Tag Archives: priorities of land interests

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.