Enforcement of interests

Question 1

Three steps in conveyancing process

Answer 1

1) Exchange of contracts
2) Completion of the deed
3) Registration
- Once the contracts are exchanged, the parties become contractually committed to buying/selling the land.

Question 2

Contract - formalities

Answer 2

LP(MP)A s 2:

• in writing
• contains all the expressly agreed terms
• signed by both parties
• contracts may be signed by electronic signature pursuant to the Electronic Communications Act 2000 if the parties agree a procedure

Question 3

Where can the terms of the contract be contained

Answer 3

• Terms of contract can either be contained in one document, signed by both parties, or in two documents provided they are identical (LP(MP)A 1989, s 2(1))
• Standard practice: two copies of the contract drawn up, signed, and then buyer and seller exchange copies
• LP(MP)A 1989, s 2(2): the contractual terms may be incorporated in the contractual document either by being in the document itself or by referring to some other document ‘by reference’
• There have been occasions where one/more of the agreed terms were excluded and the courts are faced with the question of whether or not they can uphold the incomplete contract or must declare it void for non-compliance with LP(MP)A 1989 s 2.

Question 4

Terms excluded from contract - North Eastern Properties Ltd v Coleman and another

Answer 4

• Coleman and Quinn agreed to buy 11 flats under 11 identical contracts from the seller. They agreed that the developer would pay the buyers a finders fee of 2% of the price on exchange of contracts. They agreed this would be dealt with direct, and not included in the formal contracts. The 11 contracts all contained the clause ‘this agreement contains the entire agreement’
• the 2% was not paid and the buyers argued the contracts fell foul of s 2 and were therefore void
• the court gave an order for specific performance rather than rendering the contracts void; the separation of the agreement for the 2% from the sale contracts was a commercially rational step to take and therefore did not fall foul of s 2.

Question 5

Can a land contract be varied?

Answer 5

McCausland v Duncan Lawrie:

• The parties tried to orally agree a variation to the sale contract
• The variation was held to be void. Whenever a material term in a land contract is varied, that variation must also comply with LP(MP)A s 2. Where a term is essential to the nature of the contract, it will be considered ‘material.’

Firstpost Homes Ltd v Johnson:

• The seller signed the plan but not the contract document, and the purchaser signed both.
• s 2 had not been complied with. The court viewed the plan as being separate from the contract

Question 6

Most common types of land contract

Answer 6

• sale contract
• agreement for lease/contract for lease (regarded as an ‘equitable lease’)
• option agreement: gives another party a right, during the option period, to serve notice that they wish to buy the land. If notice is served during the option period, the seller must sell the land to the buyer
• right of pre-emption: type of land contract that gives another party a right of first refusal in the event the land owner decides to sell their land. There is no obligation to sell

Question 7

Proprietary effect of a land contract

Answer 7

• The effect of a binding land contract is to pass an equitable interest in the land to the buyer
• It is an agreement to create or transfer a proprietary right in the land. Although such an agreement will not create a proprietary right at law, it will be good in equity: ‘equity regards as done that which ought to be done’ (Walsh v Lonsdale)
• It is capable of binding and being specifically enforceable against third parties (ie. subsequent owners of the freehold estate)
• In order to be binding against third party purchasers, it must be protected.
• Registered land: should be protected by registering a notice in Charges Register of the land subject to the contract (LRA 2002, s 32), and then will be binding and enforceable against a third party purchaser (LRA 2002, s 29(2))
• Unregistered land: should be protected by registering a C(iv) Land Charge against the name of the grantor of the right at the Land Charges Registry (Land Charges Act 1972, s 2(4)(iv)). The estate contract will then be binding and enforceable against a purchaser for valuable consideration (LPA 1925, s 198)

Question 8

What happens if the interest holder fails to protect the estate contract?

Answer 8

• If the third party is a donee/volunteer, they will be bound by a properly created estate contract, regardless of registration.
• Registered land: If the estate contract has not been registered and the third party is a purchaser, the estate contract could still be binding if the holder of the estate contract is in ‘actual occupation’ of the land (LRA 2002, sch 3, para 2)

Question 9

Remedies for breach of a land contract

Answer 9

• Damages: available as of right. The usual measure is the loss which the claimant suffered as a result of the breach, e.g. legal and surveyor fees, the loss of the bargain. Because of the proprietary status of the land contract, it is enforceable ‘in rem’ which means the following equitable remedies are also available:
• Specific performance
• Prohibitory injunction
• These are entirely at the discretion of the court, and equitable principles will also apply, so the court will have regard to the behaviour of both parties.

Question 10

Three categories of estates and interests in land

Answer 10

1) Registrable dispositions
2) Interests protected by entry
3) Overriding interests

Question 11

LRA 2002, s 28

Answer 11

An interest of whatever kind will take priority over later dispositions.

Question 12

LRA 2002, s 29

Answer 12

An important exception to the rule in s 28: A registrable disposition of a registered estate, made for valuable consideration, will take priority over any pre-existing rights in the land except those which have been protected by entry of notice on the register or those which are overriding interests.

In other words, if A buys freehold land and registers the disposition, A will take the land subject to interests which have been protected by entry of a notice, and overriding interests. A will not take the land subject to any interests which should have, but have not, been registered.

This means s 28 is limited in scope to transactions not made for valuable consideration: donees/volunteers will take the land subject to all pre-existing interests. Where the transaction is for valuable consideration, s 28 has no application and the situation is governed by s 29.

Question 13

Registrable dispositions

Answer 13

• LRA 2002, s 27 states that some transactions called ‘registrable dispositions’ must be completed by registration.
• Dispositions do not operate ‘at law’ until the registration has been completed.
• The transfer of an existing registered freehold or leasehold estate must be completed by registration (s 27(2)(a)), as must the grant of a new lease for a term of more than 7 years (s 27(2)(b))

Question 14

Registrable dispositions: express legal easements

Answer 14

• The express grant/reservation of an easement is a ‘registrable disposition’
• The easement will therefore not be legal until it has been properly registered.
• The easement will then appear on the Property Register of the dominant land and in the Charges Register of the burdened land. It will be a properly registered disposition and will bind a purchaser for valuable consideration.
• If the disposition is not registered, then a purchaser for valuable consideration will take the land free of it, although a donee/volunteer will still be bound

Question 15

Registrable dispositions: grant of a legal charge

Answer 15

• The grant of a legal charge by a borrower is a ‘registrable disposition’
• It must be created by deed and the charge will not be legal until it has been properly registered
• Once registered, it appears in the Charges Register of the mortgaged land. It will then bind a purchaser for valuable consideration, which includes a subsequent lender.
• If the charge is not registered, a new lender will not be subject to it and will rank first in priority.

Question 16

Registrable dispositions: grant of a landlord’s right of entry

Answer 16

• The grant of a landlord’s right of entry, known as a right of forfeiture, is a ‘registrable disposition.’
• It must be created by a deed and submitted for registration.

Question 17

Registered land: Equitable interests protected by entry

Answer 17

A purchaser for valuable consideration will be bound by interests which are properly protected by entry of a notice.

Question 18

Equitable interests: two methods of protection

Answer 18

(1) Notices

(2) Restrictions

Question 19

Equitable interests: Notices

Answer 19

• Most equitable interests must be protected by entry of a notice in the Charges Register of the burdened land (LRA 2002, s 32)
• It will then bind subsequent purchasers
• If an interest is not so protected, subsequent purchasers will not be bound, but a donee will always be bound.

Question 20

Equitable interests: Restrictions

Answer 20

• Not a permanent way of protecting interests
• Restrictions are short-term entries which direct the purchaser to do something specific in order for their purchase to be properly registered. (LRA 2002, s 40)
• Interests which are protected by the restrictions are not intended to last beyond a change in ownership. They are instructions which must be obeyed in order for the purchaser’s transfer to be registered.

Question 21

Interests which may be protected by entry of a notice: LRA 2002, s 32

Answer 21

• The appropriate way to protect an interest which is intended to last beyond a change in ownership.
• Interests which cannot be protected by notice are set out in LRA 2002, s 33. The most common ones are beneficial interests under trusts (which can be protected by restriction), and short legal leases for a term of three years or less (which are binding as overriding interests)
• A notice is intended to bring the relevant equitable interest to the attention of a purchaser, notifying them that the interest will be binding if they proceed.
• It does not guarantee that the interest has been properly created so as to be valid.

Question 22

Equitable interests protected by entry of a notice - s 32

Answer 22

• Restrictive covenants affecting freehold land
• Estate contracts
• Equitable easements
• Rights arising under estoppel claims
• Occupation rights
• Legal leases more than 3 years, up to 7
• but NOT trust interests

Question 23

Interests which may be protected by entry of a restriction: LRA 2002, s 40

Answer 23

• Best example is for beneficial interest under a trust. In this type of case, a restriction might instruct a purchaser to pay the capital money to at least two trustees, ensuring the beneficiary’s interest is overreached
• A restriction may also be entered where the registered proprietor of the land is bankrupt. The trustee in bankruptcy may enter a restriction to the effect that no disposition of land may be registered without the trustee in bankruptcy’s consent.
• Restrictions cannot prevent dispositions altogether: they simply impose conditions which must be fulfilled before the disposition can be registered.

Question 24

Overreaching

Answer 24

• If a trustee sells/mortgages land, the buyer/lender will wish to make sure that they are not bound by pre-existing interests held by the beneficiaries. They do not want to step into the shoes of trustees. Beneficiaries will want to make sure their interests are protected as far as possible.
• Overreaching is governed by LPA 1925, s 2 and s 27 and applies equally to registered and unregistered land
• In order to take the land free of interests, a purchaser must make sure that the capital money is paid to at least two trustees. The money must not be paid direct to beneficiaries, unless they are also trustees.
• If the buyer/lender pays purchase/loan money to two legal owners/trustees, overreaching operates to detach the beneficiary’s equitable interest from the land. Instead, the beneficiary’s interest is transferred into the money. If a beneficiary has a 25% interest in the land, they will then have a 25% interest in the proceeds of sale.
• If the money is paid to only one trustee, a beneficiary’s interest will not be overreached and will remain in the land. The interest will bind a purchaser as an overriding interest (LRA Sched 3 para 2)

Question 25

Overreaching cases

Answer 25

City of London BS v Flegg - Building society had paid the money to two trustees/legal owners, so the Fleggs’ interests in land were transferred to the money. The building society was not bound in any way.

Williams & Glyn’s Bank v Boland - Bank had not overreached wife’s beneficial interest because it had paid the money to just one trustee. It should have insisted that a second legal trustee was appointed (ideally, the wife). The wife’s interest remained in the land itself, and bound the bank which was unable to repossess and sell.

• A beneficiary could take steps to make sure they are protected as far as possible by registering a restriction on the Proprietorship Register instructing a purchaser to pay money to at least two trustees.
• However, beneficiaries can still be protected if their interests are not overreached and they are in actual occupation of the land – in this case they may have overriding interests under LRA Sched 3 para 2. This is what made the wife’s interest binding on the bank.

Question 26

Overriding interests

Answer 26

• Interests which will bind a purchaser for value even though they have not been protected by registration.
• A safety net of protection for those who are not able to, have not, or cannot reasonably be expected to take steps to protect their interests in land.

Question 27

Main categories of overriding interest

Answer 27

• Legal leases granted for a term of 7 years or less
• Equitable interests held by people in actual occupation of the land
• Implied legal easements or profits à prendre

Question 28

Overriding interest - equitable interests held by people in actual occupation of the land

Answer 28

• There must be an interest in land and the holder must be in actual occupation of the land to which the interest relates
• The interest must be a qualifying proprietary ‘interest in land’ rather than a personal right
• Examples: equitable interests under trusts of land, equitable leases, options to purchase, interests arising by way of estoppel

Question 29

‘Actual occupation’

Answer 29

Factors to be considered:
- Degree of permanence and continuity of presence
- Intentions and wishes of that person
- Length of absence from the property and the reason for it
- Nature of the property and personal circumstances of the person
(Link Lending v Bustard)

Question 30

‘Actual occupation’ cases

Answer 30

• involves a degree of physical presence (Williams & Glyn’s)
• must be ‘permanence and continuity’ and not simply a ‘mere fleeting presence’ (Abbey National v Cann)
• must be in actual occupation at the time of the transfer deed and possibly also at the time of registration (Thompson v Foy)
• not defeated by temporary absences e.g. holidays, business trips (Chhokar v Chhokar)
• there will be a point at which a prolonged absence means no actual occupation e.g. protracted periods of absence in a second home (Stockholm Finance v Garden Holdings)
• forcible detention in hospital for over a year: still in actual occupation because her belongings remained, her absence was involuntary, and her regular visits demonstrated a continuing intention to return (Link Lending v Bustard)
• acts of a preparatory character like carpets being laid and furniture taken to the house did not count as actual occupation (Abbey National Building Society v Cann)
• A caretaker or representative of a company can occupy on behalf of an employer, but a family member might not be able to occupy on behalf of a family member
• Day-to-day presence in a house being renovated can amount to actual occupation (Lloyds Bank v Rosset)

Question 31

Exceptions to actual occupation

Answer 31

An interest will not override a disposition where it is:

(1) ‘an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so.’
(2) belonging to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and of which the person to whom the disposition is made does not have actual knowledge at the time.

Question 32

Overriding interest - Implied legal easements

Answer 32

• Can bind as an overriding interest except:
• when it is not within the actual knowledge of the person to whom the disposition is made and would not have been obvious from a reasonably careful inspection of the land
• an exception to the exception: the exception does not apply if the person entitled to the easement proves that it has been exercised in the year before the day the disposition was made
• so an implied legal easement will be binding as an overriding interest if:
  (a) The new owner knew about it or
  (b) The new owner did not know about it, but it was obvious on reasonable inspection of the land, or
  (c) It has been exercised within the 12 months immediately before the disposition.
• Most implied legal easements will be overriding interests because it is highly likely they will have been exercised recently.

Question 33

Equitable easements as overriding interests

Answer 33

• Legal easements will generally be binding, either as registrable dispositions (express), or overriding interests (implied).
• An equitable easement must be protected by a notice. But can an equitable easement be an overriding interest based on actual occupation?
• Holaw Ltd v Stockton Estates: the use of a right of way could never amount to actual occupation. Other easements, such as storage and parking rights, may possibly constitute a form of ‘occupation.’
• Chaudhary v Yavuz: CoA refused to find that a right to use a metal staircase constituted actual occupation but left open the possibility that use of other forms of easement could comprise actual occupation, making them overriding interests

Question 34

System for unregistered land

Answer 34

• In unregistered land, the documentation is held by the right holder, not by a centrally administered authority.
• The seller must select the documents which contain relevant detail about the property and then make a copy of those documents. This bundle is called an epitome of title. On a sale, the seller is required to show the epitome of title to the buyer, this is called deducing title.
• On completion, the seller hands the originals over to the buyer. The buyer then needs to send these original documents to the Land Registry so the land the buyer’s ownership can be registered for the first time.

Question 35

Protection of legal and equitable third party rights in unregistered land

Answer 35

• Purchasers will need to ascertain if there are any third party proprietary rights which could bind them.
• There are different rules depending on the nature of a right and the year it was created.
• Prior to 1926, the principle of whether a right would be enforceable against a third party depended upon whether the right was legal or equitable.

Question 36

Pre-1926: legal rights

Answer 36

• ‘Legal rights bind the whole world’ (Mercer v Liverpool)
• Before 1926, where a person held a legal interest in land, he would be able to enforce the interest against anyone, even if that new owner did not know.

Question 37

Pre-1926: equitable rights

Answer 37

• Equity would only intervene and enforce an interest against a successor to land, where the successor’s conscience had been affected, principally where the successor was aware of the interest on purchase.
• Where the successor was a bona fide purchaser for value of a legal estate without notice of the prior interest (Equity’s Darling), he would take the land free from that interest. This was called the doctrine of notice. It meant that buyers had to make extensive investigations and enquiries.

Question 38

Post-1926: registration and the ‘stop gap’ solution

Answer 38

• A mixture of pre-1926 rules of enforcement and partial registration.
• Legal rights: position stayed the same. A legal right (e.g. an easement created by deed) will continue to bind the whole world. There is no need for the legal right to be registered or any notice to be served. There is an exception to this: a ‘puisne’ mortgage (second legal mortgage) which must be registered as a Land Charge.
• Equitable rights: The majority of equitable interests will need to be protected by way of a Land Charge, under the Land Charges Act 1972. The doctrine of notice continues to apply for:
  (a) Equitable easements and restrictive covenants created before 1926
  (b) Equitable interests under a trust that have not been overreached.

Question 39

Interests that can be protected by entry into the Land Charges Register

Answer 39

• Class C(I): puisne mortgage
• Class C(IV): estate contract
• Class D(II): restrictive covenants created after 1926
• Class D(III): equitable easements created after 1926
• Class F: spouse’s matrimonial right of occupation
• if an equitable interest should be protected by a Land Charge, because it is listed above, but it has not been, it will not be binding on a purchaser, even if the purchaser has actual knowledge of the interest.
• It would still be binding on a volunteer/donee.

Question 40

Compulsory first registration of unregistered land

Answer 40

• The buyer of unregistered land must register it at the Land Registry
• This is compulsory under LRA 2002, s 4. Failure to register the land means the legal title will revert back to the seller after 2 months.

Question 41

Entry of a Land Charge

Answer 41

• The land charge is entered against the name of the land owner at the time the right is granted/created (LCA 1972, s 3(1))
• This was held to mean the version of the name(s) as it appears on the title deeds and not as it may appear in other contexts, such as a birth certificate (Standard Property Investment v British Plastics)
• Should the land charge be entered against an incorrect name, the protection is a nullity (Diligent Finance Co Ltd v Alleyne)

Question 42

Discovery of an existing Land Charge

Answer 42

• A search must be made of the register against the full name(s) of the estate owner(s) as spelt in the title deeds.
• A search should be made, wherever possible, against all previous estate owners back to 1 January 1926 (LPA 1925, s 198(1))

Question 43

Equity’s Darling

Answer 43

Bona fide - acting in good faith
Purchaser - acquires the interest otherwise than by operation of law (obtaining upon intestacy would be an example of operation of law)
Value - Money or money’s worth or future marriage
Legal estate - a freehold or leasehold estate or a charge by way of legal mortgage
Without notice - actual, constructive or imputed notice

Question 44

Types of notice

Answer 44

(1) Actual notice
(2) Constructive notice
(3) Imputed notice

Question 45

Actual notice

Answer 45

The purchaser knows about the equitable interest.

Question 46

Constructive notice

Answer 46

• governed by LPA 1925, s 199(1)(ii)(a), which requires a purchaser to act as a prudent person. He cannot attempt to avoid being bound by equitable interests by shutting his eyes and ears
• will be fixed with constructive notice of an interest if he fails to pursue a line of enquiry which ought reasonably to have been made
• obligations to make enquiries are limited to a proper investigation of title deeds, and a proper inspection of the land
• Hunt v Luck - the presence of a tenant on the land placed the purchaser on constructive notice of the tenant’s leasehold interest

Question 47

Imputed notice

Answer 47

Notice received by the buyer’s agent, e.g. the solicitor on a land purchase. Where the agent has notice, that knowledge is imputed to the buyer.

Question 48

Problems with the doctrine of notice

Answer 48

From buyer’s perspective:
- would need to satisfy requirements of Equity’s Darling to not be bound
- would need to carry out extensive investigations; time consuming, expensive and does not guarantee discovery
From owner’s perspective:
- Interest is fragile because it could be destroyed forever if Equity’s Darling purchases the land.