Legal notes Allyson Colby reviews the courts’ power to rectify the register
Key points
• Titles registered under the Land Registration Act 2002 are not indefeasible.
• The courts’ power to rectify the register includes the power to restore priority to an interest that has been wrongly deregistered.
One of the objectives that underpinned the Land Registration Act 2002 (the “2002 Act”) was that the registers of title kept by the Land Registry “should be a complete and accurate reflection of the state of the title to land at any given time”. In addition, the effect of registration is that title is deemed to be vested in the registered proprietor and, once registered, title is guaranteed.
Theoretically, this ought to mean that third parties can rely on the register, without fear of any nasty surprises. However, the protection is not absolute. Land may be subject to an overriding interest (although buyers can inspect and make searches and enquiries to minimise the danger of discovering encumbrances that are not recorded on the register). The fact that the legislation contains provisions enabling the court to correct mistakes on the register may be of greater concern, because they may be difficult to uncover. Therefore, we need to understand the scope of the courts’ jurisdiction to rectify mistakes where third parties have acquired an interest in land in reliance on the register. MacLeod v Gold Harp Properties Ltd [2014] EWCA Civ 1084; [2014] PLSCS 228 is an authoritative decision that will help to clarify the law in this area.
Snakes and ladders
The litigation was triggered by a sequence of events, orchestrated by the freeholder of a house that had been converted into flats, which, he hoped, would enable him to acquire the roof space for development without paying for it. The freeholder instructed bailiffs to forfeit the leases of the roof space, which was unoccupied, by peaceable re-entry on the ground that the tenants had failed to pay their rent on time. Soon afterwards, he asked the Land Registry to close the leasehold titles and to remove all reference to the leases from the freehold register. While this was done, he granted a long lease of the roof space to a company that he controlled, which was duly registered and assigned to other companies within his control.
The owners of the leases that had been deregistered asked the court to restore them to the register – and won. The trial judge decided that the attempt to forfeit the leases had been ineffective and agreed that they should be restored to the register with priority over the newly created lease. The ruling deprived the proprietor of the new lease of its right to possession. This turned the lease into a reversionary interest and stripped it of most of its value.
The registered proprietor of the new lease appealed against the decision. It relied on a provision in paragraph 8 of schedule 4 of the 2002 Act, which states that the courts’ power to rectify the register extends “to changing for the future the priority of any interest affecting the registered estate”. It argued that this means that rectification of the register operates prospectively and claimed that retrospective rectification would do violence to the integrity of the register.
Misleading terminology
The Court of Appeal considered the position under the 1925 legislation and subsequent Law Commission reports, and explored differing opinions about the effect of the 2002 Act in leading textbooks. It also reviewed a long line of conflicting authorities before deciding that the power to rectify the register includes the power to restore priority to an interest that has been wrongly deregistered and has, as a result, lost out to a competing interest created in the interim.
The court ignored the terminology commonly used to describe the impact of paragraph 8, which focuses on whether rectification operates “prospectively” or “retrospectively”, and chose instead to concentrate on the meaning of the words used in the statute. It explained that paragraph 8 enables the court to change the priority of an interest and, if it cannot do so in cases where derivative interests have been created during a period of mistaken deregistration, any subsequent correction would be incomplete and, in some circumstances, worthless.
Their Lordships cited Argyle Building Society v Hammond (1984) 49 P&CR 148 and Knights Construction (March) Ltd v Roberto Mac Ltd [2011] 2 EGLR 123 in support of their decision. They also drew comfort from acknowledgments in the Law Commission reports that the 2002 Act was not intended to provide for absolute indefeasibility of titles to land, and from the provisions in schedule 4 itself. They observed that the provisions dealing with rectification of the register were carefully structured to provide special protection for proprietors in possession and to allow the court to strike a fair balance between competing interests, leaving the losers to claim an indemnity from the Land Registry under schedule 8 of the 2002 Act if they can.
These protections did not apply here, because the trial judge ruled that the owner of the newly created lease had never been in possession of the roof space. However, when the protections apply, the Land Registry must obtain the proprietor’s consent before making any corrections that would prejudicially affect its title, unless it fraudulently or negligently caused or substantially contributed to the mistake or it would be unjust not to make the alteration. The court must also consider whether there are any exceptional circumstances before rectifying the register; there were no such circumstances here.
For the future
How then are we to interpret the words “for the future” in paragraph 8? Their Lordships interpreted them to mean that the persons whose interests are restored to the register will be entitled to exercise their rights from the moment that an order for rectification is made – but not retrospectively in respect of periods that pre-date such an order.
Therefore, the owners of interests that are restored to the register will be entitled to assert their priority over interests created in the period of mistaken deregistration. However, they will not be entitled to hold the owners of interests that are displaced responsible for what happened before the register was rectified: for example, for mesne profits, or for demolition work, or for breaches of a restrictive covenant that has just been restored to the register.
The judgment should help to untangle the law in this area. Meanwhile, the Law Commission is embarking on a review of the legislative provisions that guarantee title to registered land and deal with rectification of the register and plans to publish a report, together with a draft bill incorporating its recommendations for reform, in three years time.
Allyson Colby is a property law consultant
