Fundamentals of Land Law Essay – Striking a Balance

Fundamentals of Land Law Essay – Striking a Balance
Land law exists today to balance and regulate the rights of both purchaser and vendor upon a transfer of land. Before the flood of 1925 legislation affecting land transactions, purchasers of legal title took subject to

many unpredictable and undiscoverable interests, disproportionately burdening them with extensive and expensive obligations and rendering vendors’ interests paramount. The comprehensive reforms encapsulated in the Land Registration Acts (LRA) of 1925 and 2002 overhauled the oft-criticised system of land transfer, affording both parties a more secure basis for the transfer of land. The major impetus behind the Acts was to achieve parity with the mirror principle of conveyancing, attaining a “truly transparent, accurate and comprehensive” Land Register, reflecting the wealth of interests in relation to titles in land and placing parties on more equal footing.

Unfortunately, the 1925 Act failed to eradicate all ‘cracks in the mirror’, instead preserving the relevance of certain interests which may ‘override’ registration. These ‘overriding’ interests burden registered land by operating on a superior plane to other registrable interests, binding purchasers outright and disproportionately empowering the overriding interest-holder. Although the majority of overriding interests provided by the 1925 Act are largely uncontentious, controversy has surrounded the overriding status of interests belonging to persons ‘in actual occupation’ of the land . To this end, LRA 1925, s.70(1)(g) protects an interest in land where its owner is in actual occupation on the land. The open-ended nature of this provision has not unexpectedly been the subject of extensive litigation.

Although the Law Commission initially felt compelled to recommend the abolition of all overriding interests, the sentiment was that in order to protect occupiers who cannot reasonably be expected to protect their rights through registration, this sub-category and its accompanying controversy should be retained . Lord Denning’s justification was to protect occupiers from “having their rights lost in the welter of registration” . The LRA 2002 has thus upheld overriding status of interests of persons in ‘actual occupation’, albeit curbing and clarifying the parameters within which the rights of occupiers can impinge upon purchasers . Now enshrined in LRA 2002, Schedule 3, paragraph 2, overriding interests of those in ‘actual occupation’ subsist as a glaring ‘crack’ in the mirror principle, despite the elucidation and qualification now provided. Analysis of the issues surrounding overriding interests and ‘actual occupation’ is necessary to determine whether balance has been, or will ever be, achieved between purchasers and those in ‘actual occupation’.

Within the ambit of Schedule 3, paragraph 2, occupancy itself is not overriding, but rather the interest the occupier has in the land he occupies has the potential to become overriding. Actual occupation, therefore, “is merely the trigger which activates the statutory protection” of the interest. The types of interest falling within its scope are not clarified, and judicial uncertainty has reflected this lack of clarity. The initial belief under the 1925 Act was that only proprietary rights in the full sense – enduring and capable of being transmitted – can override . In Ainsworth , Russell LJ said that a right for the purposes of s.70(1)(g) must “have the quality of being capable of enduring through different ownerships of the land” , thus relegating a beneficial interest under a trust to a minor interest which only registration will protect. Their Lordships drew a distinction between personalty and proprietary rights, the latter of which could only be eligible for overriding status. However, judicial uncertainty persisted in the aftermath of Ainsworth, with judges adopting “markedly differing attitudes to the rights in s.70” . Such a miscellany of interests as a right to rectify , a tenant’s right to buy under the Landlord and Tenant Act 1987 and an unpaid vendor’s lien were all held to fall within the ambit of s.70(1)(g), rendering reconciliation difficult with the notion that only strictly proprietary interests will suffice.

Nevertheless, Schedule 3, paragraph 2 upholds application only to proprietary rights due to its clarification that the interest must be one “affecting the estate” . Following a move during the Bill’s debate to extend the categories of beneficiaries in actual occupation , the boundaries of Ainsworth are not immovable, and in the wake of the seminal case of Boland , beneficial interests under a trust are permitted overriding interests. In the latter case, a wife had an unregistered beneficial interest in the family home which her husband was the registered proprietary owner of. When the husband was unable to repay the mortgage loan, the House of Lords held that the wife’s beneficial interest was sufficient to amount to a proprietary interest in the land . Other successful interests include equitable leases and tenancies , estate contracts as options to purchase , and rights arising out of estoppel .

It is accepted that an occupier’s interest must be fully enforceable and unencumbered at the date of the disposition of the land in order to be imbued with overriding status. In Mendelsohn , a mother had knowledge of a building society’s mortgage to her son for part of the purchase price of a property she also paid part of, and then she argued that she had an overriding interest due to her actual occupation. The Court of Appeal held that her knowledge of the mortgage equated to implied consent to being subject to the mortgage, thus estopping her claim by virtue of her silent representation . This had embellished the intrinsic quality of her right, thus precluding reliance upon ‘actual occupation’ to make it overriding.

The concept of overreaching in a trust scenario renders an interest, which would otherwise be overriding, lost and unable to be empowered by ‘actual occupation’. Originally enshrined in s.2 Law of Property Act 1925, overreaching applies where there are two or more trustees in land. Upon disposition of the land, the beneficiaries’ interests are overreached and the sale monies go directly to the trustees, essentially detaching the beneficiaries’ interests from the estate. Although overreaching failed in Boland due to there being only one trustee, in Flegg overreaching occurred where a husband and wife were trustees in a house that they shared with the wife’s parents, who were beneficiaries under the trust. When the house was sold, the beneficiaries’ interests were overreached and the proceeds went to the trustees. As Lord Templeman surmised, “actual occupation is not an interest in itself” . The effect of overreaching is that purchasers’ rights are subject to “the waywardness of actual occupation” if purchase is made from less than two trustees, thus placing purchasers in the precarious position of taking subject to beneficiaries’ rights upon transfer from one trustee.

The ambit of ‘actual occupation’ envisaged by the Acts has been contentious since its inception in LRA 1925, resulting in a catalogue of jurisprudence concerning how exactly to ascertain actual occupation. Under s.70(1)(g), a purchaser was bound pro tanto, rendering occupiers’ interests overriding whether discoverable by a purchaser or not . Although the draft Land Registration Bill preceding the 2002 Act included a partial definition of actual occupation as being “physically present there”, the 2002 Act did not incorporate this provision, so actual occupation remains largely undefined . Had this provision been included, it would have given credence to Boland, where their Lordships made an uncompromising set of judgments observing actual occupation to comprise “ordinary words of plain English” and to constitute “a plain factual situation” . These judgments suggest that ‘actual occupation’ requires no “entitlement in law” and that concepts of notice are irrelevant to actual occupation , thus bestowing occupiers with the ability to trump purchasers through the simple fact of occupation.

LRA 2002 provides that an occupier cannot claim an overriding interest where the purchaser had “actual knowledge” of the occupation or where occupation “would not have been obvious on a reasonably careful inspection of the land” . This has introduced a notice-based test, radically altering the nature of establishing actual occupation and rebalancing purchaser and occupier. Purchases of unregistered land operate on the doctrine of notice, and although Lord Wilberforce compared notice to actual occupation in Boland , he rejected the notion that it should be applied similarly, upholding the ‘absolutist’ factual test . However, the ‘constitutionalist’ view, considering notice as a context in which to interpret actual occupation, has come to the fore. Constitutionalism originates from the rule in Hunt v Luck , that occupation gives notice of the occupier’s rights, and the actual occupation rule was drafted to reflect this, albeit not giving effect to the full doctrine of constructive notice. The two approaches represent the conflicting interests of occupier and purchaser.

The tension between the approaches is evident in Rosset , where Purchas LJ said that the individual’s overriding interest depended upon both physical presence and whether “appropriate inquiries made by the bank [would] have elicited the fact of her interest” . Although actual occupation fails to give credence to the full doctrine of notice, Mustill LJ said that “even if constructive notice no longer applies in this field, the old law still gives a flavour to the new” . Rosset created a tentative balance between the approaches to actual occupation, leaving the conflict unresolved until the inception of the LRA 2002.

Nevertheless, a notice-based test of occupation can be elicited from Schedule 3, paragraph 2, serving to burden both purchaser and occupier. For purchasers, a burden is imposed to inquire of persons in actual occupation “what rights he or she has in the land” . This duty is unsatisfied via simple inquiry of the vendor, as “reliance on the untrue ipse dixit of the [vendor] will not suffice” ; inquiry must be made of actual occupiers to take free of their interests. The notice approach also burdens occupiers, however, as failure to disclose interests when inquired revokes the right to receive overriding status . Although this redresses the balance between occupier and purchaser, it may be unreasonable to bind occupiers to surrender interests in the contingency that, as Dixon submits, “the right-holder knows that the consequences of disclosure will be the loss of the family home” . It is clear then, that the contemporary approach taken to determining questions of actual occupation under Schedule 3, paragraph 2 “expresses a decisive and unquestioned policy choice in favour of purchasers” .

In establishing the intricacies of actual occupation, the abundance of litigation under the 1925 Act provides guidance. Although occupation must be intentional and ongoing, it is not precluded by “a temporary and fortuitous absence” . In Chhokar v Chhokar , a woman giving birth remained in actual occupation of her home during her confinement in hospital. However, a pattern of substantial absence will prove fatal to a claim of actual occupation . Discontinuous occupation owing to regular and routine absences also fails to preclude actual occupation, as in Tizard a homeowner was in actual occupation of her house despite living at her sister’s house for two nights per week. This lack of constancy allows occupiers enforceability of their interests without adhering to stringent standards of occupation.

Judicial opinions are divergent regarding an individual occupying land through an agent. In Caswell, a stepfather could not claim actual occupation through his stepdaughter staying in the property as his agent. However, in Rosset , the presence of builders working on the house was sufficient for the owner employing them to be in actual occupation. Conversely in Lloyd v Dugdale , an individual could not claim an overriding interest if occupation was effected through a company owned by that individual . This instils in interest-holders the requirement to be the party in actual occupation for their interest to be overriding.

Preparatory acts prior to taking occupation are insufficient in procuring actual occupation, as laying carpets and installing furniture in Cann failed to amount to actual occupation. Cann additionally clarified the stage at which individuals must be in actual occupation as being at the moment the transfer is executed, rather than the moment of registration. This is now supported by LRA 2002, which expressly states that interest and occupation must subsist “at the time of the disposition” . This precludes individuals from occupying land post-purchase but pre-registration and claiming overriding interests against purchasers, thus holding purchasers’ interests above those of occupiers.

It is now established that certain persons are excluded absolutely from actual occupation. A wife was once thought to be a mere “shadow” of her husband’s occupation, and although discredited in Boland, the same concept was adopted in Robinson to define children, even if beneficial owners under a trust, as being in “shadows of occupation of their parent” . The rationale for this was that no enquiry could be made of children, especially those of tender years , which has been roundly criticised as “curiously at odds with reality” . The Robinson judgment undoubtedly favours the interests of purchasers, by completely refusing to acknowledge a potential source of overriding interest.

Where an individual owns rights over an area greater than he is in actual occupation of, Ferrishurst v Wallcite offers guidance. In that case, an option to purchase the lease of land greater than the area in actual occupation was held to be overriding. This decision heavily burdened purchasers and extended overriding interests for occupiers, and as an attempt to rebalance the relationship, the LRA 2002 has reversed this decision, providing that any interest protected by occupation is restricted to the land which is actually occupied . As Dixon concludes, “the legal extent of the interest that overrides is to be co-terminus with the extent of the actual occupation” .

The protections afforded to both occupier and purchaser have made for an edgy equilibrium throughout the evolution of overriding interests in relation to actual occupation, but always the law has struggled to balance the disparities in this relationship. Although purchasers have historically faced hardship in overcoming the “intermediate, or hybrid, class” of overriding interests wielded by occupiers, their position has been improved somewhat by the evolution of both statutory and common law. However, the interests of the two parties have yet to achieve legal equivalence. The very existence of overriding interests has been labelled as “disquieting” for purchasers, not least because indemnity cannot be awarded to a purchaser trapped by such an interest . This has placed purchasers on an uphill struggle to have their interests judicially and statutorily recognised and accorded significance that endures today.

Solace lies at the advent of compulsory e-conveyancing, promoted heavily by the 2002 Act, which envisages synchronicity of disposition and registration in land transfers . This development will render many equitable interests unprotected unless registered, despite being currently overriding upon actual occupation. Schedule 3, paragraph 2 will then be restricted only to the protection of those occupiers’ interests which arise informally, through resulting or constructive trusts or through estoppel , effectively narrowing an occupier’s ability to override registration. The underlying and pervading expectation that overriding interests will eventually be drawn onto the Land Register through positive registration will ultimately abolish the subsistence of occupiers’ unregistered and overriding interests upon a transfer of registered land which so adversely affects purchasers.

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