Overriding Interests and Overreaching

Question 1

Mirror

Answer 1

Reflects all interests in one place

Question 2

Curtain

Answer 2

Purchaser not concerned with interests not on register and can overreach

Question 3

Insurance

Answer 3

If there is a mistake, the losing party can get indemnity

Question 4

Registration

Answer 4

• s27 (what dispositions need to be completed by registration) and s58 (registration vests the legal title in the registered proprietor)

Question 5

Protecting an interests against future purchasers

Answer 5

• Under the LRA 2002, a person holding an interest in land may protect it against future purchasers of an interest in the same land by

Question 6

Entry of a notice

Answer 6

• s32 (equitable and commercial interests – not interests in a trust)
  
  • Options to purchase
  • Freehold covenant
  • Legal interests because of a failure to execute a deed are equitable only

Question 7

Overriding interest

Answer 7

• sch3
  
  • You can have an equitable lease (because deed not contract for a 10-year lease) and it was not entered as a notice, you can protect your occupation as an overriding interest using p2 sch3
  • Normally, an interest in a trust cannot be registered or entered as a notice [s33] but if you are living on the premises (you are in actual occupation), you can protect it provided there is only one name on the legal title
  • A 5-year legal lease is a freestanding overriding interest

Question 8

Overreaching

Answer 8

• ss2, 27 LPA
  
  • Protection for the purchaser

Question 9

Imperfect mirror

Answer 9

• Some interests cannot appear on the Register, but they will bind a purchaser nevertheless
  
  • Overriding interests

Question 10

Overriding interests

Answer 10

• Old section 70(1) LRA 1925: 13 interests excluded from the register which nevertheless override a later disposition
• LRA 2002 sch3 reduced these to three
  
  • Do not appear on register but will bind purchasers
• Usually legal (although equitable interests may be protected under paragraph 2)
  
  • Paraphraph 1 and 3 are legal interests – legal leases for 7 years [p1] and under and the implied legal easements [p3]
  • Paraphraph 2 – encompasses any interest (legal or equitable) if the owner of the interest is in actual occupation of the property

Question 11

sch3 p1

Answer 11

• “A leasehold estate in land granted [i.e. legal] for a term not exceeding seven years from the date of the grant”
• These leases cannot
  
  • Be registered [s27(2b)]
  • Entered as a notice [s33b]

Can only be an overriding interest – thus you must look at the property

Question 12

sch3 p1

Short leases

Answer 12

• Short leases can also leapfrog earlier interests
• Although such leases are not “completed by registration,” they are treated as if they have been, and so take priority over unprotected interests [s29(4)]
• “Where the grant of a leasehold estate … does not involve a registrable disposition, this section has effect as if –
  
  • The grant involved such a disposition, and
  • The disposition was registered at the time of the grant”

Question 13

sch3 p2

Answer 13

• “An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation”
  
  • Any interest (bar a few) may bind purchaser C if B is in AO at the time of the disposition

Question 14

sch3 p3

Answer 14

• Express legal easements need to be registered, but legal easements arising by operation of law (implied easements) do not need to be registered
  
  • They will bind as overriding interests
• “A legal easement … which at the time of the disposition –
  
  • (a) is not within the actual knowledge of the person to whom the disposition is made, and
  • (b) would not have been obvious on a reasonably careful inspection of the land over which the easement … is exercisable”

i. e. is an overriding interest
* Most easements are deemed to be objectively obvious, which is why they are preserved

Question 15

sch3 p3 and implied legal easements

Answer 15

• This applies to implied legal easements arising by prescription (long user)
  
  • Express legal easements must be registered [s27(2d) LRA]
  • Because they arise by operation of law [s62 LPA – transfer in certain circumstances; long user / adverse possession – Common Law or the Prescription Act]
  • Usually, the person who owns the easement may not be aware at the time that they have it – it would be unfair to require these owners to register the right if they do not know they have it

Question 16

sch3 p3 trust interests

Answer 16

• Trust interests are a risk for the purchaser
• They lie behind the ‘curtain’ of the register
• S 11 LRA 2002: trustees have full legal powers of owners to deal with the title;
• Trust interests cannot appear on the register;
• Any equitable limitation on a trustee’s power may be signaled by a restriction (s 40); these tell the purchaser that if she proceeds, she may be bound by a trust interest.
• But even if no restriction entered, it may bind C as an OI if beneficiary is in AO

Question 17

actual occupation

Answer 17

• Actual occupation merely describes the circumstances in which the statute will protect the interest
  
  • National Provincial Bank v Ainsworth; Lloyds Bank v Rossett: both claimants were in actual occupation of the land, but neither was found to have an interest in the land which their occupation could protect
• Caunce v Caunce: a woman’s presence in the home was “nothing more than the shadow of her husband’s” and so could not fix the mortgagee with notice
  
  • Boland, per Lord Wilberforce: “the words ‘actual occupation’ are ordinary words of plain English, and should … be interpreted as such … what is required is physical presence”
• A beneficial interest is an interest in land and “if there is actual occupation and the occupier has rights, the purchaser takes subject to them. If not, he does not.” [Boland]
• But children are shadows of their parents [Hypo-Mortgage Services v Robinson]
  
  • Children can own beneficial interests in land, but they are not protected by actual occupation

Question 18

Problem with the curtain

Answer 18

• You have to look to see if there is a trust in the land
• If the person who owns the interest in the trust is in actual occupation of the land, the buyer will be bound by it
• In order to combat this, get the permission of the person in actual occupation

Question 19

What constitutes actual occupation

Answer 19

• Sch3 para 2 LRA excludes
  
  • (b) – “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”
    
    • Do not ask the legal owner, ask the owner of the interest
  • (c) – “an interest (i) which belongs 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 (ii) of which the person to whom the disposition is made does not have actual knowledge at that time”
    
    • Nothing to do with the doctrine of notice or bona fide purchasers – this only relates to unregistered land, which we are not examined on
    • If somebody’s occupation is not obvious but you do know about it, it binds you
  • If B’s occupation is obvious, purchaser C is bound.
  • If C asks B whether she has rights and B fails to disclose them, C is not bound;
  • If B’s occupation is not obvious, but C actually knows about B’s interest anyway, C is bound;
  • If B’s occupation is not obvious, and C does not know about B’s interest, C is not bound.

Question 20

Obiter

Abbey National BS v Cann

Answer 20

• Acts of preparation will not constitute as actual occupation (Mrs Cann setting down her bags 30 minutes before the mortgage was signed)

Question 21

Obiter

Llord’s Bank v Rossett

Answer 21

• “W**hat constitutes occupation will depend upon the nature and state of the property … what is required is physical presence, not some entitlement in law”
  
  • One’s agent can establish the actual occupation of the principle
  • In order to have actual occupation, you would need to have the beneficial interest to protect

Question 22

Presence need not be continuous

Chhokar v Chhokar

Answer 22

• Wife has an equitable interest in the home (she provided to the purchase, and so there was a trust). The husband wanted to defraud the wife and so sold the house when the wife was away having a baby.
  
  • Temporary absence with an intention to return does not disrupt actual occupation

Question 23

Presence need not be continiuous

Thompson v Foy

Answer 23

• Julie Foy was registered proprietor of what had been her mother Marion Thompson’s house. Marion had transferred the title to Julie, who would mortgage it and pay over some of the loan money to Marion to start a new life in Spain. But Julie did not pay the money to her mother, who did not go abroad. By the time the mortgage was created, Marion had left with an intention not to return
  
  • Intention at the relevant time not to return will end actual occupation

Question 24

When does actual occupation bite?

Answer 24

• Abbey National BS v Cann (obiter): the relevant date for determining the priority between an existing interest and the interest of a purchaser is the date of registration of the purchaser’s interest [s29 LRA]
• However, the interests of persons in actual occupation will bind the purchaser if the occupier is in occupation at the date of the disposition / creation of the purchaser’s interest, and the occupier has not given consent
  
  • If the interest is an acquisition mortgage, the mortgage always takes priority [Cann]
• Look at the date the interest was granted to the purchaser by deed. If the other party was in actual occupation then they may be protected

Question 25

Trust of land

Answer 25

Boland view in statutory form

• Trust of Land and Appointment of Trustees Act s3 abolished doctrine of conversion;
• So beneficial interest in a trust of land is an interest in land.

Now, trustees have a power, not a duty, to sell, so party wanting sale does not necessarily prevail

Question 26

Overreaching

Answer 26

Interests that can be overreached by a purchaser

• (Family) beneficial interests in a trust of land.
• Not ‘commercial’ equitable interests: s 2(3)(ii) – (iv) LPA 1925.
• It protects beneficiary B by preserving the trust.
  
  • It moves the interest from the land into the proceeds of sale
• It protects purchaser C by releasing B’s interest from the land so that C takes free.
  
  • If there are 2 or more owners of the legal title

Question 27

How does overreaching work

Answer 27

• The ‘two trustee’ rule [ss2(1)(i) and 27 LPA]
  
  • You can have up to four trustees – s34(1) Trustee Act
• On payment to at least two trustees, the purchaser ‘overreaches’ (takes free of) equitable interests behind a trust of land.

Question 28

Effect of overreaching

Answer 28

• An interest that has been overreached is detached from the estate and attaches instead to the proceeds of sale of that estate.
• It protects the beneficiary by replacing the subject matter of the trust.

Question 29

City of London BS v Flegg

FACTS

Answer 29

• Mr and Mrs Maxwell-Brown bought a house jointly and Mrs M-B’s parents the Fleggs also contributed to the purchase price. The four lived there. M-Bs mortgaged it without telling the Fleggs. Default, BS wants sale, Fleggs resist, claiming priority by AO protecting earlier interest. The overreaching nevertheless prevails.

Question 30

City of London BS v Flegg

Lord Templeman

Answer 30

• “One of the main objects of the legislation of 1925 was to effect a compromise between on the one hand the interests of the public in securing that land held in trust is freely marketable and, on the other hand, the interests of the beneficiaries in preserving their rights under the trusts. … the protection and the only protection of the beneficiaries is that capital money must be paid to at least two trustees or a trust corporation”.

Question 31

City of London BS v Flegg

Lord Oliver

Answer 31

• “[T]he scheme of the Act is to enable a purchaser or mortgagee, so long as he pays… not less than two trustees … to accept a conveyance or mortgage without reference at all to the beneficial interests of co-owners … which are kept behind the curtain…”
  
  • Overreaching releases the interest from the land, so the beneficiary’s AO no longer has anything on which to “bite”.
  • Therefore, an equitable interest of a person in AO will not bind a purchaser, if payment was made to at least two trustees”