Category Archives: Rectification

Land Registry Compensation applied despite rightful owner’s occupation

Is the proprietor of a forged registered mortgage entitled to an indemnity payment under Schedule 8 to the Land Registration Act 2002 (“LRA 2002”) where the registered proprietor of the property was in actual occupation of it at the date of the mortgage?

That was the issue in the Court of Appeal case of Swift 1st Ltd v The Chief Land Registrar [2015] .

The registered proprietor of the property had the right to seek rectification (now alteration) of the register on the ground that the mortgage was forged.

This was an “overriding interest” by virtue of their occupation and therefore took precedence over the registration of the forged mortgage at the Land Registry.

Paragraph 1(2)(b) of Schedule 8 of LRA 2002 applied where the overriding interest enforced against the registered title consists of a right to seek alteration of the Land Register.

However the fact remained that the registered proprietor of the mortgage would have suffered loss because the Land Register would have been altered to remove the mortgage as an incumbrance against the property.

The court said the fact the mortgage had been registered in the first place had conferred substantive rights on the proprietor of the mortgage although it had been forged.

So it’s loss was to be considered prejudicial despite the fact that the mortgage had of itself been void for forgery.

The court therefore supported the lender’s claim for compensation against the Land Registry.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Rectification of Land Register cost priority of derivative lease

The principle of the indefeasibility of the Land Register may be more qualified than had been thought as a result of the following Court of Appeal decision.

In Gold Harp Properties Ltd v Macleod & Others [2014] a freeholder wanted to see their property’s roof space developed so tried to forfeit the two existing leases of that undeveloped roof space by peaceable re-entry. The freeholder succeeded in getting the leases removed from the register and the roof space was relet. The new lease went through several assignments. From the available evidence, the new lease was neither granted or changed hands for valuable consideration appearing to move between the parties who were companies owned and controlled by the same family whose son owned the freehold.

The two tenants of the “forfeited” leases (the respondents) were later found, by a court, to have tendered the rent arrears in time and it was ruled that peaceable re entry had not occurred so the court ordered their leases to be restored to the Land Register as though they had never been forfeited.

The effect of the court’s order was that:

– The new lease remained in place and registered on the title but as a lease reversionary to the restored leases with those leases noted against its title.

– So, the ultimate tenant by assignment of the new lease (Gold Harp) became the new immediate landlord of the restored leases.

– The respondents, and their successors in title, would enjoy the right to occupy the roof space under their respective restored leases in priority to Gold Harp. It’s interest being reversionary only was now practically valueless save in the unlikely event of a future termination of the respondents’ leases before their terms expired.

The appeal here was against that part of the order.

As the new leasehold had neither been granted nor changed hands for valuable consideration passing between any parties the basic rule of Section 28 Land Registration Act 2002 (“2002 Act”) applied and the priority of the respondents’ interests derived out of the freehold was not affected by any of those dispositions.

At first sight the omens for the Gold Harp were good because Paragraph 8 of Schedule 4 of the 2002 Act headed “Rectification and derivative interests” says:

“The powers under this Schedule to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned.”

Gold Harp said the words “for the future” made it clear that, rectification of the Register cannot operate retrospectively to remove the priority that the new lease had acquired over the restored leases due to their absence from the register at the time the new lease was registered.

To give rectification retrospective effect was to undermine the basic rule that the state of the Land Register, at any given time, was conclusive and could be relied on and was indefeasible.

Consistently with this most of the texts took the view that rectification only operated in respect of future dealings and left any derivative interests created in the meantime alone.

The Court of Appeal said that the principle of the indefeasibility of the register had always had its qualifications.

Schedule 4 was concerned with “correcting” mistakes in the Register, and the power to do so extended to correcting the consequences of such mistakes.

That power was in some circumstances a duty.

Gold Harp’s interpretation would have meant that, wherever derivative interests have been created during the period of mistaken de-registration, that correction would be incomplete, and, in certain cases, such as this one, worthless.

In fact Paragraph 8 was entirely consistent with the opposing interpretation made by the court. Paragraph 8 permits (for the future) the “changing the priority” of an interest. The lead Appeal Judge said

“What an interest having priority means is that the owner can exercise the rights which he enjoys by virtue of that interest to the exclusion of any inconsistent rights of the owner of the competing interest. The concept of priority thus bites at the moment that those rights are sought to be enjoyed. Once that is appreciated the effect of the words “for the future” seems to me straightforward. They mean that the beneficiary of the change in priority – that is, the person whose interest has been restored to the Register – can exercise his rights as owner of that interest, to the exclusion of the rights of the owner of the competing interest, as from the moment that the order is made, but that he cannot be treated as having been entitled to do so up to that point.”

The order of the County Court Judge, restoring the respondents’ two leases in priority to Gold Harp’s new lease, meant that from then on the respondents were entitled to exercise their rights as leaseholders – mainly, to occupy the roof space – to the exclusion of Gold Harp. But until then they had no such right. For example, even if there had been any occupation by Gold Harp or its predecessors up to that point in time, the respondents could not have claimed “mesne profits” (compensation equivalent to rent) from them in respect of that occupation up to that date.

Schedule 4 openly appreciated that the rectification could prejudice the interests of third parties who had in good faith relied on the Land Register as not disclosing any previous land interests. However Paragraphs 2 and 3 of Schedule 4 (and their equivalents in the case of rectification by the Registrar), gave a special protection to a proprietor in possession, and allowed a fair balance to be struck between the competing interests in any particular case. Furthermore, Schedule 8 of the 2002 Act gave the loser the right to seek an indemnity from the public purse.

Nor were there any exceptional circumstances which would justify the court departing from the presumption in favour of rectification that would otherwise apply under paragraph 3 (3) of Schedule 4 of the 2002 Act. Not least with it being the case that Gold Harp was neither independent of the relevant family member who had devised the corporate arrangements for the freehold, and for taking over the roof space, nor had given any value for it’s interest in the new lease.

The decision construes the statute in an expansive and common sense way to bring about a just solution, safe in the knowledge that a disappointed party can, in an appropriate case, get compensation under the Land Registration indemnity provisions just mentioned.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Squatter occupation too discontinuous resulting in Land Registry rectification of possessory title

Balevents Ltd & Anor v Sartori [2014] concerned an unadopted pavement, registered freehold to Birmingham City Council, in front of a club property leased to Balevents and its predecessors.

It raised interesting issues concerning the capacity in which “Squatters” occupied land and whether any freehold possessory title resulting from such occupation accrued:

– to the “squatter” Mr Sartori; or

– (by some alleged fiduciary duties he owed) to the club companies which “employed” him; or

– to the landlord of the club, by being treated as an accrual to the club lease, for which the landlord received rent off the club, who “occupied” the land, either:

– directly themselves; or

– through Mr Sartori; or

– a Mr Timms who for a long time had paid the club (not Mr
Sartori) a rent for use of the land.

In 2009 Balevents could have argued that it and its predecessors in possession of the land had been in possession of it since 1996.

Based on that argument, Balevents could then have applied to the Land Registry for a possessory title to the freehold of the land under schedule 6 para. 1 to the Land Registration Act 2002 (“the 2002 Act”). However, the previous freehold registered proprietor, the City Council had an unqualified right to block that application under reforms to more recently based claims introduced by the 2002 Act.

However Mr Sartori had a longer association with the land.

Due to the commencement date of his alleged “occupation” of the strip being 1974, the previous registered proprietor, the Council did not, as against him, qualify for an unqualified right to block his application and the other objections they raised failed to prevail over Mr Sartori’s claims to the Land Registry. So Mr Sartori had managed to get himself registered as the freehold proprietor of the land with possessory title.

The court found that those claims were “largely based on false allegations of fact which emphasised his alleged possession of the land in his personal capacity.” In fact for most of the period his and “his tenants” occupations of the land had ceased every night leaving it as a clear pavement making that occupation too discontinuous to count for adverse possession.

The court further found that Mr Sartori’s registration had been the result of a “mistake” within schedule 4 para 2 of the 2002 Act.

For the purposes of schedule 4 para 3(2)(a) of the 2002 Act, that Mr Sartori, had by fraud and/or by lack of proper care, caused and/or substantially contributed to the mistake. There were no exceptional circumstances in the case justifying a refusal to order rectification.

So the court made an order for rectification of the register removing Mr Sartori as the registered proprietor of the land, and restoring Birmingham City Council, even though the application for rectification had originally been made by Balevents to get themselves on the register instead of him.

In the course of the proceedings the court found insufficient evidence that Mr Sartori had owed Balevents any relevant fiduciary duty any way.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Lease Guarantor clause could be validated by being cut down to apply only to current tenant and not its successor.

Section 25 of the Landlord & Tenant (Covenants) Act 1995 says agreements are void to the extent that they exclude modify or otherwise frustrate the operation of the Act.

In Pavilion Property Trustees Limited and another -v- Permira Advisers LLP [2014] the italicised words saved a poorly drafted guarantee of an assignee’s obligations under a commercial lease from total invalidation by the rest of that section.

The assignor entered into a guarantee in favour of the Landlord.

The guarantee appeared to extend beyond the obligations of the assignee to guarantee the obligations of the next assignee after that.

The court held that the italicised words meant they could sever off and discard the liability of the guarantor for that next assignee.

Thereafter the obligation that remained was a guarantee that extended only to the obligations of the first assignee. As such it was valid and effective.

This is a good decision for investors as it means a guarantee clause which is over ambitious in terms of the successive lease tenants, that the guarantor is purportedly required to guarantee, is not necessarily fatal. As the scope of the clause may be cut down by the court to what the court is able to enforce.

This blog is posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Courts would not Rectify or Re-Interpret Lease Wording to Address Unanticipated Circumstances

Where parties do not anticipate future circumstances in a contract the court will not intervene to rewrite it under the guise of “rectification” or “interpretation”.

Blueco Ltd v BWAT Retail Nominee & Ors [2014] concerned the financial distribution of rents from Bluewater Shopping Centre.

In 1996, the intended initial structure of the Centre, comprised (1) a ground lease by HC12F01351 Blueco Limited (“Blueco”), as freeholder, to various banks (“the Ground Lease”); (2) a headlease by the banks to Blueco (“the Headlease”); (3) a lease by Blueco to Prudential Assurance (“the PAC Lease”); (4) a lease by Prudential to Blueco (“the Management Lease”); and (5) occupational leases by Blueco to tenants of the retail shop units.

Under this structure Blueco was to collect rents from the occupying tenants.

After deductions for the expenses of the upkeep and management of Bluewater, the net rents were split between Blueco, Prudential and the banks as they were either held or passed on up the chain of leases.

The agreed form of the Management Lease attached to the 1996 documentation provided for 15 per cent of the net rents to be paid (along with other sums) by way of rent to Prudential.

Under the Tenth Schedule to the agreed Management Lease (“the Tenth Schedule”) Prudential had the right to boost its investment in certain circumstances by paying a lump sum (calculated per a prescribed formula) to obtain a further 15 per cent of the new rents from Blueco (“the pre-emption”).

That right was conditional on Blueco serving a notice in the circumstances laid down in paragraph 2 of the Tenth Schedule.

The Finance Act 1997 changed the tax treatment of finance lease structures in a way that harmed Blueco.

There followed a restructuring whose effect was to greatly reduce the Banks entitlement to net rents under the chain of leases. That released 55 per cent of future net rents, previously payable to the banks or in other ways not available, henceforth for disposal by Blueco under that structure.

Nevertheless before and after 1998 both Blueco and Prudential intended that Prudential’s right to obtain the additional 15 per cent of net rents should remain conditional and not unconditional.

By abandoning its earlier claim to rectification of the lease structures, Prudential accepted the first instance Judge’s factual and legal findings on that issue.

So on appeal Prudential sought to argue that that Judge had failed to apply the objective analysis for common mistake rectification laid down in Lord Hoffmann’s speech (and endorsed by others of his colleagues) in Chartbrook Ltd v Persimmon Homes Ltd [2009] and, that, even if that Judge had applied the objective test for mutual mistake, that Judge had taken into account facts inadmissible when a contract fell to be interpreted.

The court dismissed as “not the most promising starting point” this apparent suggestion that the court should “interpret a contractual pre-emption provision in a way not actually intended by either party to it.”

From the objective standpoint Prudential were arguing that the commercial purpose of paragraph 2 of the Tenth Schedule was that if (as had happened due to the tax changes) by 30 September 2011 Blueco had become entitled to dispose of at least an additional 15 per cent of the net rents, it would then be obliged to offer that share to Prudential.

In short, if a further 15 per cent became available by whatever means, it was to be tantamount to the exercise of the conditions specified in paragraph 2 of the Tenth Schedule.

Even on an objective interpretation the court could see no justification for that conclusion which it equated to another way of re-writing rather than interpreting the Management Lease.

In fact the court found the meaning of the Tenth Schedule clear enough.

This blog has been posted out of general interest. It does not replace the need to get proper legal advice in individual cases.