Option to purchase — Land Registration Act 1925 — Unregistered option — Overriding interest — Actual occupation — Whether occupier must be in occupation of whole of land comprised in registered disposition to enforce overriding interest
By a subunderlease
dated 1 October 1984 the appellant was granted a term of office premises for
four years and went into actual occupation. The subunderlease contained an
option to acquire the subunderlessor’s reversionary interest (which included
land additional to the premises demised by the subunderlease) at a maximum
price of £28,000. The reversionary interest was an underlease dated 29 January
1973 for a term of 40 years (less 10 days). The respondent acquired the freehold
in 1987, and the headlease in 1988. In 1988 the respondent also became the
registered proprietor of the underlease. On 30 September 1988 the appellant
gave a notice to exercise the option to acquire the underlease. In proceedings
by the respondent seeking possession of the premises, and by the appellant
claiming specific performance of the contract arising on the exercise of the
option, the respondent asserted that, as the option had not been registered
against its registered title to the underlease, it was not bound by the option,
notwithstanding the respondent’s actual knowledge of the option when it
acquired the underlease. The county court judge held that the respondent was
not bound by the option. The appellant appealed.
allowed. The option was an overriding interest and the respondent was bound by
it. The function of overriding interests in registered conveyancing is
comparable to that of notice (actual, constructive or imputed) in unregistered
conveyancing, but the burden on a purchaser to make inquiries is now heavier
than before. The rights of an occupier of registered land are to be
distinguished from the fact of his occupation. The occupier need not, in order
to rely on section 70(1)(g) of the Land Registration Act 1925, be in
actual occupation of the whole of the land comprised in a registered
disposition. A person in actual occupation of a part of the land comprised in a
registered disposition can enforce against the new registered proprietor any
overriding interest that he has either in the land or part of the land occupied
by him or in the remainder (or part of the remainder) of the land comprised in
the registered disposition in question. Ashburn Anstalt v Arnold (No
2) [1988] 1 EGLR 64 not followed.
This was an appeal
by the plaintiff, Ferrishurst Ltd, in proceedings by the plaintiff for specific
performance against the defendant, Wallcite Ltd.
Alexander Hill-Smith
(instructed by Jim McKenzie & Co Ltd) appeared for the appellant; Paul
Staddon (instructed by Walter Jennings & Co) represented the respondent.
Giving the judgment
of the court, Robert Walker LJ said: Park End is a cul-de-sac off South
Hill Park, Hampstead, London NW3. The property known as 12 Park End is a
detached single-storey building to the rear of 14 South Hill Park. This
building was erected in 1973, with planning permission for its use as a depot
and garage for a housing association called Second Counterbuild Housing
Association. The garage is a lock-up garage for one vehicle. The adjoining
premises (which take up about three-fifths of the area) are now used as
offices.
This building has
for the past 10 years been the subject of an acrimonious legal dispute, which
has involved two separate actions heard together in Central London County Court
by Judge Wakefield. The matter comes before this court on appeal, with the
leave of a single lord justice, from Judge Wakefield’s order made on 20
February 1998.
The first of the two
actions was commenced in Central London County Court on 4 July 1994 by a
company called Wallcite Ltd against a company called Ferrishurst Ltd and
Ferrishurst’s principal shareholder and director, Mr Barry Cousins. Wallcite
claimed possession of the office part of the building and arrears of rent and mesne
profits, Ferrishurst being sued as Wallcite’s tenant and Mr Cousins as the
tenant’s guarantor and a person in actual occupation.
On 19 July 1994
Ferrishurst commenced proceedings against Wallcite in the Chancery Division of
the High Court, claiming specific performance of a contract for Ferrishurst to
acquire a leasehold interest in the whole building, following a notice to
exercise an option given by Ferrishurst on 30 September 1988. The High Court
proceedings were transferred to Central London County Court and consolidated,
with revised pleadings in which Ferrishurst as plaintiff put in points of claim
and points of reply and defence to counterclaim, and Wallcite put in points of
defence and a counterclaim against Ferrishurst and Mr Cousins.
By two separate
orders (drawn up on 24 February 1998) Judge Wakefield dismissed Ferrishurst’s
claim for specific performance and ordered the vacation of a caution entered
against Wallcite’s title. He made an order for possession in favour of Wallcite
and awarded it £12,000 damages and interest against Ferrishurst and further
damages of £14,312 and interest against Ferrishurst and Mr Cousins.
The judge had
essentially one issue to decide (together with consequential issues as to
quantum). That was whether an option to acquire the reversion (not merely in
the demised premises, but in the whole of the building) contained in a
subunderlease of the offices granted on 1 October 1984 bound Wallcite despite
the fact that no entry relating to the option appeared on Wallcite’s registered
title. Other issues were threatened in a long draft respondent’s notice, but
they (together with an abstruse point in para 3 of the notice of appeal) were
sensibly abandoned, enabling this court to concentrate on the central issue,
which the judge decided against Ferrishurst.
The central issue
turns on the correct construction and effect of certain provisions of the Land Registration
Act 1925 (the Act). If they operate against Ferrishurst the result may be
thought surprising and unfair, since it is clear that Wallcite knew all about
the option. On 29 February 1988 Mr Nicholls, a director and shareholder of
Wallcite, wrote to Mr Cousins asking whether he wished to exercise the option
to purchase the reversion. However, in this appeal Ferrishurst has been facing
a formidable obstacle, that is the decision of this court in Ashburn Anstalt
v Arnold (No 2) [1989] Ch 1*. Mr Alexander Hill-Smith, appearing for
Ferrishurst, did not shrink from the submission that, if not distinguishable,
it ought not to be followed. Mr Paul Staddon, for Wallcite, rightly reminded
the court of the stringent principles laid down in Young v Bristol
Aeroplane Co Ltd [1944] KB 718. Ashburn is indeed a formidable
obstacle, since it was a reserved judgment of the whole court, constituted by
Fox, Neill and Bingham LJJ.
* Editor’s note: Also reported at [1988] 1 EGLR
64; [1988] 23 EG 128
Having outlined the
geographical context and the central issue I must now summarise the
conveyancing history. This involves tracing the devolution of the freehold
interest, a headlease for 40 years from 1 September 1972, an underlease for 40
years (less 10 days) from the same date and subunderleases of the garage and
the offices, which were respectively agreed in 1973 and granted in 1984.
The freehold
interest belonged to Messrs Adkins and Betts. On 29 January 1973 they granted
to Mr Welbank a headlease for 40 years of the basement of 14 South Hill Park
and an open area behind it. The rent was £900 pa with five-year reviews linked
to the cost of living index. In 1987 the freehold interest was acquired by
Wallcite.
Mr Welbank at once
granted to Second Counterbuild an underlease (also dated 29 January 1973) for a
term of 40 years (less 10 days). The demised premises were the part of the open
area on which the building was to be built, and Second Counterbuild covenanted
to construct the building in accordance with plans approved by the lessor. It
also covenanted to grant back to Mr Welbank a subunderlease of the garage in
the completed building for a term of 40 years (less 15 days). The rent reserved
by the underlease was £900 pa with five-year reviews linked to the cost of
living index. The rent reserved by the subunderlease was to be £50 pa subject
to similar reviews. In 1979 the liquidator of Second Counterbuild sold the
underlease for £350 to a company known as Gracicoal Ltd. Planning permission
was obtained for the larger part of the building to be used as offices (rather
than as a depot).
The underlease was
transferred by Second Counterbuild (in liquidation) to Gracicoal on 24 August
1979, but for some reason the transfer was not registered at HM Land Registry
until early 1984. On 22 February 1988 the underlease was transferred by
Gracicoal to Wallcite for £22,500 and Wallcite became the registered proprietor
under title nº NGL 387486. So, at that stage, Wallcite owned the freehold
interest and the underlease, but with Mr Welbank’s 10-day reversion under the
headlease interposed, and subject to the rights of those in occupation under
the two subunderleases. At the end of 1988 Wallcite acquired the headlease from
Mr Welbank for £10,750.
I have already
referred to Mr Welbank’s retention of the right to a long subunderlease of the
garage in the completed building. That subunderlease was not granted promptly.
Indeed it was not granted until 30 December 1988, when (no doubt as a result of
negotiations between Mr Welbank and Wallcite) a term of 25 years from 30
December 1988 at a peppercorn rent was granted to Mr Welbank. It appears that
until then Mr Welbank was occupying the garage on the strength of his
contractual rights, and was an equitable tenant.
On 1 October 1984 a
subunderlease of the offices was granted to Ferrishurst for a term of four
years from that date, at an annual rent. Clause 1 of the subunderlease
contained two options in the following terms:
AT THE END of the
four year term herein, the Lessor shall allow the Lessee the option to enter
into a further term of underlease for a similar period and under identical
conditions and covenants stated herein excepting the option to purchase the
Superior lease at a maximum of Twenty-eight thousand pounds and the amount of
rent the rent to be negotiated between Lessor and Lessee not more than twelve
months nor less than six months before the end of the four year term herein and
in any event not to be greater than the equivalent to four thousand pounds
after the same has been increased or decreased as the case may be by the
percentage by which the cost of living index as published by Her Majesty’s
Government may have increased or decreased between the commencement and the
conclusion of the preceding period of four years of the term. DURING the term
herein the Lessor shall allow the Lessee the option to purchase and have
assigned to them the long term lease the Lessor herein has with the Superior
Lessors for an amount to be negotiated, but in any event not greater than
twenty-eight thousand pounds.
The judge recorded
that neither side contended that the subunderlease of the offices was a
perpetually renewable lease. Nor did either side contend (either by reference
to the word ‘herein’ or otherwise) that the option to purchase the reversion
was limited (or could at Ferrishurst’s option be limited) to the reversion in
the offices (to the exclusion of the garage).
The subunderlease
dated 1 October 1984 was granted not (as might have been expected) by Gracicoal
but by a company called P&C (Holdings) Ltd.
Gracicoal and
P&C were small trading companies run as quasi-partnerships by Mr Pincas and
Mr Campbell. In 1983 they decided amicably to disentangle their interests, but
they did so in an informal and incomplete way. The judge devoted much of his
long and thorough judgment to that aspect of the matter, and had the
respondent’s notice proceeded, this court would also have been concerned with
it. In the event, however, the validity of the subunderlease of the offices is
not challenged.
The judge concluded
that he was bound by the decision in Ashburn, that section 70(1)(g)
of the 1925 Act (overriding interests) assisted Ferrishurst only to the extent of
the part of the building consisting of offices, and (for various reasons that
are not challenged in this court) that he could not or should not decree
specific performance as to part only of the premises comprised in the
underlease. In this court the argument has centred on Ashburn. But
before coming to that case in detail I must set out the relevant provisions of
the Act.
By section 3(xvi)
‘overriding interests’ are defined (so far as now material) as all
encumbrances, interests, rights and powers not entered on the register but
subject to which registered dispositions are, by the Act, to take effect.
Sections 20 and 23 are a pair of provisions providing for the effect of
registered disposition of freeholds and leaseholds respectively. Section 23(1)
is in the following terms:
In the case of a
leasehold estate registered with an absolute title, a disposition (including a
subdemise thereof) for valuable consideration shall, when registered, be deemed
to vest in the transferee or underlesseee the estate transferred or created to
the extent of the registered estate, or for the term created by the subdemise,
as the case may require, with all implied or expressed rights, privileges, and
appurtenances attached to the estate transferred or created, including (subject
to any entry to the contrary on the register) the appropriate rights and
interests which would under the Law of Property Act 1925 have been transferred
if the land had not been registered, but subject as follows:–
(a) To all
implied and express covenants, obligations, and liabilities incident to the
estate transferred or created; and
(b) To the
encumbrances and other entries, if any, appearing on the register and any
charge for capital transfer tax subject to which the disposition takes effect
under section 73 of this Act; and
(c) Unless
the contrary is expressed on the register, to the overriding interests, if any,
affecting the estate transferred or created,
but free from all
other estates and interests whatsoever, including estates and interests of His
Majesty; and the transfer or subdemise shall operate in like manner as if the
registered transferor or sublessor were (subject to any entry to the contrary
on the register) absolutely entitled to the registered lease for his own
benefit.
Section 70 provides
for the liability of registered land to overriding interests. Subsection (1)
enacts that all registered land shall, unless the register provides to the
contrary, be deemed to be subject to the overriding interests specified in the
ensuing paragraphs, which include:
(g) The
rights of every person in actual occupation of the land or in receipt of the
rents and profits thereof, save where enquiry is made of such person and the
rights are not disclosed.
Other paragraphs
referred to in the course of argument were (a) (rights of common, public
rights, easements, profit a prendre and similar rights) and (k) (leases
granted for a term not exceeding 21 years; this paragraph was amended by the
Land Registration Act 1986).
It must be noted
that one parcel of land may be the subject of more than one registered title. A
whole street of houses may be registered under a single freehold title with a
single title number. Every house in that street may be let for a term of 99 years,
with each lease being registered as a separate leasehold title with its own
title number (as well as being noted on the freehold title). Underleases of
subdivided parts of houses may also be the subject of substantive registration,
if the underleases were granted for more than 21 years. In every case a
transferee (or the grantee of a new leasehold or other interest) will be
concerned to see whether there is any person in actual occupation of the land
comprised in the transfer, lease or other disposition in his favour. Thus the
references in sections 20(1), 23(1) and 70(1) to entries on the register must
be understood as referring to the entries relating to the title to the
particular estate comprised in a registered disposition, or out of which a
registered disposition takes effect.
The general scheme
and effect of these provisions was considered by the House of Lords in Williams
& Glyn’s Bank v Boland [1981] AC 487. Lord Wilberforce (in a
speech in which the rest of their Lordships concurred) said at p504A:
The exception just
mentioned consists of ‘overriding interests’ listed in section 70. As to these,
all registered land is stated to be deemed to be subject to such of them as may
be subsisting in reference to the land, unless the contrary is expressed on the
register. The land is so subject regardless of notice actual or constructive.
In my opinion therefore, the law as to notice as it may affect purchasers of
unregistered land, whether contained in decided cases, or in a statute (the
Conveyancing Act 1882, section 3, Law of Property Act, section 199) has no
application even by analogy to registered land. Whether a particular right is
an overriding interest, and whether it affects a purchaser, is to be decided
upon the terms of section 70, and other relevant provisions of the Land
Registration Act 1925, and upon nothing else.
In relation to
rights connected with occupation, it has been said that the purpose and effect
of section 70(1)(g) of the Land Registration Act 1925 was to make
applicable to registered land the same rule as previously had been held to
apply to unregistered land: see per Lord Denning MR in National
Provincial Bank Ltd v Hastings Car Mart Ltd [1964] Ch 665, 689, and
in this House [1965] AC 1175, 1259.
I adhere to this,
but I do not accept the argument which learned counsel for the appellant sought
to draw from it. His submission was that, in applying section 70(1)(g),
we should have regard to and limit the application of the paragraph in the
light of the doctrine of notice. But this would run counter to the whole
purpose of the Act. The purpose, in each system, is the same, namely, to
safeguard the rights of persons in occupation, but the method used differs. In
the case of unregistered land, the purchaser’s obligation depends upon what he has
notice of — notice actual or constructive. In the case of registered land, it
is the fact of occupation that matters. If there is actual occupation, and the
occupation has rights, the purchaser takes subject to them. If not, he does
not. No further element is material.
In Ashburn,
as in the present case, the issue arose as to how sections 20 and 23 and
section 70(1)(g) of the Act operate in circumstances where the property
occupied by the person claiming an overriding interest was not coextensive with
the property in which that interest was said to subsist. The facts of Ashburn
were unusual and they must be set out in a little detail. Numbers 122, 124
and 126 Gloucester Road, Kensington were let together in 1945 for a term of
just over 50 years. There was a single registered title to this headlease, and
in 1969 the first defendant, Mr Arnold, became registered proprietor. He
subsequently granted to the second defendant, Arnold & Co (A & Co) what
was described as an informal sublease of 126 and part of 124, expiring on 29
September 1973. Numbers 122 and 126 were adjacent ground-floor shops with
basements; between them was a door and staircase leading up to 124, which
extended over both 122 and 126.
Early in 1973 a
company called Cavendish Land Co (Cavendish) acquired the freehold reversion to
the headlease and also other adjacent land. A company called Matlodge agreed
with the defendants to acquire the headlease of 122, 124 and 126 and the
sublease of 126 and part of 124. The agreement between A & Co and Matlodge
contained two important clauses. Clause 5 permitted A & Co to remain in its
premises as a licensee, on payment of outgoings but not rent, until Matlodge
gave a quarter’s notice certifying that it would be ready to proceed with
comprehensive redevelopment on the expiration of the notice. Clause 6 bound
Matlodge, on completion of the redevelopment, to grant to A & Co a 21-year
lease of a shop in a prime position within the redeveloped property, and at a
rent for the first seven years of 25% less than the market rent.
Matlodge then
assigned the benefit of the agreements to Cavendish, and clauses 5 and 6 were
novated as between Cavendish and A & Co. The headlease and the sublease
were agreed to have merged in the freehold. In 1979 Cavendish’s freehold title
was acquired by Legal & General Assurance Society. In 1985 Legal &
General sold the freehold to Ashburn Anstalt (Anstalt), the transfer being
dated 11 October 1985. Ten days later Anstalt’s solicitors wrote to Mr Arnold
referring to ‘some kind of agreement with [Legal & General] under which no
rent has been payable’ and giving notice that ‘whatever arrangement may have
existed between yourself and [Legal & General] is at an end’. They
threatened proceedings for possession and, for good measure, served a notice
under section 25 of the Landlord and Tenant Act 1954.
Proceedings ensued
in which Anstalt claimed possession of the premises (126 and part of nº 124)
occupied by A & Co. The essential issue was whether A & Co’s rights
under clauses 5 and 6 of the agreement were overriding interests enforceable by
A & Co against Anstalt. At first instance the deputy judge dismissed
Anstalt’s claim for possession on the basis that clause 5 granted a licence
entitling A & Co to possession and amounting to an overriding interest.
Anstalt appealed to this court, in which there was a four-day hearing in July
1987 followed by a reserved judgment on 27 October 1987; and a further hearing
in January 1988 followed by a reserved judgment on 25 February 1988.
The main judgment of
the court, handed down on 27 October 1987, was largely concerned with the
primary issue of whether A & Co’s rights under clause 5, although expressed
as a licence, had the qualities (including certainty of the term granted) to be
recognised as a tenancy; and with the secondary issue of A & Co’s
alternative submission based on a constructive trust ([1989] Ch 1 at pp8-22 and
pp22-27 respectively). This court decided the principal issue in favour of A
& Co. That decision has since been overruled by the House of Lords: see Prudential
Assurance Co Ltd v London Residuary Body [1992] 2 AC 386*. Mr
Hill-Smith accepts that the overruling of Ashburn on that point does not
by itself affect its authority on the distinct issue raised in this appeal.
* Editor’s note: Also reported at [1992] 2 EGLR
56; [1992] 36 EG 129
The judgment of the
court then turned to A & Co’s rights under clause 6, concluding (pp27-28)
that the rights given by that clause were not so uncertain as to be
unenforceable for that reason. The judgment of the court went on, at p28C-G, to
consider whether, and to what extent, A & Co’s rights under clause 6
constituted an overriding interest. I will set out the whole of the judgment on
that point.
Registered land is,
by section 70 of the Land Registration Act 1925, subject to such overriding
interests for the time being subsisting in relation to the land as are therein
referred to. These interests include the rights of every person in actual
occupation of the land or in receipt of the rents and profits thereof save
where inquiry is made of such person and the rights are not disclosed: section
70(1)(g).
In so far as they
relate to the land occupied by Arnold & Co, the provisions of clause 6 of
the 1973 agreement constituted an estate contract which could have been
protected by notice on the register. In fact it was not. But that does not
prevent it being protected as an overriding interest. As to that, we refer to Bridges
v Mees [1957] Ch 475; Webb v Pollmount Ltd [1966] Ch
584 and Kling v Keston Properties Ltd (1985) 49 P&CR 212,
which seem to us to be correctly decided on this point.
An overriding
interest is protected in respect of all rights in registered land of a person
in occupation of the land. Registered land means land, the title to which is
registered: section 3 (xxiv). The land occupied by Arnold & Co at the date
of the sale and transfer to the plaintiff was registered land; it was part of a
larger area comprised in a single title. The overriding interest will relate to
the land occupied but not anything further. Thus, we do not think it can extend
to any area comprised in the single title but not then occupied by Arnold &
Co. Accordingly the existence of the overriding interest does not entitle
Arnold & Co to enforce any rights it may have under clause 6 of the 1973
agreement over any land other than land in its occupation at the time of the
1985 sale and comprised in that sale.
It does not appear
what arguments (if any) were addressed to the court on this point.
The further judgment
given on 25 February 1988 was concerned with working out the practical
consequences of the earlier judgment. Apart from indicating (at p29C) that
Anstalt owned the freehold under several different registered titles, and apart
from hinting (at p30C) at a possible de minimis principle, it does not
bear on the central issue raised in this appeal. It is apparent from both
judgments that the court had a less than complete picture of the rather
complicated conveyancing history.
The three
authorities referred to in Ashburn at p28E were all decisions at first
instance. In Bridges v Mees [1957] Ch 475 Harman J decided that
an overriding interest (in that case, an estate contract) was protected under
section 70(1) of the Act even though it could have been protected by a caution
under section 59. In Webb v Pollmount Ltd [1966] Ch 584 Ungoed-Thomas
J decided that an option to purchase the reversion contained in a seven-year
lease was protected under section 70(1) by virtue of the tenant’s occupation.
In Kling v Keston Properties Ltd (1983) 49 P&CR 212 the
plaintiff had and exercised a right of pre-emption entitling him to take a long
lease of a garage in Flood Street, Chelsea. He was, at the time, licensee of
the garage. Vinelott J held that his right was protected under section 70(1).
Vinelott J followed Bridges v Mees and Webb v Pollmount
in rejecting a submission based on section 59 of the Act.
None of these three
cases was concerned with the situation of a plaintiff who was in occupation of
only part of registered land, but claimed an overriding interest extending to
the whole of it. But in Webb v Pollmount Ungoed-Thomas J
subjected the provisions of the Act to close analysis and discerned principles
that have some bearing on the problem. He said at p597B:
It is vital at this
stage to bear in mind that what we are seeking to ascertain at present is
whether options to purchase are overriding interests or rights within section
70(1)(g), and not what may constitute notice of those rights.
He then quoted from
the judgment of Russell LJ in National Provincial Bank Ltd v Hastings
Car Mart Ltd [1964] Ch 665 at p696, a dissenting judgment, which was,
however, approved in the House of Lords.
Nor should the mind
be in any way distracted by the fact that the owner of the rights under section
70(1)(g) is identified as a person in actual occupation. It is the
rights of such a person which constitute the overriding interest and must be
examined, not his occupation.
Ungoed-Thomas J
continued at pp597-598:
In section 70(1)(g)
itself, notice is covered by the concluding words ‘save where enquiry is made
of such person and the rights are not disclosed.’ Thus, in this very
subsection, ‘the rights’ are contrasted with and therefore are not defined or
ascertained by reference to what constitutes notice of these rights. Notice,
before the Act, is replaced by the express provision relating to notice in
sub-paragraph (g) itself. So, it seems to me, that the question whether
an option to purchase is a right within section 70 (1)(g) has to be
decided independently of what constitute notice of those rights.
In the Hastings
Car Mart case (which went to the House of Lords under the name of National
Provincial Bank Ltd v Ainsworth [1965] AC 1175) the significance of
the distinction between occupation and rights was that, although the deserted wife
was in actual occupation of the former matrimonial home, the quality of her
rights was not such as to be capable of amounting to an overriding interest.
Conversely, in Webb v Pollmount, the tenant’s option to purchase
the reversion was an overriding interest even though it did not (in the
traditional phrase) touch and concern the subject-matter of the lease. His
occupation of the dwelling-house in the character of a tenant did not send out
any obvious message that he also had an option to purchase the reversion.
Nevertheless, that option was protected as an overriding interest because of
his occupation. The same distinction can be seen in the judgment of Brightman J
in London & Cheshire Insurance Co Ltd v Laplagrene Property Co
Ltd [1971] Ch 499 at pp502-503, where a house owner sold his freehold but
remained in occupation as a tenant. His occupation as tenant protected his
unpaid vendor’s lien although it arose from a different transaction. Brightman
J observed (at p503) that the expression ‘registered land’ is not used in the
Act ‘in an exclusively territorial sense’.
Most of these cases
were cited to this court in Hodgson v Marks [1971] Ch 892. In
that case the plaintiff, an elderly widow, transferred her house at Edgware
into the name of her lodger, but remained in occupation of the house, on
exactly the same basis as before, until the lodger sold the house and the
purchaser mortgaged it to a building society. Ungoed-Thomas J dismissed the
plaintiff’s claim to be registered as unencumbered proprietor on the ground
that her occupation was insufficiently apparent. Ungoed-Thomas J’s decision in Webb
v Pollmount was cited to him but not referred to in his judgment,
one passage in which (at p915) seems to be inconsistent with his analysis in Webb
v Pollmount. This court reversed his decision. That was the context
in which Russell LJ (with whom Buckley and Cairns LJJ agreed) said (of the
words ‘in actual occupation of the land’ in section 70(1)(g)) at p931:
The Judge relied on
the correct conclusion that ‘the land’ included part of the land.
In Hodgson v Marks
the plaintiff had remained in actual occupation of the whole house, since her
lodger’s presence in the house was not inconsistent with her being in
occupation of the whole. It would be surprising if there would be a different
result merely because one room in the house had been occupied, not by a lodger,
but by a weekly tenant who had exclusive occupation of it.
The next authority,
in chronological sequence, is Williams & Glyn’s Bank Ltd v Boland
[1981] AC 487, in which Lord Wilberforce delivered the leading speech, from
which I have already quoted an important passage. Boland was concerned
with the same sort of situation as Hastings Car Mart, but with the
crucial difference that the wife had made a substantial pecuniary contribution
to the purchase of the house registered in her husband’s sole name. The House
of Lords held that her equitable interest was not merely a ‘minor interest’
within section 3(xv) of the Act but was also protected as an overriding interest.
The House of Lords approved the decision of Harman J in Bridges v Mees
and the decision of this court in Hodgson v Marks.
This court also
referred to some more recent decisions: Celsteel Ltd v Alton House
Holdings Ltd [1985] 1 WLR 204 (Scott J); Crumpton v Unifox
Properties Ltd (1993) 25 HLR 121* (CA); and Homsy v Murphy
(1997) 73 P&CR 26 (CA). Close study of the facts of these cases shows that
points relevant to this appeal might have been raised and argued, but in the
event there is nothing in the judgments which is of more than peripheral
relevance. Ashburn was not cited in Crumpton or Homsy.
Indeed it seems to have attracted little notice, at any rate on the point
relevant to this appeal: counsel told the court that it is not referred to on
this point in Ruoff and Roper, the leading work on registered conveyancing.
*Editor’s note: Also reported at [1992] 2 EGLR
82; [1992] 46 EG 105
I should make some
reference to the very thorough and detailed discussion of overriding interests
contained in the Law Commission’s Third Report on Land Registration (HC 269)
published in 1987. A recurrent theme of that report is the degree to which the
existence of overriding interests may be a stumbling block in the law of
registration of title, destroying the certainty which registration is intended
to achieve (see generally paras 2.2ff of the report). One paragraph (2.55)
refers directly to the point now at issue:
The reference to
‘land’ in the paragraph does not mean any estate in land but ‘the physical
land’. (1) Further, the reference should be construed as being to ‘the land or
any part thereof’. (2) So far as we are aware here, this aspect causes no
difficulties in practice although these might easily be envisaged with large
estates. Plainly a provision relating or restricting the occupier’s overriding
rights to his or her unit of occupation within the land comprised in registered
title would inevitably introduce complexities. (3) On consultation and from
elsewhere we have received no suggestions for change here beyond mere
clarification of the construction judicially indicated.
I have renumbered
the footnotes of which (1) refers to Webb v Pollmount, (2) refers
to Hodgson v Marks, and (3) begins ‘eg where there is exclusive
occupation of a room and use of the rest of a dwelling ; cp Hussey v Palmer
[1972] 1 WLR 1286. See also Celsteel…’ So in 1987 the Law Commission
understood the state of the law to be different from what this court decided in
Ashburn.
The judge set out
the relevant statutory provisions and said that, had the matter been free from
authority, he would have rejected the submission of Wallcite’s counsel that his
client was not bound by the option so far as it related to the garage. In the
judge’s view (echoing Ungoed-Thomas J in Webb v Pollmount) that
would be to confuse the right with the occupation. But the judge took Ashburn
to have decided that the protection afforded by section 70(1)(g)
related only to the part of the site occupied by the defendants, not to the
rest of the site. The judge rightly treated himself as bound by that, as an
essential part of the decision of the Court of Appeal unaffected by the
subsequent decision of the House of Lords in the Prudential case. The
judge himself raised, but then (rightly, in my view) rejected an alternative
argument that Ferrishurst might have put forward under section 70(1)(k).
Mr Hill-Smith
submitted on behalf of Ferrishurst that Ashburn was distinguishable or,
if indistinguishable, should not be followed. His submissions aimed at
distinguishing the case were not pressed very hard. He pointed out that in Ashburn
the new premises (‘a shop in a prime position at the development’) might
not have coincided at all with the premises (126 and part 124 Gloucester Road)
occupied by A & Co at the time of the sale to Anstalt. Mr Staddon on behalf
of Wallcite submitted that the decision is plainly indistinguishable.
I have already noted
that in Ashburn this court had difficulty in piecing together the rather
complicated conveyancing history from rather inadequate evidence. Fox LJ
referred ([1989] Ch at p28F) to ‘a larger area comprised in a single title’,
but it is not entirely clear which area or which title he was referring to.
Cavendish was stated (at p5D) to have acquired the reversion to the headlease
together with other adjacent land. The headlease was stated (at p6F) to have
merged in the freehold in 1979, and in the second judgment at p29C Fox LJ
referred to Anstalt as owning a block of property — larger, it seems, than 122,
124 and 126 Gloucester Road — under several different registered titles. It is
therefore a matter of conjecture how many registered transfers were made under
different title numbers when Legal & General sold to Anstalt in 1985. But
on any plausible view of the facts one registered transfer must have comprised
(with or without other land) the freehold of the premises that A & Co was
occupying and other freehold premises (122 and the remainder of 124) that it
was not occupying. The fact that A & Co’s claim might not have related to
any part of the premises formerly in its occupation would, in my judgment, be
an insubstantial and unsatisfactory ground for distinguishing Ashburn.
Mr Hill-Smith’s main
submission was that Ashburn was wrongly decided and that this court was
entitled not to follow it either on one or more of the tests in Young v Bristol
Aeroplane Co Ltd or under the residual principle described in Rickards v
Rickards [1990] Fam 194 at pp203-204. He submitted that this court’s
decision was per incuriam because no reference was made to sections 20
and 23 of the Act. He also submitted that the decision was inconsistent not
only internally (so far as Webb v Pollmount was concerned) but
also (and more significantly) with the reasoning in the decisions of the House
of Lords in National Provincial Bank v Ainsworth (on appeal from National
Provincial Bank v Hastings Car Mart) and Williams & Glyn’s
Bank v Boland.
I cannot accept the
first of these submissions. Neither of the judgments given by this court in Ashburn
refers expressly to section 20 or section 23, but it is inconceivable that
those sections were not in the court’s mind. They mesh in with section 70(1) as
a crucial part of the machinery of the Act.
Mr Hill-Smith’s
other submission does however call for serious consideration. In Ashburn this
court was referred to, and cited in the first judgment, Bridges v Mees,
Webb v Pollmount and Kling v Keston Properties. They
were however cited for the proposition (by now uncontroversial) that an
interest may be protected as an overriding interest even though it might have
been protected by alternative means. The court was not referred to the decision
of the House of Lords in Boland (or to the decision of this court in Hodgson
v Marks which, like Webb v Pollmount, was approved in Boland).
That does not imply any criticism of the experienced counsel engaged in Ashburn.
It is quite clear from the balance of the main judgment (though not from
counsel’s arguments, which unfortunately are not reported) that the two issues
on clause 5 loomed very large, with the further issues on clause 6 coming in at
the end of a long and difficult case. The decision of the House of Lords in Ainsworth
was extensively referred to, but only on the principal issue on clause 5
which takes up the lion’s share of the main judgment.
Mr Paul Staddon
rightly urged on this court the importance of the principle of stare decisis,
especially in an area such as the law of real property in which certainty of
titles is of such importance. I hope that I do not underestimate the importance
of that principle, although as to certainty of titles I note that in 1987 the
Law Commission understood the law to be different, and the decision on this
point in Ashburn seems to have received little attention (whether in the
way of approbation or otherwise) from learned commentators. I have come to the
conclusion that this court can and should examine the decision to see whether
it can stand with the reasoning of the House of Lords in Boland and
their lordships’ approval of the reasoning in Webb v Pollmount and
Hodgson v Marks.
Mr Staddon further
submitted that the decision on section 70(1)(g) in Ashburn, if
re-examined, is plainly right. Otherwise, he said, absurd results would follow.
He suggested (possibly taking a hint from para 2.55 in the Law Commission
report) the example of a tenant of a small flat in the Barbican in the City of
London, who happened to have an option to purchase the freehold reversion to
the entire Barbican estate, neither the lease nor the option being noted
against the freehold title. That would, he suggested, mean that so long as he
was in actual occupation of his flat, his option would bind a purchaser of the
freehold of the entire estate; and also, he suggested, any tenant who
subsequently took a lease of another flat in the Barbican.
The example is
rather far-fetched but it still merits consideration. A purchaser of the entire
Barbican estate would undoubtedly be advised by his solicitors that he should,
before completion, make inquiries of every person who appeared to be in actual
occupation of any part of the estate. Whether he would follow that advice to
the letter would be up to the purchaser. He might prefer to rely on his rights
against the vendor, who would presumably not be impecunious. In Boland Lord
Wilberforce (at p508) recognised that the existence of overriding interests
within the system of registered conveyancing might be troublesome for purchasers,
but said:
What is involved is
a departure from an easy-going practice of dispensing with enquiries as to
occupation beyond that of the vendor and accepting the risks of doing so. To
substitute for this a practice of more careful enquiry as to the fact of
occupation, and if necessary, as to the rights of occupiers can not, in my view
of the matter, be considered as unacceptable.
As to one tenant’s
option to purchase the entire estate binding any tenant who subsequently takes
a (registered) lease of another flat, that absurdity would be produced only if
‘the land’ in section 70(1)(g) were taken to mean the whole of the land
comprised in the landlord’s freehold title. But it seems to me clear, when
section 70(1) is read with section 20 or section 23, that the land must mean
(in this example) the other flat. An incoming tenant must make sure that no one
is in actual occupation of the whole or any part of the flat that he is taking;
he is not required to attempt to do the same in respect of every other unit of
accommodation within the landlord’s title.
A greater absurdity,
to my mind, would be if a tenant holding under an (unregistered and unnoted)
lease of a house that contained an option to purchase the reversion were
defeated because a small (but not wholly insignificant) part of the house were
occupied, not by a lodger who shared occupation, but by a subtenant who was in
sole occupation of that part. However, this point cannot be determined by
competing anomalies or absurdities. It is apparent that, on either view,
matters that are little more than coincidence (such as the number of registered
titles under which a block of land was acquired, and any subsequent
consolidation or subdivision of titles) may operate in a rather arbitrary way
to affect the enforceable rights of occupiers. It is necessary to see what
principles as to the meaning and effect of the Act emerge from Boland (and
authorities approved in Boland). If (contrary, it seems, to the view of
the Law Commission) the application of those principles leads to unacceptable
anomalies in practice, that would be a matter for parliament (no doubt after
further consideration by the Law Commission).
Having already
discussed the authorities at length I will set out quite shortly the principles
that can, in my view, be extracted from them.
(1) The function of
overriding interests in registered conveyancing is comparable to that of notice
(actual, constructive or imputed) in unregistered conveyancing, but there are
significant differences and the burden on a purchaser to make inquiries is now
heavier than before.
(2) The rights of an
occupier of registered land are to be distinguished from the fact of his
occupation. The capacity in which a person occupies (for instance, as a tenant)
need not be indicative of the right that he claims (or instance, an option to
purchase the freehold reversion or an unpaid vendor’s lien).
(3) The occupier
need not (in order to rely on section 70(1)(g)) be in actual occupation
of the whole of the land comprised in a registered disposition (whether that
disposition is from the registered proprietor’s point of view a transfer of the
whole, or a transfer of part, or a demise or other disposition taking effect in
relation to the whole or part).
Having anxiously
read and reread the penultimate paragraph of the main judgment in Ashburn (p28E-G)
I feel satisfied that had the court been referred to the House of Lords’
authority that now establishes those points, it would not have decided the case
as it did. Instead, it would have put together the three points set out above
and extracted a fourth point as a conclusion, that a person in actual
occupation of a part of the land comprised in a registered disposition can
enforce against the new registered proprietor any overriding interest that he
has either in the land (or part of the land) occupied by him or in the
remainder (or part of the remainder) of the land comprised in the registered
disposition in question.
I would therefore
allow this appeal and make an order for specific performance damages in favour
of Ferrishurst. The judge dealt very elaborately indeed with the pecuniary
consequences that would have followed had he not been bound by Ashburn,
and had he made an order for specific performance. In this part of his judgment
the judge covered both adjustments on completion (which would normally be dealt
with, so far as necessary, in chambers proceedings working out a decree of
specific performance) and damages for delay. Those figures are now seriously
out of date. Moreover, the figures seem to have gone awry at p53F, where the
figure of £26,312 reflects the judge’s actual (and not his hypothetical) order.
That seems to have led to the further error of striking a balance between a
figure for damages and what should have been a figure for interest, and
allowing statutory interest only on the balance, which is not setting off like
against like.
It is not
appropriate for this court to go into all those matters, especially as counsel
had insufficient time to make detailed submissions on them. It is to be hoped
that the parties, with the help of their solicitors and counsel, will now be
able to resolve these matters without the need for further protraction of this
expensive litigation. But if and so far as that cannot be achieved, I would
remit the matter to Central London County Court for any necessary working out
of the order for specific performance and assessment of damages in addition to
specific performance. Damages should be assessed in accordance with the detailed
findings of fact already made by the judge, and it may be appropriate (although
I would not positively direct) that the assessment should be made by Judge
Wakefield himself rather than by a district judge.
Thorpe and Stuart-Smith
LJJ agreed and did not add anything.
Appeal allowed.
