Monday, April 11, 2016

Overriding Interest Essay

Property Law
2015 A Q7

In its Third Report on Land Registration LC No.158 (1987) the Law Commission stated
that the class of unregistered rights that should bind a purchaser should be as narrow
as possible and should only apply to rights where it was either not reasonable to
expect or not sensible to require any entry on register.
To what extent has Schedule 3 of the Land Registration Act 2002 succeeded in this aim?
ANSWER

This question is simply asking whether has Schedule 3 LRA 2002 successfully
reduced the numbers of unregistered interests which override and that they are only
applicable to situation where such interests would be unreasonable or not sensible for
them to be registered. A true understanding and analysis of the existence of such
interests during the era of LRA 1925 and LRA 2002 are required in order to address this
question on point.
It is no surprise that overriding interests attracted so much criticism since the
enactment of the Land Registration Act 1925. The LRA 1925 was founded on 3
important principlesthe mirror principle, the curtain principle, the insurance principle
with the intention of regulating the transfer, use and enjoyment of land to make land
registration easy, safe and efficient. The fact that overriding interests still very much
kicking and alive is, as Martin Dixon in his book Modern Land Law, 9th Edition (2014)
puts it, [a detraction] from the integrity of the register as a mirror of the legal status of
land. The mirror principle encapsulates the idea that the register should reflect the
totality of the rights and interests concerning a title of registered land (Dixon, 2014). This
means an inspection of the register by the purchaser should reveal all the estates and
the interests in the land but with overriding interest not reflected in the register, a
purchaser will not know about their existence and would only discover them when they
are claimed by the respective interest holder. David J. Hayton in his book Registered
Land (Modern Legal Studies), described the category of overriding interests provided
under section 70(1)(g) LRA 1925 as a cavernous crack in this mirror principle.
Dixon (2014) also pointed out that Schedule 3 LRA 2002 was intended to not just
replace section 70(1) LRA 1925 but also to eliminate undiscoverable overriding
interests. Schedule 3 Para 1 LRA 2002 provides that a legal lease originally granted for
seven years or less will override a registered disposition. Under the old section 70(1)(k)
LRA 1925, any lease granted for a term of 21 years or less was an overriding interest
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Monday, April 11, 2016

automatically. Equitable leases of any duration are excluded from Schedule 3 Para 1
LRA 2002 and they must be registered by way of notice or take effect as an overriding
interest through discoverable occupation of a tenantSchedule 3 Para 2 LRA 2002;
Grace Rymer v Waite. Dixon (2014) noted that the time will come when the trigger for
leasehold title registration will fall below the current seven-year threshold and this will
cause a similar reduction in the length of leases that may qualify as overriding interests
under this provision as section 118 LRA 2002 allows reduction of qualifying term to this
provision.
The more substantial changes to overriding interest can be seen in Schedule 3
Para 2 LRA 2002. Dixon (2014) commented that the actual occupation provisions of
Schedule 3 depart even more from the old section 70(1)(g) LRA 1925. The old section
70(1)(g) LRA 1925 provided protection to every person 'in actual occupation' of the land
sold to a third-party purchaser, making it an overriding interest. It should be noted that to
claim under this provision, one must have a proprietary interest in the land and not just a
mere personal right - National Provincial Bank v Ainsworth [1965]. As for the words
actual occupation under section 70(1)(g) LRA 1925, Lord Wilberforce held that actual
occupation should be interpreted in plain English and did not require anything else but
physical presence. A good illustration of the problems with the old section 70(1)(g) LRA
1925 is the Court of Appeal case of Chhokar v Chhokar [1984], where the mere
presence of Mrs Chhokars furniture alone was sufficient to satisfy the requirement of
actual occupation. Although this point was overruled by the House of Lords in Abbey
National Building Society v Cann [1990], reasonings in Chhokar however does seem
to suggest that establishing actual occupation was easy prior to Cann and overriding
interests were seen as potential trap for new purchasers of the registered land.
Today this is not the case because Schedule 3 Paragraph 2 LRA 2002 not only
requires a person to have a proprietary right in the land and be in actual occupation, the
actual occupation must also be discoverable on a reasonably careful inspection of the
land or the interest must be within the actual knowledge of the transferee at that time Schedule 3 Para 2(c) LRA 2002. According to Dixon (2014), this is one of the critical
provisions of Schedule 3 and it is not found in the old section 70(1)(g) LRA 1925; it is a
wholly new provision designed to ensure that a personusually a purchasertaking
under a registered disposition cannot be subjected to the priority of a third party interest
that is protected by an actual occupation that is not discoverable or a right not known
about.
Prior to Schedule 3 LRA 2002, for an interest to take priority over another
interest under the old section 70(1)(g) LRA 1925, all that needs to be satisfied is
whether the person is in actual occupation or in receipt of rent and profits. In Abbey
National Building Society v Cann [1990], it was held that a person must be in physical
occupation of the land. The House of Lords in this case confirmed Epps v Esso

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Monday, April 11, 2016

Petroleum [1973] that parking on a land cannot be deemed as actual occupation; and
that the presence of a persons furniture alone is not enough (Chhokar v Chhokar
[1984] overruled). According to Hodgson v Marks [1970], the requirement for a person
to be in occupation under section 70(1)(g) LRA 1925 is for them to be ascertainable so
that enquiry can be made as to their right. It was held that if enquiry is made, the person
must disclose their right but when nothing is being asked as to their presence on the
land, they are not require to say anything.
It is important to recognise that cases under the old section 70(1)(g) LRA 1925
are applicable under Schedule 3 Paragraph 2 LRA 2002. In Link Lending v Bustard
[2010], the Court of Appeal applied Abbey National Building Society v Cann [1990]
with reference to Lewison Js judgment in Thompson v Foy [2009], in determining
whether Ms Bustard had actual occupation of her house which would be protected by
Schedule 3 Paragraph 2 LRA 2002 as an unregistered interest which overrides Link
Lendings secured charge by Mr Hussain, a fraudulent third party. This would mean that
rights of co-owner (Williams & Glyns Bank v Boland; City of London Building
Society v Flegg; Equity and Law Home Loans v Prestridge), tenant under an
equitable lease (Grace Rymer v Waite), person with option to purchase (Webb v
Pollmount), right of tenancy by estoppel (Skipton Building Society v Clayton), trustee
of resulting trust (Hodgson v Marks), trustee of constructive trust imposed by the court
(Grants v Edwards), and right of contractual licensee (Crabb v Arun DC; DHN Food
Distributors v Tower Hamlets) are still applicable and protected as unregistered
interests which override under Schedule 3 Paragraph 2 LRA 2002, provided satisfying
the requirements set out in the provision itself.
However, Dixon (2014) pointed out that the issue of actual knowledge is
irrelevant if the interest holder is in discoverable actual occupation. This qualification
only kicks in if the occupation is not apparent which is unlikely in reality because most
occupation will be apparent. As such, introduction of these conditions for actual
occupation in Schedule 3 Paragraph 2 LRA 2002 can be said to really come to the fore
in respect to giving warning to a prospective purchase of overriding interest.
It should be noted that the statutory protection given to person in receipt of rent
and profits under the old section 70(1)(g) LRA 1925 has been stripped off. This is a
good improvement because previously in Hodgson v Marks [1970], Judge UngoedThomas had already noticed the difficulty of ascertaining the person in receipt of the
rents for enquiry because it would be illogical to ask such person of their right if they
cannot be ascertained in the first place.
Another overriding interest which did not make the cut is the right of an adverse
possessor which was protected under the old section 70(1)(f) LRA 1925 where a
squatter who trespasses onto private property and remains unlawfully for 12 years or
more will become the owner of the land by way of adverse possession - section 15
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Monday, April 11, 2016

Limitation Act 1980. In this case, section 17 LA 1980 will apply and the original
owners title will be extinguished. The original owner will now act as the trustee for the
adverse possessor and must transfer the title of the land to the adverse possessor Section 75 LRA 1925. However, today right of adverse possessor is only available in
Schedule 6 LRA 2002 which requires the adverse possessor to clock in 10 years
instead of 12 years. Section 15 Limitation Act 1980 is repealed by section 96 LRA
2002 and section 17 LA 1980 is repealed by section 97 LRA 2002. Right of an adverse
possessor in Bridges v Mees under the old section 70(1)(f) LRA 1925 is now in
Schedule 6 Paragraph 5(3) LRA 2002 where the wording for some other reason
means that the adverse possessor is entitled to the land because he paid for the land
but did not register his title.
Another attempt to narrow down the protection of overriding interest can be seen
in Schedule 3 Paragraph 3 LRA 2002 which provides that no equitable easement or
profit will override and that only certain legal easements and profits may override.
Previously in section 70(1)(a) LRA 1925, all easementslegal or equitableare
capable of overriding even if not registered as minor interests - Celsteel v Alton House.
Today, legal easements and profits expressly granted are required to be completed by
registration in order to operate as legal interests - section 27(1) LRA 2002. Failure to
register will result them being equitable. As for easement created expressly out of an
unregistrable estate or being impliedly created, such legal easements will override if they
are discoverable on a reasonable careful inspection, within the actual knowledge of the
transferee, or the easement has been used over the past one year. Dixon (2014)
commented that Schedule 3 Paragraph 3 LRA 2002 will capture virtually all qualifying
legal easements, for there will be few that fall outside of its provision as very few
easements will not have been exercised within one year of the disposition.
CONCLUSION:

So why would interests capable of overriding a registered proprietor still exist after
an attempt of modernising the law governing land registration through the enactment of
LRA 2002? The Law Commission considered abolishing the category of overriding
interests altogether, but it soon became apparent that this was neither feasible nor
desirable. Dixon (2014) pointed out that their very existence was a result of their social
and economic importance is such that, as a class, they cannot be dispensed with. The
only thing the LRA 2002 can do is to reduce their impact, redefine their scope, reduce
their number and encourage their entry on the register. Therefore, it can be said that
Schedule 3 LRA 2002 had indeed achieve its aim.

Prepared by Samuel Fong