by John Florey
A little-known legal device which became common knowledge earlier this year when a firm of accountants entered a “caution” on the Land Registry to prevent Olympia & York from proceeding with a development at London’s Canary Wharf may lead to problems for developers elsewhere.
Under section 54 of the Land Registration Act 1925, anyone who is affected by a potential development can object if they have a legitimate interest. In this instance the threat of being literally overshadowed by new buildings adjacent to their own property qualified the accountants to throw a spanner in the works.
Since the case emerged, others have been looking at their own position in relation to major projects and, in a more active development market, it is possible to envisage a massive escalation of such litigation. In this context, it is timely to examine how the caution device works under current property law and to assess the potential implications on planning matters.
The concept of conveyancing is concerned with two main points; that the vendor can legitimately convey a title and that third-party rights, which interfere with the use of the land, are protected.
Unfortunately, in English law, there are two totally separate systems of proving title to land and investigating third-party rights. The newer (and more common) of the two is the registered land system and this applied in the O&Y scenario. The older system is usually referred to as the unregistered system of conveyancing.
Procedure
In conveyancing there are two stages — contract and, subsequently, the transfer of the title of the land. The steps up to and including the formation of a legally binding contract are essentially the same for both registered and unregistered land, and it is only after the contract is concluded that the major differences appear.
The aim behind the registration of land is to simplify conveyancing by placing all the essential information on three registers. A would-be-buyer has to look only at the appropriate register to obtain all the details.
The business of registration is conducted by one of several district land registries under powers conferred by the Land Registration Acts 1925-1986 and the Land Registration Rules 1925, and the land registry is in three parts:
Part A: The property register describes the property in question. More accurately, it is not the land but the estates in the land that are registered and, since there can be more than one estate in land (such as freehold, fee simple, or a leasehold term having more than 21 years to run) there may be more than one register entry for the same land.
Part B: The proprietorship register shows the type of estate registered, the class or nature of the title and the owner’s name and address. The register will record any restrictions on the powers of the proprietor to deal with the land as, for example, if he were a trustee or a bankrupt, or a tenant in common. It will also contain any cautious inhibitions and restrictions.
Part C: The charges register contains the details of any encumbrances and other rights adversely affecting the land such as restrictive covenants, mortgages and other charges. Strangely, cautions, inhibitions and restrictions are not recorded in this register.
Between the contract and the transfer, the vendor of registered land must prove his title; that is, he must show that he is capable of transferring what he has contracted to convey. The purchaser needs to check that the vendor owns the estate in question and that it is free from any encumbrances other than those already revealed by the vendor.
When checking the ownership of the estate the property, proprietorship and charged registers, when read together, will inform the buyer of the nature of the property registered, who owns it, the type of estate (freehold or leasehold), and the rights which benefit or burden the estate.
In registered land, encumbrances (third-party rights) may take the form of “overriding interests” or “minor interests”. An overriding interest is a third-party right which is so important that it could bind the purchaser of an estate even though it is not mentioned on the register. These rights are expressly listed in the Land Registration Act 1925, section 70 (1).
The O&Y story at Canary Wharf concerns minor interests. These are defined by the Land Registration Act as consisting of those interests which are not substantively registrable, and are not overriding interests. Not unexpectedly, the category of “minor” interests is very wide.
A minor interest may become protected by the simple expedient of entering it on the register. It will be unforeseeable against a later acquirer of the registered title unless it has been protected on the registry and there are four types of entry:
(i) Notices
(ii) Restrictions
(iii) Inhibitions
(iv) Cautions
Notices
Notices are usually entered in the charges register and any acquirer of a registered estate will be bound by the interest protected. They are usually used to protect restrictive covenants on freehold titles and, thus, a lessee of registered land is bound by a restrictive covenant protected by notice on the freehold title even though the lessee had no right to inspect that title. A notice may be entered only if the application is accompanied by the land certificate or, exceptionally, if it is on deposit, that may prove impossible if the registered proprietor refuses to comply.
Restrictions
A restriction prevents dealing with the registered property until a specified condition has been met. Typically, it is used in cases where a notice to, or the consent of, some person, or the payment of the proceeds of sale to two trustees in the case of a settlement or trust for sale is required. However, applications to impose a restriction have to be made by the registered proprietor and it is necessary to lodge the Land Certificate.
Inhibitions
An inhibition is placed on the registers only by order of the court or the registrar. These orders are used to prevent any dealings with the land, either totally or until the occurrence of a certain event, or on expiry of a certain time. Inhibitions are most commonly used in bankruptcy cases to prevent the registered proprietor against whom, say, a receiving order has been made, disposing of his interest in the land to the detriment of his creditors.
Cautions
Cautions entitle the persons lodging them to a warning from the registrar before any dealing with the land is made. In most cases, where the land certificate cannot be obtained, the owner of an interest requiring protection will have to use a caution.
Section 54 (1) of the Land Registration Act 1925 states:
… any person interested under any unregistered instrument, or interested as a judgment creditor, or otherwise howsoever, in any land, or charge registered in the name of any other person, may lodge a caution with the registrar to the effect that no dealing with such land or charge on the part of the proprietor is to be registered until notice has been served upon the cautioner.
The application for registration of a caution must be made in a statutory form and requires that no dealing with the land (or charge) described in the caution shall be registered until notice has been served on the cautioner or his personal representatives. A statutory declaration must be sworn referring to the land or charge to which it relates and specifying the interest which the cautioner considers warrants the caution. In deciding what is or is not warranted, by both the cautioner and registrar, the key interpretation is “… or otherwise howsoever” in section 54(1) above.
The lodging of a caution is a serious and, by its nature, a hostile procedure. It goes without saying that it should be used only when the cautioner feels that he has an enforceable interest in the land. It may be that satisfying the registrar that he has good cause is relatively easy but, as such registration could become a weapon of considerable nuisance value, the cautioner is exposed to a suit of damages by the landowner and any third party sustaining loss. If liability is established the cautioner will have to compensate the persons suffering damage and this compensation is recoverable as a debt against the cautioner by section 56(3) of the Land Registration Act 1925.
Against this, any cautioner who is convinced that his caution registration is justified and is prepared to contest proceedings may achieve a negotiated settlement if the landowner is unprepared to spend time and money on a full-scale action which may take a year or longer to come to court.
Planning implications
The opening of the Land Registry for inspection by the public, as from December 3 1990, means that around 13m titles are now available for inspection. Because of the ad hoc method of registration of titles, a further 9m remain unregistered. The right to obtain copies of documents referred to in the registry excludes charges and leases.
Access to the registry is invaluable in a variety of circumstances. Prospective developers who wish to assemble a site can now identify the owners of all registered plots of land including the owners of long-leasehold interests. It is possible to map out the site completely, picking up pathways, odd corners and all the boundaries which are so often elusive and inconvenient.
Developers are also now able to discover whether a site is subject to inconvenient restrictive covenants or easements which would inhibit or make proposed developments impossible.
Registered titles show the restrictive covenants to which the land is subject but do not indicate whether the land has the benefit of covenants over adjoining land. The landowner may have the benefit of a covenant about which he knows nothing. He can find out if adjoining land is subject to covenants and check whether a neighbour is complying with them. This is likely to be of particular interest when unwanted buildings or extensions are being built, or when adjoining land is being put to an unwelcome use. The ability to identify the owner of the land also makes it easier to identify those on whom notice should be served when making a planning application … mandatory under section 66 of the Town and Country Planning Act 1990.
