Land registration – Alteration of register – Rectification for mistake – Schedule 4 to Land Registration Act 2002 – Freeholder of building purporting to forfeit respondent’s leases of roof space for non-payment of ground rent – Respondents’ titles closed and removed from leases schedule to freehold title – Lease of entire roof space created and assigned to appellant – Respondents held to be entitled to rectification of register by reinstatement of their leases on ground that no forfeiture actually occurring – Whether court having power to order that reinstated leases having priority over appellant’s lease – Effect of para 8 of Schedule 4 to 2002 Act – Appeal dismissed
In 1988, the respondents and two others acquired a three-storey house in North Kensington, London and divided it between them on four 135-year leases, with the respondents each taking a lease of half the roof space. In 1999, a property developer acquired title to the lower two floors and converted them into four flats. The first and second respondents retained title to their respective parts of the roof space under new leases created in 2000 and entered on the leases schedule to the freehold title.
The developer, who wanted to convert the roof space into more flats, orchestrated a series of events to acquire the respondents’ without paying for them. In 2009, his son acquired the freehold of the property and purported to forfeit the respondents’ leases by re-entry for non-payment of ground rent. In July 2009, the Land Registry allowed an application for closure of the respondents’ titles on the grounds of forfeiture of the leases. The register and leases schedule were amended accordingly.
Meanwhile, a lease of the whole roof space was granted to a company controlled by the developer’s business associate and was duly registered and entered on the leases schedule assigned. That lease was then assigned successively to two companies owned and controlled by the developer, ending up with the appellant, the second of those companies.
The respondents applied, through their attorneys, to reinstate their leases by rectification of the register under para 2(1)(a) of Schedule 4 to the Land Registration Act 2002. The judge found that there had been no physical re-entry to the roof space and that the ground rent had been effectively tendered such that no forfeiture had occurred. He held that the closure of the leases had therefore been a mistake which should be rectified by reinstating those titles as if they had never been closed, in priority to the appellant’s roof space lease.
The appellant appealed. It did not dispute that the closure of the respondents’ titles had been a “mistake” within the meaning of para 2(1)(a). Its primary contention was that, even if the leases were reinstated on the register, they should not take priority over the appellant’s lease since rectification could not operate retrospectively.
Held: The appeal was dismissed.
The respondents’ and the appellant’s leases were “derivative interests” affecting the registered freehold title and therefore fell within para 8 of Schedule 6 to the 2002 Act, which empowered the court, when altering the register by way of rectification, to change “for the future the priority of any interest affecting the registered estate or charge concerned”. Para 8 of Schedule 6 applied where, at the point of rectification, there were two competing derivative interests, the first of which had been mistakenly omitted or removed from the register but was to be reinstated to correct that mistake. Subject to the effect of the rectification, the second interest would have priority since it had been created before the restoration of the first interest to the register. The primary effect of para 8 was to confirm that the power of the court or the registrar in that situation was not limited to restoring the first interest to the register but extended also to changing what would otherwise be the priority between it and the second interest; in other words, giving to the first interest the priority that it should have had but for the mistake.
The qualification to that power, permitting priorities to be changed only “for the future”, did not prevent the court from altering the priority of an interest which had been registered after the mistake but before the rectification and which would otherwise enjoy priority. Any such restriction would prevent the court from changing priorities in the very situation that para 8 was intended to address and would mean that, in all cases where derivative interests had been created during the period of mistaken de-registration, the correction of the mistake would be less than complete and would in some cases be valueless. Instead, the words “for the future” simply meant that the beneficiary of the change in priority, namely, the person whose interest had been restored to the register, could exercise its rights as owner of that interest, to the exclusion of the owner of the competing interest, as from the moment that the order was made but could not be treated as having been entitled to do so up to that point. The concept of priority bit at the moment when the rights were sought to be enjoyed. The effect of the judge’s order was to entitle the respondents thenceforward to exercise their rights as leaseholders to the exclusion of the appellant; but, until that point, they had no such right and could not, for example, claim mesne profits from the appellant in respect of any occupation of the roof space up to that date.
In reaching that conclusion, the court took into account that section 82(2) of the Land Registration Act 1925, the predecessor of the 2002 Act, had conferred a power to remove from the register a derivative interest created by a person who at the material time was, albeit as the result of a mistake, the registered proprietor, so that in that sense the court could make a “retrospective” order: Argyle Building Society v Hammond (1984) 49 P&CR 148, reported on appeal as Norwich & Peterborough Building Society v Steed [1993] Ch 116, applied; Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2001] EWCA Civ 151; [2002] Ch 216; [2002] PLSCS 46 and Freer v Unwins Ltd [1976] Ch 288 not followed to the extent that they held the contrary. The 2002 Act had not been intended to alter the law in that respect. Schedule 4 to the 2002 Act was concerned with “correcting” mistakes in the register and the power to do so extended to correcting the consequences of such mistakes. If the power to correct the original mistake extended to removing a derivative interest registered during a period where a relevant freehold interest was wrongly omitted from the register, there was no reason of principle or policy why the same should not apply where the conflict was between two derivative interests. In both cases the essential issue was the same, namely whether an interest created during the period of mistaken de-registration could be prejudiced by the reinstatement of an interest to which it would have been subject but for that mistake: Knights Construction (March) Ltd v Roberto Mac Ltd [2011] 2 EGLR 123 applied; Barclays Bank plc v Guy [2008] EWCA Civ 452; [2008] 2 EGLR 74 and Barclays Bank plc v Guy (No 2) [2010] EWCA Civ 1396; [2011] 1 WLR 681; [2010] PLSCS 312 considered.
The judge had been entitled to make the order he did and had been entitled to find that there were no exceptional circumstances that would justify a refusal to rectify. The effect of his order was that the respondents and their successors in title would enjoy the right to occupy the roof space under their respective leases in priority to the appellant, whose interest will be reversionary only; that interest would therefore be practically valueless save in the unlikely event of a future termination of the respondents’ leases short of their terms.
Philip Brown (instructed by direct access) appeared for the appellant; Kerry Bretherton and Robert Bowker (instructed by Coles Miller Solicitors LLP, of Bournemouth) appeared for the respondents.
Sally Dobson, barrister
