McFarlane, Hopkins & Nield: Land Law, Text, Cases and Materials, Chapter 16

Answers to end of chapter Q&A

Question 1: What do you understand to be meant by a registrable disposition of a registered estate for valuable consideration? What is the significance of this category of transaction for determining questions of priority in registered land? To answer this question, you should review part 2 of the chapter. As we have seen in that part, the concept of a registrable disposition of a registered estate for valuable consideration is of central significance to the operation of priority rules in registered land. As we have seen, the starting point, in section 28 of the LRA 2002, is that the Act does not alter how questions of priority are determined under the general law. However, this is subject to important exceptions contained in sections 29 and 30. Those sections identify a category of transactions which are brought out of the operation of the general law and are made subject to a specific regime of priority rules. The category of transaction referred to in section 29 is a registrable disposition of a registered estate for valuable consideration (while section 30 makes the same provision for registered charges). We have seen that this includes the transfer of a registered estate (freehold and leasehold) and the creation out of a registered estate of a new lease of more than seven years duration (a lease that would therefore become a registered estate). The requirement of valuable consideration excludes from this scheme of priorities transfers by gift, for nominal consideration and transfers arising as the result of adverse possession. Hence, the category is a significant one as it incorporates an ordinary sale of land. Question 2: To what extent do the priority rules in registered land implement the mirror and curtain principles? The mirror and curtain principles were first introduced in chapter 9 and you may find it useful to refer to the extract from Ruoff in part 5.2 of that chapter. They are summarised in part 2 of this chapter. The mirror principle is the proposition that the register constitutes an accurate reflection of facts material to the title. It is implemented by the provision of information on the register; and hindered by any respects in which information is kept off the register. We have noted in part 2.2 that provision for the entry on the register of limitations on the proprietors owners powers and of the rights of third parties is consistent with the mirror principle. Hence, in answering this question you should review the scope and operation of these forms of entry on the register that we have considered in parts 3 and 4. The category of overriding interests discussed in part 5 presents the most significant impediment to the mirror principle. These interests do not appear on the register, but are necessarily binding against a purchaser. The curtain principle provides that a curtain is drawn across the register against any trusts. It is reflected, in particular, in section 33(a)(i) of the LRA 2002, extracted in part 4.2, which prevents the entry on the register of notice of an interest under a trust of land. The curtain principle is not inherently inconsistent with the mirror principle as it is based on an assumption that the purchaser need

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McFarlane, Hopkins & Nield: Land Law, Text, Cases and Materials, Chapter 16

not be concerned with the existence of beneficial interests as these interests may be overreached on a sale (by the overreaching mechanism discussed in chapter 20). However, where beneficial interests are not overreached (the mechanism requires capital money to be paid to two or more trustees and therefore does not apply to a single trustee trust) they may be enforceable against purchases as overriding interests. Indeed, as we have seen in part 5, the category of overriding interests has played a key role in enforcing beneficial interests against purchasers and, in particular, mortgagees of land, where there is a single trustee trust. Question 3: Compare and contrast the scope and effect of entry of a restriction and entry of a notice. This question concerns the two forms of entry on the register of property rights that are not themselves registrable as registered estates (the scope of registration of titles is explained in chapter 9 part 5.3.1). Each form of entry on the register has a different effect. Restrictions are closely connected to the owners powers; powers conferred on registered proprietors by section 23 of the LRA 2002 (extracted in part 2.1). Under section 26 of the Act, a person dealing with the proprietor of an estate may assume that the proprietors owners powers are free from any limitations, except those entered on the register. A restriction is the form of entry on the register that limitations on owners powers take. The scope and effect of this form of entry is analysed in part 3. A person who does not comply with a restriction (i) cannot obtain a registered title (and therefore cannot obtain legal title to the land); (ii) does not benefit from the distinct priority rules afforded to a registrable disposition of a registered estate for valuable consideration (discussed in part 2 and the topic of question 1); and (iii) does not benefit from protection against beneficial interests provided by the overreaching mechanism. Hence, for example, a purchaser or mortgagee of a registered estate who did not comply with a restriction could obtain only an equitable interest in the land which, under the general law of priorities (that in the case of competing equities, priority is determined by the order of creation) would be bound by all pre-existing legal and equitable interests in the land. The nature and effect of a notice is discussed in part 4. Entry of a notice tells a purchaser about a property right claimed by a third party. The effect of the entry is governed by section 32 of the LRA 2002, which is extracted in part 4.2. It ensures that if in fact the property right exists, then it will be enforceable against the purchaser. However, the entry of a notice does not operate as a guarantee that the property right claimed exists.

Question 4: How useful are the constitutionalist and absolutist views of the meaning of actual occupation in determining the scope of paragraph 2 of schedule 3 of the LRA 2002? Paragraph 2 of schedule 3 of the LRA 2002 includes in the category of overriding interests property rights held by persons in occupation of the land. This category is considered in part 5.2. The definition of occupation is significant in determining the scope of this category of overriding interests. The constitutionalist and absolutist views were identified

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McFarlane, Hopkins & Nield: Land Law, Text, Cases and Materials, Chapter 16

by Hayton in the extract contained in part 5.2.1. The absolutist view holds that a person is bound by the rights of every person in occupation, regardless of how difficult it is to ascertain their presence. The constitutionalist view is that occupation should be interpreted in light of traditional conveyancing principles; particularly the unregistered land concept of constructive notice which is based on reasonable enquiries (and is discussed in chapter 15, part 4.4.2. Which view is adopted becomes significant in cases of marginal occupation which may not be discoverable by a purchaser. Under the LRA 1925, property rights held by persons in actual occupation of the land were protected as overriding interests under section 70(1)(g). In Williams & Glyns Bank v Boland [1981] AC 487, in an extract contained in part 5.2.1, the House of Lords adopted an absolutist approach. However we have seen, in the extract from Lloyds Bank plc v Rosset [1989] Ch 350 that the constitutionalist view found favour in the Court of Appeal. The LRA 2002 does not explicitly adopt either approach, but limits the scope of protection afforded to those in occupation by a reasonable inspection qualification. The scope of this is considered in part 5.2.2. There, we have suggested that the qualification steers a careful course between the absolutist and constitutionalist views. The insertion of the qualification necessarily means that an absolutist approach is rejected. However, the qualification is not an endorsement of the constitutionalist view as in recommending its adoption the Law Commission (in the extract contained in part 5.2.2) disavowed the relevance of concepts derived from the doctrine of notice. Question 5: Assess the advantages and disadvantages of responding to fraud or other wrongdoing in a disposition of land to B by: (a) Preventing B from invoking statutory defences against Cs property rights; and (b) Relying on the creation of new direct rights. To answer this question you should review part 7 of this chapter. There, we have considered how the law should respond where a disposition of land to B is tainted by fraud of other wrongdoing which does not, however, affect the validity of a transaction. In such circumstances, few would argue that B should still be able to rely on sections 29 and 30 of the LRA 2002 to obtain priority over Cs pre-existing property rights. However, which of these two responses should be adopted has proved far more contentious. Advantages of (a): this retains the scope of liability within land law principles and enables liability to be developed in a manner consistent with those principles; it secures the enforcement of Cs property right against the wrongdoer; to the extent that wrongdoing is likely to constitute bad faith, it retains an ethical element in the system of registration. Disadvantages of (a): there is no scope for qualifying the effect of sections 29 and 30 of the LRA 2002, the legitimate approach is to apply the clear terms of those provisions and look towards liability under the general law; ethical concerns are based on old notions of the doctrine of notice which have no place in registration of title; this approach is contrary to the policy of the LRA 2002 as stated by the Law Commission (in the extracts from their work in part 7). Advantages of (b): land law does not exist in a vacuum and this approach acknowledges the significance of the application of the general law; this approach

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McFarlane, Hopkins & Nield: Land Law, Text, Cases and Materials, Chapter 16

accords with the Law Commissions policy (as stated in the extracts from their work in part 7). Disadvantages of (b): reliance on general principles risks decisions that run directly counter to the policy of land law statutes, for example if new direct rights were imposed on the basis of notice; there is no established jurisprudence applying the general law to land, particularly where new direct rights involve the imposition of personal liability; for C, new direct rights, particularly those that impose personal liability, may be considerably less attractive than retention of their existing property right.

Question 6: What action should be taken by the holder of the following property rights in registered land:

(a) A beneficial interest under a trust; (b) A legal lease created for five years; (c) A legal easement arising from an implied grant; (d) A restrictive covenant. In what circumstances will a purchaser of the land have a defence against the enforcement of these rights? The purpose of this question is to test your understanding of the operation of priority rules in registered land. It requires knowledge of the rules discussed throughout chapter 16 and requires you to consider their consequences both from the perspective of people with proprietary rights in land and purchasers of registered land. It is assumed that the purchaser buys the land under a registrable disposition of a registered estate for valuable consideration and therefore enjoys the protection contained in section 29 of the LRA 2002. (We have seen in question 1 and in part 2 that this expression includes an ordinary sale of land.) (a) As we have seen in parts 2-4 (and in question 2) beneficial interests cannot be entered on the register. This is consistent with the curtain principle. The holder of a beneficial interest should however enter a restriction on the register preventing the proprietor from dealing with the land unless any purchase money is paid to a minimum of two trustees or a trust corporation (to ensure that the requirements of overreaching are met). Under section 44(1), which is extracted in part 3, the Registrar is obliged to enter a restriction to this effect when two or more persons are proprietors of an estate. A purchaser of registered land will have a defence against a beneficial interest where (i) the purchaser complies with any restriction on the owners powers (see sections 23 and 26 of the LRA 2002 and part 2.1); (ii) the overreaching mechanism applies (the significance of this mechanism in this respect is noted in chapter 16 and the mechanism is the topic of chapter 20); and (iii) the beneficial interest is not protected as an overriding interest (see part 5). (b) The position as regards short leases is considered in part 5.3. The holder of a legal lease of five years duration benefits from dual protection: the lease may be

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McFarlane, Hopkins & Nield: Land Law, Text, Cases and Materials, Chapter 16

protected by entry of notice on the register under section 33 of the LRA 2002 (extracted in part 4.2) and is otherwise protected as an overriding interest within paragraph 1 of schedule 3 of the LRA 2002. As a result, a purchaser will not have a defence against the enforcement of such a lease. (c) The protection afforded to lease easements is considered in part 5.4. Legal easements arising from an implied grant are protected as overriding interests under paragraph 3 of schedule 3 of the LRA 2002. However, this is only where the purchaser has actual knowledge of the existence of the easement or the easement is obvious on a reasonably careful inspection of the land. An easement of this type may also be protected by the entry of a notice on the register (on which see part 4). Hence, a purchaser will have a defence against a legal easement arising from an implied grant where: (i) the easement has not been protected by entry of a notice; and (ii) the easement is not protected as an overriding interest as it does not meet the conditions in paragraph 3 of schedule 3. The circumstances in which legal easements arise from implied grant are considered in chapter 26 part 3.2. (d) Restrictive covenants affecting freehold titles should be protected by the entry of a notice, as discussed in part 4. Section 33 of the LRA 2002 specifically excludes leasehold covenants from such registration. These are subject to their own scheme of enforcement which is discussed in chapter 25. A purchaser of registered land will have a defence against the enforcement of a restrictive covenant where it has not been entered on the register.

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