Purchaser Protection in Registered Land

Question 1

Importance of registration

Answer 1

Establishes a basic rule

Certainty and indefeasibility

Question 2

Importance of registration

Establishing a basic rule

Answer 2

• If B wishes to acquire a legal property right in registered land, B must ensure that he or she is registered as holding that right
  
  • It is never the case that B needs to register in order to acquire an equitable property right in relation to land
• C will have a defence to any pre-existing property right of B that is not recorded on the register
• Basic position: if B’s equitable property right has not been protected by means of an entry on the register, then, if C later acquires a legal property right in the land for value, C will have a defence to B’s right, unless B was in occupation of the land

Question 3

Importance of registration

Security of title

Answer 3

• The register is supposed to promote the security of title. The two competing securities are:
  
  • Static security: the security of the existing interest, protects the holder of the existing interest against future purchasers
  • Dynamic security: protects the interests of purchasers buying property so that they are not affected by rights that are not visible on the register, so they can buy property with confidence that they will get as full a title as they expect to get
• Priority rules offer security in two ways:
  
  • Future – the registration / entry of notice gives protection against subsequent interest
  • Past – registration give some protection against earlier claims
• Rights are not necessarily incompatible, and priority is not necessarily a problem

Question 4

Static security

Answer 4

• Three ways of protecting interests against purchasers:
  
  • Registration [s27(1)]
  • Entry of notice [s32]
  • Overriding interest [sch3]
• If the interest falls outside these categories, then the purchaser will take free of the interest

Question 5

Dynamic security

Answer 5

• Mirror: registration and entry of notice – purchaser can find information on existing interests
  
  • Registration also allows purchaser to take free from existing unprotected interests [s29(1) LRA]
• Curtain: overreaching
  
  • The purchaser, by paying at least two trustees, can take free of any interests under the trust
  • Purchaser is not concerned with trust interests [ss2, 27 LPA]
• Insurance: indemnity
  
  • If there are any losses arising from mistakes on the register, the land registry will compensate whoever loses because of the mistake
  • Can be indemnified for mistakes on the register [sch8 LRA]

Question 6

Voluntary and compulsory registration

Answer 6

• Title to all land in England and Wales is now either registered or will be registered for the first time on the next triggering event
• Voluntary registration is possible under s3 LRA
  
  • Freehold title and leases of more than seven years’ duration
    
    • Leases of more than 3 years’ duration may be recorded on the title of the estate out of which the lease was granted through entry of a notice as a means of preserving their priority on a transfer of the landlord’s estate
  • Provisions for rentcharges, franchises and profits à prendres in gross, though registration of these rights takes place on a voluntary basis
• The scope of registration of title is outlined in the LRA s2

Question 7

Triggering events for registration

Answer 7

• LRA s4
• Transfer by sale or gift of a freehold estate or a lease with more than 7 years’ remaining duration
• Grant of a new lease of more than 7 years’ duration
• Failing to apply for registration within the statutory timescale [LRA s6] is that the transfer becomes void as regards the transfer of legal title [LRA s7]
• In the absence of an event triggering compulsory first registration, an unregistered freehold title and an unregistered lease with more than 7 years’ remaining duration can be registered voluntarily [s3 LRA]

Question 8

Property register

Answer 8

• Identifies the title as freehold or leasehold
• In the case of a lease, provides brief details of its terms
• Identifies land by description, usually the address, and by reference to the official plan
• Lists rights that benefit the title, such as the benefit of an easement

Question 9

Grades on the register

Answer 9

• Asbolute
• Qualified
• Possessory
• On first registration, a freehold is registered with absolute, qualified or possessory title

Question 10

Absolute grade on the register

Answer 10

• Absolute – vests the estate in the proprietor subject principally to burdens on the register and overriding interests [LRA s11(2-5)]

Question 11

Qualified grade on the register

Answer 11

• Qualified – may be awarded where there is a possible defect in the applicant’s title
  
  • Registration is subject to estates, rights or interests that are excepted from registration in the case of a qualified title [LRA s11(6)]

Question 12

Possessory grade on the register

Answer 12

• Possessory – may be awarded where there is insufficient documentary proof
  
  • Registration is subject to estates, rights or interests that are subsisting or capable of arising at the date of registration in respect of possessory title [LRA s11(7)]

Question 13

Grades on leases

Answer 13

• Leases may also be registered with absolute, qualified and possessory titles, which are analogous to those grades of freehold title, with the additional provision that they are subject to covenants, obligations and liabilities in the lease [LRA s12(4)]
  
  • Absolute leasehold is only available where the freehold is also registered or proved to the satisfaction of the registrar – where this is not the case, ‘good leasehold’ title is granted, leaving open a possible challenge against the estate out of which the lease was granted [LRA s12(7)]

Question 14

Proprietorship register

Answer 14

• Gives the name and address of the registered proprietor(s) and any restrictions on their ability to deal with the land
• May also state the price paid for the title

Question 15

Charges register

Answer 15

• Contains information on registered mortgages and other secured interests, and any other burdens affecting the title to which the land is subject
  
  • Leases
  • Easements
  • Covenants

Question 16

Priority rule

Answer 16

• Basic rule [s28 LRA]: provides that the priority of an interest is not affected by a later disposition; the interest that is created first has priority
  
  • Applies to all interests

Question 17

Exceptions to priority rules

Answer 17

• Exceptions [ss29-30 LRA]
  
  • S29: allows a registered disposition to postpone earlier, unprotected interests; the later interest is allowed to ‘leapfrog’ over those earlier interests, and the dispone will take free of them
  • Barclays Bank v Zaroovabli: the bank had not registered its earlier charge at the time Z granted P a lease over the mortgaged property. The tenant was thus not bound by the earlier unprotected charge
  • Protection: three ways of protecting interests against purchasers
    
    • Registration [s27(1)]
    • Entry of notice [s32]
    • Overriding interest [sch3]
  • If the interest falls outside these categories, the purchaser will take free of it

Question 18

Registration gap

Answer 18

• Exception to the orderly queue
• Registration vests the legal title in the purchaser (anyone acquiring an interest in land)
• Arises in the time between the execution of the deed (the disposition) and vesting of the legal title by registration (completion of the disposition)
• Until registration, the basic rule under s28 applies
• Another interest can come about in the interim and take priority
  
  • Because there is a time gap between the creation of the interest and its registration

Question 19

Zaroovabli

FACTS AND RULING

Answer 19

• A grants legal charge by deed to B (disposition). B doesn’t register it.
• Before B registers it, A grants 8-year lease to C (disposition), who registers it (completion).
• C takes advantage of the registration gap to take priority over B.
• B could not have known about the lease when agreeing to charge

Question 20

Abbey National Building Society v Cann

FACTS

Answer 20

• George purchased home for self and mother Daisy. Raised purchase price from his own and D’s money plus a loan from ANBS. Property transferred into G’s sole name and he was sole mortgagee. D arrived at the property with her belongings 30 mins before transaction. G defaulted, ANBS sought possession. D claimed her interest took priority
  
  • Because she had an interest under a resulting trust which was protected by her actual occupation, her interest was protected as an overriding interest

Question 21

Orthodox solution before Cann

Answer 21

• The scintilla temporis (twinkle of time): legal fiction that the mortgagor acquires title in a nanosecond before charging it to the mortgagee
• Daisy Cann argued that her interest sprang up under a resulting trust during this scintilla temporis, and so was earlier than the charge, and that it was protected by her actual occupation as an overriding interest

Question 22

Abbey National Building Society v Cann

HELD

Answer 22

• Lord Oliver: there is no such things as the scintilla temporis: “the reality is that the purchaser of land who relies upon a building society or bank loan for the completion of his purchase never in fact acquires anything but an equity of redemption, for the land is, from the very inception, charged with the amount of the loan without which it could never have been transferred at all and it was never intended that it should be otherwise”
  
  • Since the borrower could not have acquired the house without the loan, there is no point at which they owned it free of the charge; this was never intended under the charge transaction
  • Equity of redemption: the equitable right to redeem your property from the charge; the right to be able to pay off the loan and lift it off the property
• There is no registration gap where ‘acquisition loans’ are concerned; you need a mortgage loan in order to acquire the property in the first place
• Where a secured loan is required for the acquisition of a legal estate in land, the charge it generates will take priority over the interests of other parties acquiring rights at the same time

Question 23

The Equity Release Scheme

Answer 23

• Home owners short of cash remain in their homes by selling them to a company who leases the homes backs to the sellers at a discounted rent for as long as they wish.
• The company pays much less than the market value, but the advantage for the sellers is that they can stay in their home and receive some cash

Question 24

Re North East Buyer’s Litigation

FACTS

Answer 24

• A owns home but cannot afford to stay. B offers to buy her home at a discount and then lease it back to her for a low rent and for as long as she wants. So, A gets much needed cash and gets to stay in her home. B needs mortgage loan to buy A’s property. Lender C will not lend on property with long lease. B tells C lease is only 6 months. C advances money to B who buys A’s home B defaults, and C seeks possession. Cann applies, and A is dispossessed

Question 25

Re North East Buyer’s Litigation

EFFECTS OF THE TRANSACTIONS

Answer 25

• “What the fraudulent company received was the full freehold, not one limited by an existing lease
• “The impression created by the contracts what that the vendors would be selling without reserving any beneficial interest or other rights in the property
• “A mortgagee lending money to finance the purchase would be entitled to view the matter in the same way
• “In those circumstances no equitable interest or equivalent equity could have arisen in favour of the vendors prior to completion
• “Even if an equity arose in favour of the vendors on exchange of contracts in consequence of the assurances given by the purchasers, there was no moment of time (scintilla temporis) when the freehold acquired by the purchaser was free from the mortgage but subject to the equity, and it was unrealistic to separate out of the contract, on the one hand, and the transfer and mortgage, on the other hand, as separate transactions”

Question 26

Re North East Buyer’s Litigation

FACTS

Answer 26

• No trust arises here. The deal was for a leasehold to be granted, not an equitable ownership of the freehold
• The vendors did not give the buyers the bundle of owner’s rights minus the right to a leasehold which they retained for themselves
  
  • Rather, they gave the entire bundle of rights to the buyers, who promised to give back the right to a lease once the freehold had been transferred
  • But, they could not do this because of the rule in Cann – they could never acquire the properties free from the acquisition mortgagee’s rights. And the mortgagee would not allow them to grant a lease to the vendors

Question 27

Registrable disposition made or valuable consideration

Valuable consideration

Answer 27

s29(1)

Question 28

Halifax v Curry Popeck

FACTS

Answer 28

• John and Tracey Whale execute charge over property to Halifax. But in reality, the charge was over a really only small part of land. H reg’s charge. J&TW transfer freehold of whole estate to “J Sinclair” (really JW). “Acquisition” financed by mortgage loan from Verso. V reg’s charge. “JS” charges property to Bank of Scotland, but again, really only a small slice. Uses BS money to discharge mortgage to V. BS reg’s charge. “JS” defaults to BS and fraud discovered.

Question 29

Halifax v Curry Popeck

HELD

Answer 29

• H had equitable charge over whole of property by estoppel (because that was what was represented to them, that is what they bargained for), but this interest not entered as notice (because H thought it had a legal charge). BS also had an equitable charge for the same reason. What was the effect of the disposition to JS on H?
  
  • Norris J found that the transfer from Whale to “Sinclair” had not been made for valuable consideration (“Sinclair” could not have paid Whale because they were the same person), so although it was a disposition, it was not one that could take priority under s 29(1). Therefore, s 28 decided the matter in favour of Halifax.

Question 30

Effect of s29(1) on prior unprotected interests

Answer 30

• Those who create interests are always bound by them, even if those who acquire later but stronger (i.e. legal because completed by registration) interests in the same property are not
• Although priority does not destroy the earlier unprotected right, it does destroy it to such an extent that it cannot be fulfilled

Question 31

Freer v Unwins

Answer 31

• The claimant had the benefit of a restrictive covenant that prevented the owner of neighbouring properties from leasing them to business that might compete with Freer’s. But, through no fault of Freer, its interest had not been protected by a notice on the register, and so Unwins took its lease free of the restriction. The interest had been omitted by mistake when the land was first registered. Freer brought an action for rectification of the register to show the interest. Freer’s right to have the register rectified was accepted, but it was held that the restriction could not take priority over Unwins’ lease, because rectification is not retrospective.
  *

Question 32

Freer v Unwins

PROBLEM

Answer 32

• The problem here is that the effect on the value of an interest such as Freer’s is unpredictable. It is true that the interest has not been destroyed, so as soon as the lease lapses, Freer’s interest takes priority again over all future disposition. That is all very well if Unwins’ lease is short, because Freer will soon be able to enforce his interest. But if Unwins’ lease is, say for 90 years, then Freer’s interest becomes worthless.