The effect of registration under the Land Registration Act 2002 is that title is deemed to be vested in the registered proprietor. In addition, once registered, title is guaranteed. However, the protection is not absolute. Registered titles may be affected by overriding interests. In addition, the legislation contains provisions enabling the court to correct mistakes on the register. Therefore, we need to understand how the legislation operates and what indemnities are available from the Land Registry in such cases.
Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 330; [2015] PLSCS 112 concerned a legal charge that was removed from the register following the discovery that it had been forged. The registered proprietor of the land was in possession of the property at the time of the disposition and, as a result, her right to obtain rectification of the register took effect as an overriding interest as against the lender: Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151.
Malory, which was followed in Fitzwilliam v Richall Holdings Services Ltd [2013] EWHC 86 (Ch), is also authority for the proposition that, where a disposition has been forged, the transferee or chargee never receives more than the bare legal estate, which it holds on trust for the original registered proprietor, who retains beneficial ownership of the property. The decisions have been subjected to much criticism. If they were correct, the removal of entries on the register made as a result of a forgery will constitute an alteration to – and not rectification of – the register, which would have had serious consequences for the proprietor of the charge in Swift.
The 2002 Act includes provisions that deal specifically with the position where the register is rectified and the proprietor of a registered estate or charge claims in good faith under a forged disposition. In such cases, the proprietor is treated as having suffered loss as if the disposition had not been forged: paragraph 1(2)(b) Schedule 8.
If Malory had been correctly decided, the lender would not be entitled to an indemnity from the Land Registry in Swift because the register had not been rectified; it had simply been altered to bring it up to date. However, the Court of Appeal refused to follow the decision that a disponee under a forged disposition is a trustee of the bare legal estate, on the ground that this aspect of the decision in Malory was incorrect.
Consequently, the court had to consider whether the lender was entitled to rely on the indemnity provisions in schedule 8 of the 2002 Act in view of the fact that the register had been amended to give effect to a binding overriding interest. Having overcome the hurdle of the decision in Malory, the court decided that the circumstances in which the overriding interest was being enforced were precisely those contemplated in paragraph 1(2)(b). Therefore, the lender was entitled to an indemnity from the Land Registry following the loss of its registered charge.
The Law Commission is reviewing aspects of the 2002 Act and has indicated that it plans to address how the rectification and indemnity provisions operate, with the intention of publishing a report, together with a draft bill incorporating recommendations for reform, in due course. Practitioners await both with much interest.
Allyson Colby is a property law consultant
