The Land Registration Act 2002 protects the interests of parties in actual occupation of registered land. This often causes problems for buyers or lenders because the rights of parties in actual occupation are not recorded on the registers of title kept by the Land Registry. In addition, the capacity in which a party occupies land – for example, as a tenant – need not be indicative of the rights claimed.
However, so long as appropriate enquiries are made of occupiers, and their rights are not disclosed, disponees can proceed, safe in the knowledge that their interest will have priority. By contrast, disponees that fail to make appropriate enquiries run the risk than an occupier may subsequently claim the benefit of an option to purchase the freehold reversion, or an unpaid vendor’s lien, an estoppel or some other equity in the property that affects them.
The Land Registration Act 2002 protects the interests of parties in actual occupation of registered land. This often causes problems for buyers or lenders because the rights of parties in actual occupation are not recorded on the registers of title kept by the Land Registry. In addition, the capacity in which a party occupies land – for example, as a tenant – need not be indicative of the rights claimed.
However, so long as appropriate enquiries are made of occupiers, and their rights are not disclosed, disponees can proceed, safe in the knowledge that their interest will have priority. By contrast, disponees that fail to make appropriate enquiries run the risk than an occupier may subsequently claim the benefit of an option to purchase the freehold reversion, or an unpaid vendor’s lien, an estoppel or some other equity in the property that affects them.
Kumari v Bedia [2011] PLSCS 222 arose as a result of a fraud, which left the fraudsters’ victim desperate for money. Consequently, she agreed to sell her house to a company that took advantage of her situation. The company allowed the seller to remain in occupation under an assured shorthold tenancy and then sold the freehold for a substantial profit to an innocent third party, before collapsing into insolvent liquidation.
The county court agreed that the company had struck an unconscionable bargain with the occupier. Consequently, she would have been entitled to have had the sale set aside had she acted before the house was resold.
However, the occupier’s equitable right to undo the previous transaction combined with her actual occupation of the house constituted an overriding interest in the property, which bound the new owner because he did not make any enquiries of anyone (other than to as k whether the tenancy could be terminated so that vacant possession could be obtained). The case illustrates the importance of making sufficient enquiries of the seller and, importantly, of anyone in occupation of land, to eliminate the possibility of a buyer or lender being bound by such an interest.
Practitioners will also be interested in the judge’s comments about the behaviour of the solicitor who acted for the occupier, who was introduced by and practised from the same address as the company that bought the house for considerably less than it was worth. On the evidence that he had heard, the judge concluded that a conflict of interest arose between the parties and that the solicitor should have declined to act.
In addition, even if he did act correctly when he first accepted instructions, the solicitor should have done more than merely satisfy himself that the occupier understood what she was doing. He was under a duty to satisfy himself that his client could sensible enter into the transaction. If not so satisfied, he should have warned her against it in the strongest possible terms and should have ceased acting had she persisted against his advice. Food for thought in advance of the introduction of outcomes-focused regulation for solicitors in a few weeks’ time.
Allyson Colby is a property law consultant
