4.3 Methods to protect and enforce third party rights

Question 1

What are ‘third party rights’ in land law?

Answer 1

Rights over land which are held by a party other than the legal owner of the land.

Question 2

Why does a buyer’s solicitor need to make enquiries over third party rights?

Answer 2

Whether such rights bind a buyer of the land is of fundamental importance to both the party with the right and the buyer. Many third-party rights fetter or in some way restrict the ability of the holder of the legal estate to enjoy their land.

Question 3

Unregistered Land

If the interest is legal, what is the outcome?

Answer 3

A legal interest in unregistered land will bind a buyer, irrespective of notice. Legal interests bind the world in unregistered land.

Question 4

Registered Land

If the interest is legal, what is the outcome?

Answer 4

In registered land, legal interests such as a mortgage or an easement created by deed should be protected by registration on the charges register of the burdened title.

Question 5

Unregistered Land

If there is an equitable interest, how can the third party right be enforced?

Answer 5

Equitable interests in unregistered land (estate contracts, restrictive covenants etc.) must be protected by the registration of a notice on the Land Charges register against the owner of the legal estate.

N.B: For a land charges registration to be binding, it must be registered against the correct name!

Question 6

What is a C(i) land charge?

Answer 6

Puisine mortgage

A mortgage not protected by the deposit with the lender of the title deeds - e.g. a second legal charge

Question 7

What is a C(iii) land charge?

Answer 7

General equitable charge

Not covered in the other categories (rare)

Question 8

What is a C(iv) land charge?

Answer 8

Estate Contract

A contract to purchase, an option agreement, right of pre-emption or similar

Question 9

What is a Class D(ii) land charge?

Answer 9

Restrictive Covenants

Question 10

What is a D(iii) land charge?

Answer 10

Equitable Easement

Question 11

What is a Class F land charge?

Answer 11

This protects a non-owning spouse’s (or civil partner’s) statutory right of occupation of the matrimonial home under the Family Law Act 1996

Question 12

Unregistered Land

What happens if a third-party right does not appear on the list of land charges?

Answer 12

Notice is important in this situation - whether or not it binds a buyer will depend on whether the buyer had notice of it

Question 13

What is the doctrine of notice in unregistered land?

Answer 13

A buyer will take free of the equitable interest if they can show that they are ‘equity’s darling’ - the bona fide purchaser for value of a legal estate without notice

Question 14

Define the components that determine ‘equity’s darling’?

Answer 14

Bona fide - the buyer must act in good faith
Purchaser - the person is acquiring an interest in the land
Value - Money, or money’s worth
Legal estate - a legal freehold or leasehold estate (an equitable estate is not sufficient); and
Without notice - without one of the three types of notice

Question 15

What is actual notice in unregistered land?

Answer 15

The purchaser actually knows of the interest

Question 16

What is constructive notice in unregistered land?

Answer 16

A purchaser will have constructive notice of all interests reasonably discoverable by inspection of the property (such as people in occupation). This includes a duty to enquiry about potential interests.

Question 17

What is imputed notice in unregistered land?

Answer 17

This is notice received by the purchaser’s agent, such as the solicitor assisting a land purchase. If the agent has actual or constructive notice, the purchaser will be held to have imputed knowledge

Question 18

Unregistered Land

What happens if a buyer is not ‘equity’s darling’ and there are equitable interests in the land?

Answer 18

The buyer will be bound by these equitable interests as follows:
- beneficial interests under a trust
- those expressly excluded from the LCA 1972, such as pre-1926 equitable easements and restrictive covenants; and
- interests arising by estoppel

Question 19

Registered Land

How are third-party rights in registered land protected?

Answer 19

They may be protected by a notice or restriction on the register of an existing title.

Equitable interests (estate contract, restrictive covenant) - protected by a notice on the CHARGES register

Equitable interest (beneficiary under a trust) - protected by a Form A restriction on the PROPRIETORSHIP register - but can be overreached!

N.B: Buyer must still make enquiries to uncover overriding interests

Question 20

What is meant by overriding interests and how can these still bind a buyer in registered land?

Answer 20

Overriding interests are capable of binding a buyer even though they are not on the register of title!

They include:
- Leases for 7 years or less
- Unregistered easements (e.g. acquired by prescription / implication)
- A person with rights in the property who is in actual occupation of the property

Question 21

What is the overreaching principle that is relevant to a beneficial interest under a trust? Explain how this works in registered land.

Answer 21

Overreaching has the effect of transferring the interest of the behind-the-scenes beneficiary from the land to the sale proceeds. This means that the buyer will take the property free of the beneficial interest.

• A beneficial interest under a trust must be entered as a Form A restriction on the proprietorship register of title (must be done by restriction!)
• However, even if the restriction is in place, the beneficial interest may be overreached by paying the purchase price to 2 or more trustees (or a trust corporation) who can give valid receipt

Question 22

When overreaching takes place in registered land, what is the outcome?

Answer 22

The behind-the-scenes beneficiary will pursue the trustees (who signed the transfer and gave a valid receipt) for their share of the sales proceeds - they are NOT entitled to pursue the buyer of the land.

Question 23

When may a beneficial interest under a trust not be recognised as an interest in land for a person in actual occupation?

Answer 23

1. The beneficiary did not disclose the beneficial interest to the buyer on a reasonable enquiry, or;
2. The beneficial interest would not have been obvious on a reasonable inspection and the buyer did not have actual knowledge of the beneficial interest

Question 24

Explain how the overreaching principle works in registered land for a beneficial interest under a trust.

Answer 24

• If the title is unregistered, there is no interest capable of registration (no Land Charge category). The beneficial interest can be overreached by paying the purchase price to two or more trustees (or a trust corporation) and;
• When the purchase price is paid to only 1 trustee, there is no overreaching - the buyer is subject to the doctrine of notice and will be bound unless they are equity’s darling

Question 25

How are legal third-party interests protected?

Answer 25

Registered Land: Legal interest registered as a notice on the register of title.

Unregistered Land: Deed creating legal interest is included in title documents given to the buyer.