Tag Archives: Land Registration

Lapsed Land Registry application saddles land with right of way

Where someone buys real estate they only have an equitable interest in it until it is registered in their name at the Land Registry. Registration perfects their legal ownership. Until that registration the seller is deemed to hold the land on trust for the buyer.

In the High Court case of Baker & Anor v Craggs [2016] two areas of land were being sold by the two joint owners. The second area sold should have had a right of way over the yard of the first area sold but the Sellers omitted to reserve it.

However the Sellers’ failure to reserve that right of way did not prevent them selling the second area with that “right of way”.

Normally transferring the first area without reserving that right of way would have disabled the Sellers from granting it to the Second Buyers. However fate intervened.

The “grant” of the right might still be valid if the Sellers were still the “legal owners” of the yard at the time the Second Buyers bought the second area with the “right of way”.

The Second Buyers faced four hurdles:

1. Were the Sellers still legal owners of the yard notwithstanding that they had already “sold” it to the First Buyer? The court said yes because there had been a major delay getting the first sale registered at the Land Registry due to a problem with the transfer plan. It had been overtaken in the registration stakes by the second sale. Pending registration the Sellers had owned the legal estate in the yard on trust for the First Buyer.

2. Did the First Buyer still have priority over the Second Buyers because of his Land Registry search and application? Answer: no because the priority conferred by them had lapsed when the First Buyer’s original Land Registry application was cancelled due to delays dealing with the plan problem.

3. Was the priority of the First Buyer’s interest nonetheless protected by the fact that he had been in “actual occupation” of the yard since his purchase? Answer: Yes it had been pretty obvious to the Second Buyers. The First Buyer had been doing some building work.

4. Was 3 above fatal to the Second Buyers’ right of way or could the Second Buyers show that the First Buyer’s interest in the yard was “overreached” by the Second Buyers’ purchase of the second area and that right of way so as to be nevertheless postponed to them? The court said: yes. Pending the First Buyer getting registered the Sellers held the yard on trust for the First Buyer but the Sellers nonetheless had all the sale powers of an absolute owner and the First Buyer’s interest in the yard would be overreached so as to be subordinated to the Second Buyers’ purchase and right of way provided (as occurred here) all the sale proceeds of the second area were paid to both the Sellers who still held the yard as trustees for the First Buyer pending resolution of the plan problem and the registration of the First Buyer’s ownership of the yard.

This use of the doctrine of overreaching seems very harsh on the First Buyer as he had no entitlement to any of the sale proceeds of the second area. The Sellers granting a burdensome right of way through the yard to the Second Buyers seems rather inconsistent with the concept of the Sellers holding the yard on trust for the First Buyer.

The very technical concept of overreaching appears to have come to the court’s aid to avoid the Second Buyers from being landlocked.

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

Mortgage clause did not sweep up all borrower’s present and future assets

In the Land Registry Adjudicator case of Bonsu v Flex Mortgages Ltd [2016] the borrower had charged the Property, and any rights they may have relating to it, to the lender with full title guarantee by way of legal mortgage. In the same Clause 3 the borrower agreed “that this mortgage is extended to cover any legal or equitable estate which [they] or any one of [them] own[ed] now or acquire[d] at any time in the future.”

However in the mortgage “Property” was not given any extended definition, to include other or after-acquired land – it’s only meaning was the Ground Floor Flat.

The Adjudicator said Clause 3 of the 2006 Charge created a mortgage over the Ground Floor Flat (both as regards the legal estate and any equitable interest). It did not purport to or actually create a fixed or any other form of charge, legal or equitable, over any other property, whether owned contemporaneously with the 2006 Charge or subsequently acquired by the borrower.

The words ” extended to cover” were inappropriate to create an immediate charge over unidentified property. Moreover such a charge was not a usual or standard term of a normal mortgage. If the lender wished to create such a charge, the words of charge would have to be express and entirely clear.

In fact the additional words had been intended to operate as an “all estate” provision. The ” legal or equitable estate” referred to had to relate to the mortgaged ground floor flat defined as “the Property”.

The clause aimed to subject to the 2006 Charge any lesser or different interest owned by the borrower in that Property. So if, at the date of execution, the borrower had a defective legal estate, but a valid equitable interest in the Property, that interest would automatically become subject to the charge.

Also, if the borrower has a defective legal title at the date of the charge, but subsequently got a valid legal estate, that too would be subjected to the charge.

Any other interpretation was implausible because:

1. The clause did not identify the property in which the borrower had a present or future legal or equitable estate. The only property referred to in clause 3 was the Property as defined.

2. It would otherwise create or purport to create a mortgage not only over all after-acquired property, but over every single asset owned by the borrower at the date of the 2006 Charge. So that interpretation was quite against commercial common sense.

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

Solicitors’ application to Land Registry was negligent misstatement

What follows is a cautionary tale.

In Chief Land Registrar v Caffrey & Co [2016] clients sent their solicitors a Form DS1 Land Registry discharge purportedly signed on behalf of their bank to discharge a mortgage.

It was a forgery.

The clients told the solicitors that the bank was represented by another firm of solicitors, but that was untrue too.

The solicitors did not contact the bank or the so-called bank’s solicitors to verify the DS1 or that the “bank’s solicitors” were actually instructed on it. They submitted the Form DS1 to the Land Registry with a Form AP1 to apply to delete the mortgage.

The Land Registry asked for evidence that the person signing the DS1 had authority to do so on behalf of the bank.

The client supplied the solicitors with a purported power of attorney seemingly appointing four individuals, including the apparent signatory to the Form DS1, as the bank’s attorneys.

The solicitors sent a certified copy of the purported power to the Land Registry. The Land Registry acted on the application, the copy power and the Form DS1, and removed the mortgage from the property’s land register.

Later Santander UK plc lent money on the security of a charge on the property.

When the original Bank discovered that it’s mortgage had been removed, it applied to reinstate it to the register, but Santander objected. A Land Registry adjudicator decided that the original bank’s mortgage should be reinstated, but ranked it after Santander’s mortgage. The original bank then sought and obtained an indemnity for it’s loss from the Land Registry. The Land Registry then sued the solicitors to recoup their outlay under that indemnity.

The first basis of claim was negligence for having assumed a duty of care to the bank and then having breached it. The Land Registry claimed to be subrogated, by Land Registration Act 2002, s 103, Schedule 8, paragraph 10, to that claim of the bank against the solicitors.

But the High Court Master pointed out that the solicitor was acting for the borrowers in the discharge of the bank’s mortgage, and not for the bank, which had conflicting interests. The solicitors had been told that the bank had its own solicitors and so had no reason:
– to think that the bank was relying on it in any way,
– to disclaim any duty towards the bank or,
– to advise it to take its own advice.
Nor was the bank unsophisticated.

The solicitors were never asked to act on behalf of the bank, and never thought they were doing so. They thought that the bank was independently advised. The solicitors were acting for the borrowers, not the bank. The borrowers were not giving instructions to the solicitors on behalf of the bank, but on their own behalf.

The actual act which caused the loss was the act of the Land Registry in removing the charge, not the act of the solicitors in supplying the information to the Land Registry. Facilitating the causing of harm by another person was only grounds for negligence liability in exceptional cases e.g. where someone supplies a dangerous object to, or creates a dangerous situation for, someone else who is known to be irresponsible, or where someone’s job is to take reasonable care to prevent someone else’s actions.

“A solicitor asked to do something for his or her client and against the interests of another person is necessarily doing something capable of harming the other person. If it is done carelessly, it may harm that person even more. But that hardly militates for imposing a duty of care.

The solicitors were responsible for submitting the documents to the Land Registry without making checks. But that is what they were asked to do and their clients could have complained had they not done that. That contractual duty was undertaken to the clients alone.

“The act (of submitting the documents without first making checks) would have been easy to avoid, but at the price of not acting for the clients, or at any rate of greater expense to the clients. Moreover, the bank also has another remedy, i.e. against the [Land Registry].”

Registered land was known to property lawyers and to others, at that time, to be insufficiently secure against that kind of fraud. That was not the solicitors’ fault. The real question was how the law should allocate the risks of such fraudulent activity.

The Land Registry claimed to be subrogated to the rights of the bank. So the issue was to be determined as between the bank and the solicitors. The solicitors had not designed or run the system and it was not fair just or reasonable to make the solicitors responsible to the bank for the risk of fraud within an inherently risky Land Registration system. So the claim failed so far as it was based on negligence.

The Land Registry’s second basis for claim was negligent misstatement i.e. that by completing and/or submitting the application to the Land Registry and/or certifying a copy of the purported power of attorney and/or supplying it to the Registry, the solicitors “expressly or impliedly represented to the Land Registry that they had taken sufficient steps or measures and/or knew of sufficient facts to satisfy [themselves] that” the discharge form had been properly executed, solicitors had been instructed, the power of attorney was valid, the bank wished to discharge the charge, and that the property was no longer charged in favour of the bank.

The Land Registry said that the relationship between the solicitors and the Land Registry was such that the solicitors “knew or ought to have known that the Land Registry would rely upon” those representations in dealing with the application to discharge the bank’s charge, and so “the [solicitors] owed to the [Land Registry] a duty to take reasonable care to ensure that the [representations] were true.” The Land Registry said the representations were false, that it had relied on them and that it had thereby been caused loss.

Unlike the first negligence ground where the Land Registry claimed to be subrogated to the rights of the bank, and the question therefore arose as between the bank and the solicitors, here the issues arose directly between the Land Registry and the solicitors.

The Land Registry had professional staff who might be expected to have systems for checking matters themselves. They did not just blindly accept whatever the solicitors told them.

However the High Court Master was narrowly persuaded that, on the peculiar facts of this case, the solicitors had assumed a duty to take care in the representations which they had made to the Land Registry.

So the Master gave default judgment to the Land Registry, on the second cause of action, for damages to be assessed.

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

Time limits in negligence cases: appellants had insufficient actual or constructive knowledge to trigger limitation period

In a claim for damages for negligence the right to sue accrues at the date that damage occurs, even if no-one knows about the damage at the time.

To stop the limitation period for suing running prematurely section 14A of the Limitation Act 1980 disapplies the more general time limit in section 2 of the Limitation Act 1980 and provides for two alternative periods of limitation – 6 years from the date on which the right to sue accrued or 3 years from “the starting date” which is defined in subsection (5).

Section 14A only applies to claims in negligence and has no application to claims for nuisance, misrepresentation. or breach of statutory duty.

Section 14A (5) of the Limitation Act 1980 requires that the starting date is the earliest date on which the claimant had both:

1. the knowledge required for bringing an action for damages in respect of the relevant damage and

2. the knowledge required of their right to bring such an action.

Section 14A(6)(a) then says that “the knowledge required for bringing an action for damages in respect of the relevant damage” includes knowledge of “the material facts about the damage in respect of which damages are claimed”.

Section 14A(7) says “the material facts about the damage” are such facts about the damage as would lead a reasonable victim of such damage to think it serious enough to justify his starting proceedings for damages against a defendant who did not dispute liability and could satisfy a judgment.

In the Court of Appeal case of Blakemores LDP v Scott & Anor [2015] the trial judge had thought that the relevant “damage” for the purposes of section 14A(5)-(7) was the respondent law firm’s failure, in April 2009, to file an objection to the registration of two Land Registry titles affecting a village before the procedural deadline.

The appellants, Ms Carole Scott (“Ms Scott”), Mr Eric Walker (“Mr Walker”) and Mr Christopher Balchin, were villagers. Ms Scott alone knew that the law firm had been negligent in failing to file the objection, but even Ms Scott did not know the consequences of that failure.

So an issue was whether merely knowing that the firm had been negligent in not advising that the objection should be filed before the deadline was enough to lead a reasonable person to consider it sufficiently serious to justify his instituting proceedings for damages against the law firm, assuming it to be solvent and unwilling to dispute liability.

The court said knowing the firm’s failure to file the objection before the deadline was insufficient knowledge of a “material fact about the damage” to start time running for the purposes of sections 14A(6)(a) and (7).

The appellants needed to know that the effect of the failure to file the objection was to allow the Land Registry Adjudicator to make a discretionary decision against them in relation to a title.

There were two reasons why the material fact about the damage could not just be the negligent advice or the failure to file the objection before the deadline:

1. the appellants were not experts in land registration or manorial law. They could not be taken to have known the arcane consequences of a failure to file an objection in time without being told what they were.

The consequences of the non-filing of the objection by the deadline were “a fact only ascertainable with the help of expert advice” but the last part of section 14A(10) of the Limitation Act 1980 did not mean that they should “be taken … to have [“extended constructive”] knowledge of [that] fact” because Ms Scott and Mr Walker had in April 2009 and before, taken reasonable steps to obtain expert legal advice.

2. The relevant material facts about the damage have to be such as would lead a reasonable person to consider it sufficiently serious to justify his instituting proceedings for damages against a solvent firm, not disputing liability. On the evidence Ms Scott may not have known anything that would have led a reasonable person to sue:

– she had no reason to think she would be worse off. She understood that the costs were to be covered by the law firm and not reclaimed from her

– she had reason to think the case was going to be successful, and

– most crucially she seemed unaware that the firm’s negligence had turned a clear right to have the title closed into a matter for the discretion of the adjudicator.

So the starting date for limitation purposes was not April 2009 when the failure to object occurred. A trial of the facts would be needed before that date could be properly decided.

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

Third party’s use of land for unrelated purpose did not support squatter claim

The grant of a licence to make a particular use of land is an indication that the licensor regards himself as in control of the land, and therefore indicates that he has an intention to possess it.

The parking of a vehicle in a restricted space can amount to an act of possession if
it demonstates an intention to control the space.

Acts of possession done on parts of the land to which a squatter’s title is claimed may be evidence of possession of the whole. The issue is whether there is such a ‘common character of locality’ between the different parts as to raise a reasonable inference that the disputed land belonged to the person who has possessed it in the same way as the other parts did.

In the Upper Tribunal (Tax and Chancery Chamber) case of Re Land adjoining 19 Bridge End, Billington, Clitheroe [2015] the claimant had licensed a third party to park a vehicle on hardstanding outside a garage and to the west of it (“the Western Land”) -though insufficiency of space meant any vehicle also having to encroach onto land to the front of that hard standing.

The tribunal said:

– the garage was enclosed whereas the Western Land was open land; and,

– the boundaries of the garage (its walls) were clear, whereas the boundaries of the Western Land were not obviously delineated.

The claimant’s possession of the garage for storage purposes raised no reasonable inference that the claimant was also in possession of the hard standing, still less of the whole of the Western Land. That inference was ruled out because the boundaries of the Western Land were not “obviously defined”.

Was the hard standing to the west of the garage so inherently linked to the garage itself as to raise the reasonable inference that the claimant was also in possession of that hard standing?

No, because:

(a) The claimant did not use the Western Land for storage. Instead it was used by a third party licensee for the purpose of parking a motor vehicle in connection with that licensee’s occupation of his own neighbouring house;

(b) That use for parking was not in any way related to the use of the garage, but rather to the use of that licensee’s own house, some distance from the garage; and

(c) the claimant’s possession of the garage for the purposes of storage alone could not give rise to any reasonable inference that the claimant was also in possession of the Western Land, which was used for an entirely different purpose.

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

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.

Lenders had priority over Vendors in “sale and lease back” deals

Homeowners have agreed sale-and-leasebacks deals with investors to overcome debts.

In Scott-v-Southern Pacific Mortgages Ltd (2014), properties were sold to buy to let investors on the understanding the homeowners could remain as the tenants after the sales were completed.

However the sale contracts made no reference to the lease-backs to the sellers.

Some of those landlords had mortgages and failed to maintain mortgage payments.

The lenders were not told about the lease-backs to the sellers. They were informed that the properties were being bought with vacant possession. So they had not consented to the lease-backs.

Did those mortgages take priority over the agreements between the buyers and sellers or were the lenders bound by the agreed lease-back arrangements?

The sellers said they had overriding interests in the houses based on the promised lease-backs which were protected by them being in actual occupation when the sales were completed.

The Supreme Court said the rule that a buyer becomes the equitable owner of the property sold on exchange of contracts “applies only as between the parties to the contract and cannot be extended so as to affect the interests of others” i.e the lenders.

Accordingly the court were unanimous that exchange of contracts had not prior to completion empowered the buyers to confer equitable proprietary rights on the sellers capable of taking priority over the lenders.

So all the sellers had were personal claims against the buyers.

The acquisition of the houses may have been a vital precursor to a mortgage but where a property buyer needs a loan to finance a purchase, the purchase and mortgage form a seamless whole because the buyer would never have got the property without the loan.

The sellers’ claims against the buyers changed from being purely personal claims to being proprietary claims against the properties, capable of binding third parties, when the buyers completed their purchases from them and acquired the legal estates in the houses, but by then it was too late for the sellers to get priority over the mortgages taken by the lenders as an integral part of the house purchase completions.

The decision has important implications for other property transactions where the priority of derivative interests depends on the person granting them already having the legal estate in the property at the key time. The transactions potentially affected include commercial sales and lease-backs.

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

Court ordered removal of Land Registry Caution in advance of full hearing

The effect of registering a caution against the first registration of unregistered property has tended, in practice, to be that it cannot be sold.

Furthermore the process to challenge the registration of the caution takes a considerable length of time.

If an application is made to remove the caution, the court must consider whether the respondents have a seriously arguable case for obtaining ownership of, or a proprietary interest in, that property, when the case comes to trial.

The court must also consider whether either or both parties would be adequately compensated by an award of damages for:

– the loss of the property or that proprietary interest if the caution is wrongly ordered to be removed; or

– the loss of a selling opportunity, perhaps in a falling market, if the caution is wrongly ordered to remain

in advance of a full trial of the issues.

If neither can be adequately compensated in that way, the court must decide “where the balance of convenience lies”.

In the High Court case of Williams v Seals & Ors [2014] the respondents claimed an interest in some Derbyshire farm property under the Inheritance (Provision for Family and Dependents) Act 1975 and by proprietary estoppel. They lodged a caution against first registration to prevent the property from being sold free of their claims.

The claimant was the sole executrix and beneficiary under a Will bequeathing the property and now applied to get the caution removed.

The respondents’ statement of means in support of their claim under the 1975 Act showed that they had very limited means. Mr Seals stated in his witness statement that he had no assets of any real value.

The claimant had not put any evidence before the court of her financial resources, but the respondents’ evidence indicated their belief that she was independently wealthy and the sole freehold owner of two properties in Ashbourne which were free of mortgage.

The fact that respondents were asking that the claimant’s property remain subject to the caution pending the full court hearing of these issues created an obvious difficulty where (as here) the owner was proposing an imminent sale of the property. Since in the meantime the respondents had not given the claimant any undertaking to pay damages or afford other protection in the event that the caution was ordered to be cancelled at the full hearing but had frustrated a sale in the meantime.

If the caution were not cancelled and the farm and other land could not be sold, then pending a full trial of the action the risks to the estate were threefold:

1. loss of interest on the sale price in the meantime;

2. expenditure to maintain the property and

3. the possibility of a decline in market value.

Were the respondents to fail in their claims, there was no evidence to suggest that the respondents would be in a position to meet a claim to compensate the claimant estate for any of those losses which it might suffer as a result of the caution remaining in place. On the other hand, it appeared likely that the claimant would be able to compensate the respondents for any loss resulting from the cancellation of the caution.

This conclusion was a major factor in leading the court to order the caution to be cancelled and so permit the sale of the farm to proceed.

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

Third parties who induce breaches of personal rights may not rely on non registration

To make a purchaser of a registered land title subject to personal liability in respect of adverse contractual rights concerning land, not disclosed on the register, may seem contrary to the entire scheme of land registration.

Section 29(1) Land Registration Act 2002 is the section that regulates priorities but it does not concern itself with purely personal rights. It postpones any interest affecting land to any later land dealing, if the priority of that interest was not protected at the Land Registry at the time of registration of that later land dealing so long as that later land dealing has been done for value.

The key to this conclusion is that the phrase an interest affecting land covers proprietary rights – but would not extend to purely contractual rights as section 132(3)(b) of the Land Registration Act 2002 defines “any interest affecting the estate” as “an adverse right affecting the title to the estate…”

In the High Court case of Lictor Anstalt v Mir Steel UK Ltd & Another [2014] a hot steel strip mill (“HSM”) was in a factory which the claimant (Lictor) had procured for Alphasteel (now in administration).

The removal of a HSM would have been complex, very expensive and time consuming and would have required some remedial repair works to the site.

The court ruled that the HSM formed part of the site and so, part of the land itself. Given it’s very nature, the HSM was intended as a permanent or semi permanent structure. The purpose of securing the HSM to the site had been to enjoy the site as a functioning steel mill.

An HSM of this kind would have been expected to have an operable life of up to fifty years and would only be removed in exceptional circumstances.

It therefore rejected Lictor’s primary claim that the HSM was a collection of chattels which Lictor had retained title to despite Alphasteel’s ownership of the site.

Although the HSM had become part of the land an agreement between the Lictor and Alphasteel (“the April Agreement”) had sought to:

– regulate Alphasteel’s use of the HSM creating contractual and equitable rights and obligations in relation to the it;
– to classify the HSM as a chattel;
– to preserve a contractual right for Lictor to prevent dealings with the HSM by Alphasteel as if it were the owner; and
– to preserve a contractual right for Lictor to enter onto the site in order to sever the HSM from the land and remove the HSM.

When the Administrators of Alphasteel later sold the site including the HSM on to Mir, Mir actually knew through the Administrators that by executing the associated hive down agreement and the land transfer the April Agreement would be breached.

This exposed Mir to liability to Lictor for the tort (legal wrong) of inducing breach of contract.

Will this lead to a need for additional enquiries in every case? No because the tort is based upon actual knowledge by the purchaser of the contractual rights being broken.

However it does mean that a buyer with knowledge that it’s purchase proposals will contravene someone else’s contractual rights cannot simply close their eyes and rely on the fact that those rights are not protected by a notice or a restriction on the land register.

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.