Changes Brought by the Land Registration Act 2002 - Essay Example

Outline and critically examine the procedural and substantive changes in the law on land registration brought about by the Land Registration Act 20021. Introduction The Land Registration Act 2002 (LRA) came into force on 13th October 2003 implementing an overhaul of the organisation of registered land system, repealing the Land Registration Act 1925. The Law Commission Report Number 271 “Land Registration for the Twenty First Century1” asserted the overriding purpose of the LRA 2002 being the implementation of a novel framework of land registration, which would in turn demonstrate a more complete and up to date state of title and that “unregistered land has had its day”2. To this end, it has been propounded that the ostensibly restricted paradigm for land registration under the LRA 2002 narrows the extent and enforceability of third party proprietary rights, which in turn strengthens the position of a third party purchaser under the LRA 2002. Furthermore, one of the main objectives of the LRA 2002 was “to reduce the number of overriding interests which are binding upon a purchaser of a registered title”3. Conversely, Sexton comments that the “2002 Act achieves this purpose only to a very limited degree”4. Accordingly, whilst central driver of the LRA 2002 of the 2002 Act is to limit the scope of third party overriding interests, it the degree to which this objective has been achieved remains questionable. The focus of this analysis is to critically evaluate the procedural and substantive changes in the law on land registration as brought in by the LRA 2002. To this end, it is submitted that a central issue in the evaluation of the LRA 2002 is whether property purchase post 2002 has become easier as intended by the extrapolations of the Law Commission Report5. A central issue of concern in contemporary conveyancing is the applicability of any third party proprietary rights and to this end I shall undertake a contextual and comparative analysis with the unregistered system for enforceability of third party rights. Moreover, I shall further evaluate the system for enforceability of third party equitable rights under the registered land system post 2002. It is submitted at the outset that such an evaluation is imperative to the overall consideration of the substantive and procedural changes brought about by the LRA 2002. 2. E-Conveyancing Revolution In assessing the extent of changes introduced by the LRA 2002, it is necessary to consider the essential objectives of the Law Commission Report, particularly in terms of its hailing the LRA bill as a revolution for conveyancing practice. Firstly, the Law Commission argued that the “Bill is a bold and striking one….. The move from a paper based system of conveyancing to one that is entirely electronic is a very major one and it will transform fundamentally the manner in which the process is conducted6.” Indeed, in the Law Commission Report, in addressing the fundamental objectives of the Bill, it asserts that “dispositions of registered land will have to be registered simultaneously, so that it becomes impossible to make most dispositions of unregistered land except by registering them”7. This was to address the previous problems caused by the “registration gap” between the making of the disposition and subsequent registration. The Law Commission further acknowledged that “Electronic conveyancing will not come into being as soon as the Bill is brought into force. It will be introduced over a number of years”8. As a result of these recommendations, the Land Registry was appointed as the central government department to address implementation of e-conveyancing. As a result, the Land Registry undertook significant consultation exercises with conveyancers, lenders and other relevant regulatory bodies across both public and private sectors in respect of e-signatures9, electronic funds transfer10, secondary legislation for Network Access Agreement11 and the six month “Chain Matrix Prototype12”. As a result, the Land Registry concluded that “we do not believe e-conveyancing can successfully be introduced as a “big bang13”. To this end, the Land Registry concluded that the new e-conveyancing services would be gradually implemented in stages. The current e-services available are the electronic Land Registry Direct Find a Property Service, Electronic Discharges, which is a machine to machine service enabling high volume lenders to remove legal charges from the register post redemption. The result is that the lender’s computer updates the Land Registry immediately. An alternative method of electronic discharge is the E-DS1, which is a separate online application that automatically removes charges from the register14. 3. Comparison with Unregistered System If we firstly consider by comparative analysis the position regarding the unregistered system, the prima facie legal position is that all legal interests in the unregistered estate will enforceable against a purchaser15. This general principle in relation to unregistered land would suggest that the unregistered system better protects legal interests against purchasers due to the risk of unenforceability of legal interests in registered land for lack of registration, save for the limited exception of overriding interests16. However, the intrinsically complex system of overriding interests has perpetuated ambiguity for purchasers of registered estates. Alternatively, the registered land system arguably enables protection for a wider category of both legal and equitable interests, which suggests a flawed assumption of the LRA 2002 implementing a “narrower” framework for proprietary interests in registered land. This is further supported by wide category of overriding interests17 and Sexton comments that under the registered title system the general principle is that “all third party rights against a registered estate and all short term leases are either overriding or minor interests”18. Moreover, under the registered title system, if a third party right does not fall within the category of overriding interests, it will qualify as a minor interest, which can only be enforceable against a purchaser if registered and Sexton comments that this is “roughly comparable to a registrable land charge in respect of unregistered land”19. This further undermines any assumption that the LRA 2002 has made protection of third party interests easier and thereby implemented a simpler system for registration and conveyancing practice. This further appears to undermine the Law Commission’s assertions that the “fundamental objective of the Bill is that, under the system of electronic dealing with land that it seeks to create, the register should be a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate the title, with the absolute minimum of additional enquiries and inspections”20. Alternatively, the implications of this objective of the LRA 2002 cannot be ignored as the Law Commission Report acknowledged that there were substantial plots of unregistered land, which will now automatically trigger first registration requirement under the LRA provisions. Accordingly, it is submitted that the inherent weakness of any such assertion is that whilst there is clearly a distinction between the protection of third party rights in both registered and unregistered title, ultimately enforceability of a third party right will be primarily dependent on the type of right being protected regardless of whether the right is legal or equitable. This is particularly evident with overriding interests, which have presented numerous difficulties for purchasers of registered estates21. The pre-2002 system was governed by the Land Registration Act 1925, which listed overriding interests in section 70(1). 4. Proprietary Estoppel If we consider the previous system in context of the doctrine of proprietary estoppel, the House of Lords first acknowledged the doctrine in the case of Ramsden v Dyson22. The factual scenario involved the plaintiff who was a tenant under a yearly tenancy agreement, who argued that he had been led to believe that the landlord would grant him a 60 year lease on the property. In reliance on this, the plaintiff erected a building on the land however the landlord subsequently refused to grant him the lease. The tenant instituted proceedings against the landlord to enforce his rights in equity. Whilst the court acknowledged enforceability of equitable property rights under the doctrine of proprietary estoppel, the House of Lords qualified this by asserting narrow applicability to prevent floodgate claims23. The doctrine of estoppel was further developed in the leading decision in Wilmott v Barber24 where the Court of Appeal propounded what has been coined the “Wilmot v Barber Probanda25”, which extrapolated a five stage test for enforcing equitable rights under proprietary estoppel26. The decision in Wilmott was intended to clarify the grounds for recovery under proprietary estoppel, however Dixon has argued that the Wilmott decision “did not constitute a comprehensively applicable formula27”. Moreover, the decision has been criticised for blurring the distinction with constructive trust format. However, in the case of Taylor Fashions v Liverpool Trustees Co Ltd28, the courts adopted a wider and flexible approach to the Wilmott decision and stated that the basis for recovery in proprietary estoppel was founded in the rationale that “it would be unconscionable for a party to be permitted to deny that which, knowingly, or unknowingly, he has allowed or encourage another the assume to his detriment29.” As such, the Taylor decision marked a shift in approach with the emphasis on a tripartite test of representation, reliance and detriment as grounds for recovery in proprietary estoppel. Nevertheless, the Taylor decision further highlights the problem of the judicial obfuscation of the distinction between proprietary estoppel and constructive trusts, which compounds the existing ambiguity regarding enforceability of third party interests, further relevant to the operation of third party overriding interests in registered land under the LRA 2002. Furthermore, the development of the proprietary estoppel doctrine arguably offers wider protection than the “contribution” based constructive trust. For example, in the case of Pascoe v Turner30, The Court of Appeal transferred the legal estate to the plaintiff on grounds of proprietary estoppel. Similarly, in Matharu v Matharu31 the plaintiff daughter in law continued to live in her in-laws property after the breakdown of her marriage and the death of her husband. The Court of Appeal upheld the plaintiff’s rights to remain in the property on grounds of estoppel. As such, whilst ad hoc judicial decisions rooted in policy considerations have blurred the delineation between proprietary estoppel and the common intention trust; estoppel appears to go much further in widening the parameters of enforceability under the “detrimental reliance” umbrella. For example, in the case of Ottey v Grundy32, the claimant had given up a career to look after the deceased to her detriment. She was not named in the deceased’s will however, it was held that she went beyond the role of girlfriend, there was reliance upon a promise made, once reliance was made upon the promise, it became irrevocable in equity33. As such, the concomitant ramifications of an expanding estoppel doctrine into the area of implied trust, clearly fuels uncertainty in with regard to the extent of third party overriding interests, which in turn impacts a purchaser’s position in registered land particularly with the rule changes to the law of adverse possession, which is further discussed in section 5.5 below. 5. Overriding Interests Accordingly, whilst the objective of the LRA 2002 was to significantly reduce the number of overriding interests binding a purchaser of registered title, Cooke argues that the provisions of the LRA 2002 have paradoxically perpetuated uncertainty by effectively creating two different sets of overriding interests34. Firstly, Schedule 1 of the LRA provides for “unregistered interests which override first registration35”, and Schedule 3 of the LRA sets out “unregistered interests which override registered dispositions”36. As such, the protection of third party interests in registered title depends on whether the sale is a first compulsory registration or a disposition of a pre-existing registered title, which perpetuates uncertainty from the purchaser’s perspective. This is further compounded by the LRA’s transitional provisions regarding various types of overriding and minor interests regarding conveyances post 200337. 5.1 Easements Additionally, the LRA 2002 abolishes “rights acquired or in the course of being acquired under the limitation acts38” under the previous Section 70(1) f of the 1925 Act. With regard to easements, under the previous 1925 Land Registration Act, section 70(1) (a) provided the following: “a) A legal profit was an overriding interest. b) An equitable profit was an overriding interest. c) A legal easement was an overriding interest.39” As regards the unregistered title position, legal easements are enforceable under the general rule however this is clearly similar to the registered system, with the status of the easement as an overriding interest. Accordingly, the system for protection of legal rights in relation to a purchaser is irrespective of whether the title is registered or unregistered, which again supports the statement above that protection and enforceability of third party rights whether legal or equitable ultimately depends on the nature of the right, thereby negating the LRA 2002’s purpose of “simplification” as posited by the Law Commission40. This is further supported if we consider equitable easements. The unregistered system requires equitable easements to be registered as a land charge in order to be enforceable, however with regard to registered title, in the Court of Appeal decision of Thatcher v Douglas41 “by some rather strained logic”42 it was held equitable easements were overriding interests within the definition of section 70(1) (a) of the 1925 Land Registration Act43. Accordingly, the result of the Thatcher case clearly extended the range of protection for third party rights for registered titles under the pre-2002 position. The 2002 Act intended to restrict the extent of third party interests binding on a purchaser nevertheless Sexton comments that “perhaps the most difficult feature of the whole 2002 Act is its treatment of easements and profits”44. Firstly, the LRA 2002 provides that all easements and profits already existing against a registered title continue to be governed by Section 70(1) (a) of the 1925 Act (Schedule 3, LRA 2002)45. Moreover, in conjunction with the result of the Thatcher decision, all pre-existing easements at the date of 2002 Act’s implementation will continue to be overriding post 2002 irrespective of whether they are legal or equitable. Nevertheless after 12 October 2006, the LRA 2002 subjects easements to transitional specific rules and as such, they can lose overriding status46. However, these rules are inherently complex and obscure and it is questionable how effective these rules have been to reduce overriding interests binding on a purchaser47. Moreover, the distinction between easements existing in registered titles at the date of enactment and those created after the LRA 2002 further complicates the system by creating two systems of protection for enforceability overriding interests48. Nevertheless, the complexity of the post 2002 system and creation of effectively two separate sets of rules for equitable easements creates undesirable ambiguity, which directly undermines the overall purpose of the LRA 2002. Alternatively, easements that are created after the commencement of the LRA 2002 must be registered and failure to register an easement will only bind a purchaser if registered as a Notice49. However, whilst this creates a simpler system for easements creates after the Act, the dichotomy with the position regarding easements created before the Act fails to address the central issues of concern facing purchasers in relation to third party rights. With regard to legal easements, these were only binding as overriding interests until 2006. In the consultation process, the Law Commission expressed concerns regarding easements and this culminated in Schedule 3, paragraph 3of the LRA 2002, which now provides that a legal easement or profit is only binding if (a) purchaser had “actual knowledge” of the easement or profit on the date of the land and transfer in his favour or evidence of the easement or profit is (b)“apparent on reasonable inspection50”. Whilst these provisions in Schedule 3 appear address the pre-2002 problems of third party rights in registered land, the rules are clearly complex Cooke has argued that the reality is that “only very few easements and profits will be excluded from being overriding interests251. Furthermore, Sexton comments that “the new rules exclude from being overriding only an (undiscovered) legal easement or profit which has neither left physical evidence on the land of its existence; nor been exercised at least once in the year before the land transfer”52. 5.2. Leases Therefore, in practice it is questionable how far the 2002 Act has gone to meet the objectives extrapolated by the Law Commission in its report as indicated in the express assertion that “the categories of overriding interests will have to be very significantly reduced in scope”53, which is further evidenced if we consider leases. For example, pre-2002 legal leases not exceeding 21 years constituted overriding interests, which was an automatic overriding right applicable irrespective of occupation54. In contrast, the unregistered land system relied on compliance with legal formalities and the doctrine of notice in order for these rights to be binding on purchasers55. However, under the LRA 2002, Schedule 3, paragraph 1 renders all legal leases not exceeding term of 7 years overriding. Accordingly, whilst the period is shorter than the position under the 1925 Act, the lease interest remains overriding. Additionally, leases not exceeding 21 years, which are already in existence, remain overriding. However, if the lease does not qualify as a legal lease, the lease may still be an equitable lease and overriding under Schedule 3, paragraph 2, (rights of person in actual occupation). Not only does this highlight that the LRA 2002 has not in fact resulted in a less complicated system, it further highlights the heightened vulnerability of a third party purchaser in relation to registered title in contrast to registered title. 5.3. Rights of persons in actual occupation. Furthermore, in relation to the LRA 2002 provisions regarding rights of persons in actual occupation, it has been commented that the previous section 70(1) (g) provision of the LRA 1925 should have been repealed without replacement56. Nevertheless the legislators opted for what the termed as “simplification” of the law, which is set out in Schedule 3, paragraph 2 which Gray argues is similar to the previous system yet more complex; again obfuscating the inherent uncertainties facing purchasers regarding enforceability of third party rights, which is further highlighted by rights of squatters in adverse possession as overriding interests if in actual occupation under the LRA 200257. This is further evidenced by consideration of case law under the previous system, which is relevant to the application of the LRA 2002 regarding actual occupation. For example, in case of William and Glyn’s Bank Limited v Boland58 the House of Lords decided notice was not applicable to registered land when considering enforceability of rights of persons in actual occupation59. This is in stark contrast to the position in relation to unregistered land and in considering this the House of Lords in the William case determined that the Hunt v Luck60 rule of equitable notice was not the same as the section 70(1)(g) provisions regarding rights of persons in actual occupation61. Additionally, the House of Lords held that rights under section 70(1) (g) of the 1925 Land Registration Act covered all proprietary interests in land, which thereby extended the parameters of protection for third party propriety rights in registered estates outside the traditional confines of equitable notice, which was applicable to registered land. The House of Lords adopted a literal interpretation of “actual occupation” in relation to the wording of section 70(1)(g) went as far as hinting that the decision in Caunce v Caunce62 was not relevant to the application of section 70(1) (g) as the Caunce decision was limited to unregistered title. Subsequently, in Abbey National Building Society v Cann63 it was held that actual occupation required evidence of permanence and a degree of continuity “which was not merely a fleeting presence”64. The decision in Webb v Pollmount65 further extended the applicability of third party rights in registered land under the “actual occupation” umbrella by deciding that rights of a person in actual occupation were not restricted to the nature of the right granting the person the right to occupy. As a result, the rationale in Webb effectively meant potentially all property rights in land could be overriding if the person asserting the right was in actual occupation. For example, if we consider the factual scenario, the plaintiff Webb had a legal lease for a term of seven years along with an option to purchase the fee simple reversion. Options generally constitute minor interests and therefore require protection as a notice on the register. However, in the Webb case, the option was not registered however in light of the fact that Webb occupied the lease, the option was held to be enforceable as an overriding proprietary interest on grounds of section 70(1) (g) of the Land Registration Act 1925. The implications for purchasers of registered title of the Webb decision was further evidenced in the case of Ferrishurst v Wallcite66 where the plaintiff occupied the property under a lease of part of an office block, which further included an option to purchase the whole of the block. The Court of Appeal determined that if an individual had an interest in the whole piece of registered land, actual occupation of part of the land was sufficient to constitute an overriding proprietary interest in the whole of the estate. Moreover, in Malory Enterprises v Cheshire Homes67 the Court of Appeal stated “what constitutes actual occupation of property depends on the nature and state of the property in question, and the judge adopted the approach. If a site is uninhabitable, as the rear land was residence was not required, but there must be some physical evidence, with some degree of permanence and continuity”68. The new rules on actual occupation under Schedule 3 paragraph 2 are applicable to all cases where land transfer is executed after 200369. Furthermore, Schedule 3, paragraph 2 of the LRA 2002 appears to preserve the essence of section 70(1)(g) in that potentially every type of proprietary interest can potentially be overriding on grounds of actual occupation, which is not only wider than the enforceability of third party rights in unregistered title but further undermines the purpose of the LRA 2002. Additionally, Schedule 3 of the LRA 2002 has been criticised for failing to clarify the definition of actual occupation and on this basis, Webb would appear to remain as good law. Moreover, Schedule 3 excludes overriding interests of those in actual occupation where the person failed to disclose the right when it “was reasonable to have done so”70. However, the requirement of “reasonableness” clearly perpetuates uncertainty in a complicated system of third party rights. It further remains ambiguous as to the exact nature circumstances that will satisfy the “reasonable” test to have and Sexton argues that this is likely to lead to costly litigation, which is far removed from the objectives of the Law Commission in simplification of the registered system71. Nevertheless, Schedule 3 of the LRA 2002 is in some aspects limited in application to the previous section 70(1) (g) of the 1925 Land Registration Act as the third party enforcing the right must be in actual occupation. This is welcome in negating the applicability of the Ferrishurst decision post 2003 and Sexton asserts that “the new provision cannot make overriding the property interest of somebody who is merely in receipt of rents”72. Moreover, there is a further restriction in sub-paragraph (c) whereby the interest must “have been obvious on a reasonable careful inspection of the land at the time of the disposition”73 and the purchaser must have known of the interest, which appears to introduces concepts of the equitable notice doctrine similar to the position in respect of unregistered land. 5.5. Adverse Possession Another key change of the LRA 2002 is to the law of adverse possession. Most importantly, the Limitation Act 1980 only applies to unregistered land from October 2003 with a completely changed regime for adverse possession in respect of registered land. Under the LRA 2002, a squatter can acquire title through adverse possession by an application to the register. Schedule 6 of the LRA 2002 sets out three conditions (under paragraph 5) as pre-requisites to any claim for adverse possession: 1) it would be unconscionable on grounds of estoppel for the applicant to be dispossessed; 2) There is another reason entitling the squatter to rights in the property such as under trust; 3) the squatter reasonably believed for at least ten years of the period of adverse possession that the land belonged to them74. From October 2006, the squatter’s interest only has overriding status if the squatter is in actual occupation. In conclusion, the system for protection of third party interests in both registered and unregistered land remains inherently complex for purchasers. Furthermore, the analysis in this paper highlights the weaknesses in the theoretical ideal of a simplified system of land registration by virtue of the LRA 2002. This is further supported by the jurisprudence pertaining to the development of proprietary estoppel, where the very ad hoc development of principles rooted in “unconscionability” does not easily lie with a rigid framework. Additionally, the drafting of the LRA 2002 retains some the core provisions of the 1925 Land Registration Act, which effectively creates a dual system of protection. To this end, it is submitted that it is questionable whether the LRA 2002 has met the objectives extrapolated by the Law Commission, which is an opportunity missed. Bibliography Robert M. Abbey (2002). Blackstone’s Guide to the Land Registration Act 2002. Oxford University Press. Blackstone’s Statutes on Property Law (2007-2008) 15th Edition Oxford University Press. Elizabeth Cooke, (2006). Land Law. Oxford University Press. Elizabeth Cooke, (2003). The New Law of Land Registration. Hart Publishing. M Dixon., (2005). Principles of Land Law. 5th Edition Routledge-Cavendish Publishing. K. Gray & S. F. Gray (2007). Elements of Land Law. 5th Edition Oxford University Press. Law Commission report no.271 (2001). Land Registration for the Twenty First Century. July 2001. Available at www.landregistry.gov.uk J MacKenzie& M Phillips (2005). Land Law. 10th Edition Oxford University Press. Megarry and Wade., (2007) The Law of Real Property. 7th Edition Sweet & Maxwell R J Smith (2003) Property Law 4th Edition, Longman R J Smith (2003) Property Law Cases & Materials 2nd Edition, Longman R Sexton (2006). Land Law. 2nd Revised Edition. Oxford University Press. Todd and Wilsons., (2007). Textbook on Trusts.8TH Edition. Oxford University Press. Land Registration Act 2002 Land Registration Act 1925. Read More