The Law of Property Act 1925 (the 1925 Act) transformed the law of property and has, in general, withstood the test of time. So it is a little surprising that two of the most important building blocks in the statute recently gave cause for concern.
The legislation created a new ownership structure. It excised life estates, fee tails and determinable fees from our vocabulary, leaving us with freehold and leasehold estates instead. Interests in land sit immediately below them in the hierarchy and include easements, charges, rentcharges and rights of entry. All other interests take effect in equity. Enter, stage left, the concept of overreaching: a process that helps buyers by clearing equitable interests from the title, if the interests are capable of being overreached, and transferring them to the proceeds of sale in the hands of trustees.
This brings us to the question that arose in Baker and another v Craggs [2018] EWCA Civ 1126; [2018] EGLR 29. Did the grant of an easement overreach an equitable interest in the land over which the easement was granted? The High Court decided that it did. The trial judge reasoned that, if land is held on trust and the trustees are persuaded that it would be in the interests of the beneficiaries to grant an easement to a third party in return for a capital sum, the easement should prevail over the beneficial interests, leaving the beneficiaries with an interest in the proceeds of sale instead.
This might sound attractive, but the decision caused an easement granted on the sale of land to gain priority over an equitable interest in an entirely different property. Was the decision wrong? The Court of Appeal decided that it was.
Dash to the register
The owners of farmland sold part of the land in their ownership to Martin Craggs, without reserving any easements over it, and subsequently sold another parcel of land to Paul Baker, together with a right of way over the land already sold to Craggs. The easement would not have been binding on Craggs, had he been able to register his transfer immediately. But the Land Registry cancelled his application for registration because the plan attached to the transfer was defective.
By the time that Craggs resubmitted his application, Baker had registered his own title at the Land Registry. So the land that had been sold to Craggs was registered as being subject to the easement. Craggs asked the court to remove the easement from his title. He argued that his interest took priority. He had had an equitable interest in the land as a result of the transfer to him and his equitable interest was overriding because he was in actual occupation of the land when the easement was granted.
But the trial judge ruled that the easement overreached the overriding interest. Section 2 of the 1925 Act provides that, when capital sums are paid to trustees for sale, a conveyance to a purchaser of a “legal estate in land” overreaches equitable interests. The sellers had remained the registered proprietors of the land sold to Craggs until registration of the transfer to him and had held the property on trust for him in the interim. And, because Baker had paid the purchase price for his land to the sellers as trustees, Craggs’s overriding interest had been overreached.
A question of taxonomy
The Court of Appeal observed that overreaching is generally regarded as a process that enables purchasers of land to take free of equitable interests affecting that land. And, in this case, the effect of the decision at first instance was that the transfer to Baker had overreached an equitable interest in an entirely different parcel of land. In addition, it left us with a conundrum. How could the equitable interest that Craggs had in his land, which was part of the servient tenement, be translated into an interest in the purchase price for the dominant tenement?
Henderson LJ spoke for the court. He referred to Edwards v Kumarasamy [2016] UKSC 40; [2016] EGLR 51, in which Lord Neuberger said that, as a matter of property law, a right of way constitutes an interest, and not an estate in land. He also reminded us of the hierarchy established by the 1925 Act. Section 1(1) deals with freehold and leasehold estates. Section 1(2) deals with interests in land, and specifically includes easements within that category. And, although section 1(4) states that the statute refers to all estates, interests and charges capable of subsisting at law as “legal estates”, an easement is not a “legal estate in land” in the context of the provisions on overreaching in section 2.
So why does the grant of a legal charge overreach equitable interests if it falls within section 1(2)? Lord Henderson explained that this is because section 87 grants lenders the same protection as if they had been granted a leasehold estate in land.
The question in this case was one of priorities. It followed that the answer lay in the rules set out in section 29 and in schedule 3 of the Land Registration Act 2002 (which deals with overriding interests). And, in this case, Craggs had an overriding equitable interest, which took priority over Baker’s easement.
Conveyancers will be much happier with this orthodox approach. However, the discussion in the High Court serves to underline the need to check, before acquiring an easement, whether the servient land is occupied by third parties with clashing interests that will not be overreached, who should consent to the grant of the easement.
Allyson Colby is a property law consultant
