C3: Third party rights in Land Law

Question 1

In registered land, when does a person become the legal owner?

Answer 1

Registered: Estates and interests do not become legal estates or legal interests until registration takes place. Until registration at HMLR these remain equitable interests.

Question 2

In unregistered land, when does a person become the legal owner?

Answer 2

Unregistered: With unregistered land, the buyer becomes the legal owner immediately upon completion.

Question 3

What are the three main third party rights others can have over your land?

Answer 3

1. Easements (e.g. right to drive over land)
2. Covenants (e.g. limit on business purposes)
3. Mortgages (legal charge over land)

Question 4

What is an easement?

Answer 4

An easement is a property right which one person has over another person’s land, e.g. rights of way, rights to run cables.

Question 5

What are the following parties known as?

Party who benefits from easement.

Party whose land suffers the detriment/burden.

Answer 5

1. The dominant owner
2. The servient owner

Question 6

Are easements public or private rights?

Answer 6

Easements are private rights.

Question 7

Which case sets out the characteristics for easements?

Answer 7

Re Ellenborough Park [1956]

Question 8

What are the four characteristics that must be satisfied for easements?, established by Re Ellenborough Park (1956)?

Answer 8

1. Must be a dominant and servient tenement.
2. Right claimed must benefit the dominant tenement. (i.e. would it make the land more valuable?)
3. Must be diversity of ownership and/or occupation. (different people must own/occupy the tenements, landlord/tenant is ok as occupation is sufficient)
4. Right claimed must be capable of forming the subject matter of a grant. These must be written and meet the following requirements:

a) must be similar to existing easements
b) no positive requirement for the servient owner to expend money (except maintaining fences)
c) must be sufficiently definite
d) no exclusive possession

Question 9

What is the difference between a licence, a grant and a reservation of easements?

Answer 9

Licence: A mere licence is not an easement. In order to create an easement, there must be a grant or reservation.

E.g. If Barry allowed a neighbour access across the garden of Sunnybank for the delivery of building materials, he will not have created an easement. Even though this permission has all the hallmarks of an easement, it cannot be an easement as it is merely verbal and amounts to mere permission to enter. It would be viewed as a licence to cross the land.

Grant: A grant occurs where one person agrees that another should have rights over land which they retain

Reservation: A reservation occurs where a person reserves rights over land which they sell.

Question 10

What is the difference between an “express”, “implied” and “presumed” grant?

Answer 10

There are three ways of granting or creating a legal easement:

1. Express Grant

Agreed via deed and equivalent to legal estate (for by law) or via writing (for equitable easement)

2. Implied Grant

Claimant has the burden of proving the existence of the easement.
If implied by court or conveyance, the court will declare that the easement exists and it’ll be deemed to be a legal easement even if not in deed or written down. (Necessity, Common intention, rule in Wheeldon v Burrows, S62 LPA 1925)

3. Presumed grant or prescription

Prescription is when someone can prove that they have exercised a right that has the characteristics of an easement for a long time (usually 20 years).

Question 11

What are the 4 methods of implied grant?

Answer 11

There are various methods of implied grant, based on what the parties to the agreement are presumed to have intended:

a) Necessity (if absolutely necessary, e.g. landlocked)

b) Common intention (if both parties clearly intended this)

c) The rule in Wheeldon v Burrows [1879] (when land is divided and a part is sold on, any rights the seller still needs must be expressly reserved for the seller. Otherwise all easements that are ‘continuous and apparent’ will pass to the buyer of the land by implication.

d) S62 LPA 1925 (rights are transferred from seller to new owner on a sale of part. The right must have been in actual use at the time of the sale.’

Question 12

For easements to be implied by prescription, what are the four conditions?

Answer 12

(a) There must have been continuous user (the legal term for usage): the purported easement must have been used regularly.

(b) User must have continued for the prescriptive period – generally 20 or more years.

(c) User must be by, or on behalf of, and against, the fee simple (i.e. freehold). In other words, one freehold owner must be claiming against another. A tenant cannot acquire an easement by prescription over land adjoining their leasehold land if that neighbouring land is owned by their landlord.

(d) There must be user as of right. This means that it must have been exercised without force, secrecy or permission. Where a person forcibly removes a fence to create a shortcut, or where the servient owner does not appreciate that their land is being used (e.g. where drains are buried under the land), no right of prescription can arise. Also, if permission has been given to use the particular right, then there can be no prescriptive right.

Question 13

What are the three different methods of prescription?

Answer 13

(i) At common law, for an easement to arise by prescription, it had to have been enjoyed since time immemorial (1189). The courts have adopted the rule that, if user as of right for 20 years or more is shown, it will be presumed that user has continued since 1189. If it can be shown that at any time since 1189 the easement could not have existed, for example, the land was owned by one person, an easement cannot be acquired by prescription at common law.

(ii) Under the doctrine of lost modern grant, where the easement must have been used for 20 years. In such cases, the courts may make a (fictional) presumption that the easement was granted, but that the deeds were lost.

(iii) Under the Prescription Act 1832, where the easement must have been used for at least 20 years. If 40 years’ user can be shown, however, the right is deemed to be absolute and indefeasible (cannot be made void).

To claim an easement under the doctrine of lost modern grant, the 20-year period can be any period, whereas to claim an easement under the Prescription Act 1832, the 20-year period must be “next before action”, that is, run for the 20 years immediately preceding the action.

Question 14

How is a “reserved” easement different to a “grant” of one?

Answer 14

A reserved easement is when a seller reserves rights on part of their land that they are selling. A grant is between two freeholders.

Question 15

Are reserved easements equitable or legal?

Answer 15

Reserved easements can be equitable OR legal.

Question 16

What are the options if an express reservation does not exist?

Answer 16

If there is not an express reservation over the easement by deed, the only options are to imply the easement by means of necessity or common intention. The rule in Wheeldon v Burrows and s62 LPA 1925 do not apply to reservation of easements, because the seller should have made it clear in the contract when selling the part.

Question 17

Which two situations do not apply to a reserved easement but do apply to a grant?

Answer 17

Wheeldon v Burrows
S62 LPA 1925

I.e. no easement ruling in favour of the seller.

Question 18

What are “profits à prendre”?

Answer 18

A profit à prendre is a right to enter on to land of another person and take part of the produce or soil. Unlike an easement, the owner of the profit does not need to have an estate in the land itself. Profits include mining rights, fishing rights, shooting rights, rights of grazing, and rights to collect wood or dig for peat.

Profits can be acquired in similar ways to easements, although they cannot be acquired by necessity or under the rule in Wheeldon v Burrows [1879]. The prescription period under the Prescription Act 1832 is usually 30 years.

Question 19

Identify the three ways in which an easement can be terminated.

Answer 19

(1) By statute.

(2) By release. This could be express release or implied release. There has to be an intentional abandonment of the easement for there to be an implied release.

(3) By unity of ownership and possession. If the dominant and servient tenements come into the ownership and possession of the same person, any easement is extinguished.

Question 20

What is a covenant?

Answer 20

A covenant is a promise (i.e. obligation) which governs what must be done or not done in relation to the land affected by it.

Question 21

What is the difference between freehold and leasehold covenants?

Answer 21

Freehold covenants are obligations which have been agreed between buyers and sellers of freehold land.

Leasehold covenants are obligations imposed on the landlord and the tenant.

Question 22

What are the people who receive and give away covenants known as?

Answer 22

Covenantors are the people who give the covenant (have the burden, which burdens the land)

Covenantees are the people who receives the covenant (have the benefit if the covenant is breached)

Question 23

What kind of benefit must there be for a promise to amount to a covenant? Same as easements?

Answer 23

As with an easement, for a promise to amount to a covenant, it must confer a positive benefit on the land and not just a personal benefit to the land owner.

Question 24

How are freehold covenants created?

Answer 24

A covenant must be created by deed. They can be created in a separate document called a “deed of covenant”.

Question 25

What is the difference between a “positive” and a “restrictive” covenant? Give examples.

Answer 25

Restrictive covenants: restrictions placed on the owner, for example, not to run a business, not to build, not to build above a certain height or not to erect aerials above the roof line.

Positive covenants: impose an obligation on a buyer to do something and usually expend money. This could be to maintain a fence or to clear ditches.

Question 26

How are freehold covenants protected in registered land?

Answer 26

Restrictive covenants are recognised only in equity and are, therefore, equitable interests. A restrictive covenant is protected by notice in the charges register.

Question 27

Are both positive and restrictive covenant binding on future buyers?

Answer 27

In freehold, it is not possible for the burden of a positive covenant to pass.

Restrictive covenants can run with the land in equity.

Question 28

How must a covenant be created?

Answer 28

By deed, called a deed of covenant.

Question 29

What is an indemnity covenant?

Answer 29

Passing indemnity insurance (in transfer form) acts as a release to the seller, the buyer agrees to perform all the covenants.

Question 30

What is a mortgage?

Answer 30

A mortgage is a right of a lender over land which guarantees the payment of a debt or the performance of some other obligation.

Question 31

Define “mortgagor” and “mortgagee” – who lends and borrows the money?

Answer 31

The borrower in this relationship is the mortgagor and the lender is the mortgagee.

Question 32

What is a repayment mortgage?

Answer 32

• Monthly repayments over 20-25 years, consisting partly of the capital and interest on this loan. It is the only mortgage that pays off both capital and interest during the term.
• Mortgagor may also need to take out life insurance.

Question 33

What is an interest-only mortgage?

Answer 33

This is a mortgage whereby the borrower only pays off the interest accruing on the capital sum each month. This means that the monthly repayments are generally lower than a repayment mortgage.

However, the capital sum borrowed will remain outstanding for the entire term of the mortgage and the borrower will therefore need to have arrangements in place to pay off the capital sum owed at the end of the mortgage.

Question 34

What is an endowment mortgage?

Answer 34

Only interest is paid off by means of monthly instalments. The mortgagor will also take out an endowment policy (insurance policy) with an insurance company. There will be monthly payments of a premium to the insurance company. These premiums will be invested and will be used at the end of the policy to pay the capital loan.

There is, however, no guarantee that the proceeds will be sufficient to repay the loan in full as a result of which, this type of mortgage is rarely encountered in practice. If the mortgagor dies during the term of the policy, it will mature and the mortgage will be repaid early.

Question 35

What is a pension mortgage?

Answer 35

As its name suggests, a pension mortgage links a mortgage with pension arrangements for the mortgagor’s retirement. This type of mortgage is usually only for the SELF-EMPLOYED or is sometimes beneficial, for tax reasons, to high earners; for these reasons they are fairly rare in practice.

Question 36

How are mortgages created in unregistered land?

Answer 36

By virtue of s85 LPA 1925, where land is unregistered, legal mortgages can be created by:
- a lease (or demise) for a term of years absolute (lasting for 3,000 years) subject to a provision for cessation on redemption (i.e. which can be brought to an end if paid off early); or
- a charge by deed expressed to be by way of legal mortgage. (this must be stated in the deed expressly ‘charged with the debt by way of legal mortgage)

Both can be redeemed by paying off the mortgage at a date earlier than agreed.

Question 37

How are mortgages created in registered land?

Answer 37

A legal mortgage over registered land can only be created:
- by deed;
- expressly stating that the property has been charged with the debt by way of legal mortgage; and
- which has been registered in the charges register of the title.

If the mortgagee fails to register the charge, their mortgage will not bind a buyer for value unless protected by notice.

Question 38

What is an “equitable” mortgage?

Answer 38

Equitable mortgages, which are created in writing rather than by deed, are sometimes used to secure short-term loans or overdrafts.

Also note from the above that a mortgage over registered land will be equitable until it is registered.

Question 39

What is the mortgagor’s right to redeem?

Answer 39

A mortgagor’s right to redeem means that a mortgagor can pay off the mortgage and any outstanding interest in order to own the land fully - the mortgagee would no longer own any of that land. Also known as the equity of redemption.

Question 40

What is the ‘legal date for redemption’?

Answer 40

The date for when the full loan can be repaid, usually six months from the date of when the mortgage was created. You cannot pay it off before then.

Question 41

What rights arise for the mortgagor and the mortgagee once the ‘legal date for redemption’ passes?

Answer 41

First, once the legal date for redemption has passed, a number of the mortgagee’s remedies arise.

Second, the mortgagor then has an equitable right to redeem the mortgage.

Question 42

What is a ‘clog on the equity of redemption’?

Answer 42

Any attempt to prevent the mortgagor from exercising their equitable right of redemption, e.g. if there was a term in the mortgage agreement preventing the mortgagor from repaying the mortgage early, this term would be void as a “clog on the equity of redemption”.

Question 43

What are the remedies available to a mortgagee?

Answer 43

(i) obtaining possession and selling
(ii) appointment of a receiver
(iii) foreclosure
(iv) liability of guarantor

Question 44

When is possession of a dwelling lawful?

Answer 44

Possession of a dwelling is only lawful if the mortgagee has obtained a court order for possession.

The court can stay, suspend or adjourn possession proceedings if it thinks that the mortgagor can find sums owed under the mortgage and pay the forthcoming instalments within a reasonable time.

Question 45

Under statutory power implied into all mortgage deeds, what two things must they be sure of, once they have taken possession?

Answer 45

They must make sure that the power of sale has ARISEN and is EXERCISABLE

ARISEN: s101 LPA 1925: where the mortgage is made by deed, the contractual date set to redeem the mortgage has passed (remember that this is usually six months after creation of the mortgage) and there is no contrary intention in the mortgage deed.

EXERCISABLE: a power of sale is exercisable when one or more of the following conditions are met:
- interest payments are more than two months in arrears; or
- notice requiring payment of the capital (loan) has been served and three months have elapsed without payment; or
- there is a breach of some other term of the mortgage (e.g. the property has been leased without permission).

Question 46

What are the duties of the mortgagee on sale?

Answer 46

On sale, the mortgagee must obtain the best price available, although the mortgagee has the choice of when to sell. The mortgagee has a duty to take reasonable care and there is a requirement of good faith in the exercise of its power of sale.

Question 47

What is ‘an action in debt’?

Answer 47

This right is of little use where the mortgagor has little or no money or income. Where the mortgage is for a significant proportion of the value of the property, however, the mortgagee will insist that the mortgagor pays a premium at the outset to cover indemnity insurance. This mortgage indemnity guarantee policy is, contrary to popular belief, for the benefit of the mortgagee and not the mortgagor.

Where the mortgagee makes a claim against the insurance policy, the insurance company will be able to sue the mortgagor for the sum owed. The insurance company has the right to do this under a principle known as subrogation.

Question 48

What is the remedy of ‘appointment of a receiver’?

Answer 48

With business premises a mortgagee could appoint a receiver rather than sell the property. A receiver is a named individual who may take possession of property for its protection or realisation. A receiver may be appointed by the court, by a charge-holder with a suitable clause in their security or under the provisions of a statute, for example, the LPA 1925.

Question 49

What is the remedy of foreclosure?

Answer 49

Foreclosure is rare and involves long and expensive court proceedings. The effect of a court order for foreclosure is to transfer the whole property from the mortgagor to the mortgagee.

Where an order for foreclosure is obtained, a possession order will be required where the mortgagor is refusing to move out.

Question 50

What is the remedy of liability of guarantors?

Answer 50

It is possible for a guarantor to guarantee all or part of a loan to a mortgagor.

In recent years, with house prices rising, many young first-time buyers are looking to parents to act as guarantors of the mortgage. In these cases, the parent’s name does not have to appear either on the mortgage agreement or the property deeds (thus, the guarantor does not have an interest in the property) but they will still be jointly and severally liable for the loan. Thus, a guarantor may be subject to an action in debt where the mortgagor fails to pay the loan.

On the other hand, when the mortgagor is able to meet the repayments in full on their own, then the guarantor can be released from the agreement.