 1925 have either been abolished or modified. Equitable easements , whether expressly or impliedly granted have been abolished, effectively overruling Celsteel vs. Alton House Holdings Ltd (1985)[5]. Additionally, the rights of the adverse possessor would no longer override unless they are in actual occupation, and furthermore, the rights of persons receiving rents and profits form land also no longer override. Short legal leases have been re-classified, under Para.1 of both Schedules, allowing them to be overridden if they run for 7 years or less, thus reducing the former s.70(1)(k) requirement. However, leases for more than 7 years or more than that length of time to run, can now be registered on their own.
Actual occupation has also been reformed but still lacks a statutory meaning. What is required by actual occupation was laid down by Lord Wilberforce in Williams & Glyn’s Bank Ltd vs. Boland (1981)[6] “it is the fact of occupation that matters” and what is required is “physical presence on the land and not some entitlement in the law”. Keeping in spirit of the decision, Schedule 1 or 3, provide rights to only those persons in actual occupation of the land to override the rights of the purchaser to the extent that they coincide with that occupation; so in the process reversing the decision in Ferrishurst ltd vs. Wallcite(1998)[7] and concentrating on the fact that actual occupation in reality, is more of a notice to prospective investors in land to the existence of third party rights in the land, and in any way does not grantee any such right from the get-go. Furthermore, the mirror principle is reinforced by the point that that Schedule 3 provides that the rights of a person in actual occupation would not override a purchaser’s right where either :
1.      Enquiries have been made of the right holder and they have failed to disclose the right in circumstances where they could have been reasonably be expected to disclose it; or
2.      The right holder’s actual occupation is not obvious on a reasonable inspection of the land and the person potentially bound did not have actual knowledge of the interest at the time of the disposition.
Thus, in a way the new modification to the rule in s.70(1)(g) is gentler to non-disclosers as it is only where the rights of the person in actual occupation were truly impossible for a reasonable prudent purchaser to discover that protection has been removed by the 2002 Act, such as Chokkar vs. Chokkar(1984)[8] and Malory Enterprises Ltd vs. Cheshire Homes (UK) Ltd & Others (2002)[9]. Furthermore, many of the old cases law of s.70(1)(g) remains relevant in interpretation of the requirements of the 2002 Act.
A final change to overriding interests is that under s.117, once the act has been in force for 10 years(i.e. October 2013), some of the less common varieties will cease to have overriding effect , e.g. manorial rights, rights relating to sea walls, crown rents and corn rents, as there should be no issue of getting them registered.
Furthermore, Schedule 1 includes all legal easements as overriding on first registration, which have not been already registered. But Schedule 3, limits protection to only those implied legal easements which are:
1.      Registered under the Commons Registration Act 1965[10],
2.      Is actually known to exist by the purchaser,
3.      Is obvious upon reasonable careful inspection of the land, or
4.      Exercised within 1 year prior to the date of the disposition in question.
Thus, all expressly granted easements must be entered on the land register in order to be legal and to have overriding status; if however they are not entered, they remain equitable and outside the scope of Schedule 3 LRA 2002. Nonetheless, once electronic conveyancing is fully operative, all easements which are expressly created would be entered on the register, and so problems would likely be limited in relation to implied easements, mostly.
Albeit, it was thought that through the process of registration, the land register would be the practical and complete record of land interests or in other words, a mirror image of the entirety of interests which affects registered land in the U.K. Nevertheless the rule that overriding interests would be enforceable without being present on the register in a way defeats the purpose of having the mirror principle and is often referred to as the ‘crack in the mirror’. Moreover, overriding interests can be viewed as a dominant impediment toward the attainment of total registration of land rights.
Initially, the Law Commission wanted to abolish all overriding interest but were faced with the dilemma of the need to protect occupiers who don't have the privilege or cannot be expected to protect their rights through registration. Instead, in 2001, the Law Commission in “Law Commission Report No.271, Land Registration for the Twenty-First Century: A Conveyancing Revolution (2001)”[11] stated that ‘the guiding principle' essential to the overriding interest provisions of the new Land Registration Act 2002 was the intention 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'.
Lord Denning in Strand Securities Ltd v. Caswell (1965)[12] said that "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."
In reality, the LRA 2002 has in a way, already clarified the scope of the rights of the occupiers where they affected the purchasers and in the process ensuring that the overriding interest of a persons  are upheld. Schedule 3, paragraph 2, of the LRA 2002 already does state that overriding of interest of persons are cracks in the mirror principle even though there exists clear explanations and requirements;  provided for with most of the issues relating to the overriding interest and actual occupations comprehensively examined and debated. This is primarily important, in order for us to judge whether there is a balance or will there ever be a balance achieved between the rights of the purchasers and the rights of the actual occupants.
(1989 words)

Bibliography
1.      Land Registration Act 1925 & 2002
2.      Land Registry Website
3.      “Textbook on Land Law” by Judith-Anne Mackenzie & Mary Phillips, 10th Edition.
4.      “Modern Land Law” By Martin Dixon, 8th Edition.
5.      “The Reforms of Property Law and Land Registration Act 2002: A Risk Assessment” By Martin Dixon.
6.      Law Commission Report No 271, Land Registration for the Twenty-First Century: A Conveyancing Revolution (2001).


[4] “The Reforms of Property Law and Land Registration Act 2002: A Risk Assessment” By Martin Dixon - http://www.academia.edu/852288/The_Reform_of_Property_Law_and_the_Land_Registration_Act_2002_A_Risk_Assessment

[5] Celsteel vs. Alton House Holdings Ltd (1985) - http://swarb.co.uk/celsteel-ltd-v-alton-house-holdings-ltd-chd-1985/

[9] Malory Enterprises Ltd vs. Cheshire Homes (UK) Ltd & Others (2002) - http://swarb.co.uk/malory-enterprises-ltd-v-cheshire-homes-uk-ltd-and-others-ca-22-feb-2002/

[10] Commons Registration Act 1965 - http://www.legislation.gov.uk/ukpga/1965/64

[11] Law Commission Report No 271, Land Registration for the Twenty-First Century: A Conveyancing Revolution (2001) - http://lawcommission.justice.gov.uk/docs/lc271_land_registration_for_the_twenty-first_century.pdf

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