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.
The following cases are
referred to in this report.
Ashburn Anstalt v
Arnold (No 2) [1989] Ch 1; [1988] 2 WLR 706; [1988] 2 All ER 147; (1988)
55 P&CR 137; [1988] 1 EGLR 64; [1988] 23 EG 128, CA
Bridges v Mees
[1957] Ch 475; [1957] 3 WLR 215; [1957] 2 All ER 577
Celsteel Ltd v Alton
House Holdings Ltd [1985] 1 WLR 204; [1985] 2 All ER 562
Crumpton v Unifox
Properties Ltd [1992] 2 EGLR 82; [1992] 46 EG 105; (1993) 25 HLR 121, CA
Hodgson v Marks
[1971] Ch 892; [1971] 2 WLR 1263; [1971] 2 All ER 684; (1971) 22 P&CR
586
Homsy v Murphy
(1997) 73 P&CR 26, CA
Hussey v Palmer
[1972] 1 WLR 1286; [1972] 3 All ER 744, CA
Kling v Keston
Properties Ltd (1983) 49 P&CR 212
London & Cheshire Insurance Co Ltd v Laplagrene Property Co Ltd [1971] Ch 499; [1971] 2 WLR
257; [1971] 1 All ER 766
National Provincial Bank Ltd v Ainsworth [1965] AC 1175; [1965] 3 WLR 1; [1965] 2 All ER
472, HL; reversing sub nom National Provincial Bank Ltd v Hastings Car Mart
Ltd [1964] Ch 665; [1964] 3 WLR 463; [1964] 3 All ER 93, CA
Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386; [1992] 3 WLR 279; [1992]
3 All ER 504; [1992] 2 EGLR 56; [1992] 36 EG 129, HL
Rickards v Rickards
[1989] 3 WLR 748; [1989] 3 All ER 193, [1990] Fam 194, CA
Webb v Pollmount
Ltd [1966] Ch 584; [1966] 2 WLR 543; [1966] 1 All ER 481
Williams & Glyn’s Bank Ltd v Boland [1981] AC 487; [1980] 3 WLR 138; [1980] 2 All ER
408; (1980) 40 P&CR 451, HL
Young v Bristol
Aeroplane Co Ltd [1944] KB 718; [1944] 2 All ER 293
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) 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
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
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
Wallcite for £22,500, and Wallcite became the registered proprietor under title
number 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
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 Ltd 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 the 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 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 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
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
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 that 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
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 that 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
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 1 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
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 (for 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, 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.
