For its annual student essay competition, the Property Bar Association asked the lawyers of the future whether the current system of land registration works. Michal Hain took first prize with this critique of the process
The key promise of the Land Registration Act 2002 – the “Conveyancing Revolution” heralded by the Law Commission – remains unfulfilled. To the extent that it sought to create “a system of electronic dealing with land”, the Act has been a failure. Yet it undoubtedly revolutionised the English law of property. The current system of title by registration enshrines three important principles: the register serves as an accurate and complete mirror of title, the purchaser need not look behind the curtain to discover trusts and equities that are overreached, and insurance is provided to those who suffer loss as a result of an inaccurate reflection in the mirror. Nonetheless, the Law Commission’s objective to create a “complete and accurate” register breaks down along two all-important fault lines: overriding interests and rectification. These tensions provide the framework for assessing the current system’s successes and failures.
Overriding interests
The idea of a perfect mirror conflicts with countervailing policy factors in favour of pre-existing interests binding disponees despite their lack of registration. Recognising overriding interests as “a very significant impediment to one of the main objectives of the Bill”, the Law Commission sought to restrict them “so far as possible”. It articulated a “guiding principle… that interests should be overriding only where it is unreasonable to expect them to be protected in the register”. There are three categories of overriding interests:
i. Legal leases of less than seven years’ duration (“short leases”);
ii. Impliedly granted legal easements if the disponee has actual knowledge of their existence, they are obvious on a reasonably careful inspection of the land, or they have been exercised in a year preceding the disposition; and
iii. Interests held by persons in actual occupation unless occupation is not obvious on a reasonably careful inspection and the disponee does not have actual knowledge of it.
This raises an obvious question: Are they justified by the Law Commission’s guiding principle?
Leases for a maximum of three years can be created informally if they are at the “best rent reasonably obtainable without taking a fine” and take effect in possession (the Law of Property Act 1925, section 54(2)). Such orally created leases cannot reasonably be expected to be registered. Moreover, the best rent requirement – functionally, an indemnity – protects the purchaser. Similarly, it is unreasonable to expect the registration of impliedly granted easements. Accordingly, these overriding interests fall squarely within the Law Commission’s guiding principle.
An additional argument applies to short leases. Since even formally created legal leases of less than seven years’ duration are not registrable dispositions, the register does not purport to reflect their existence. Their protection is therefore consistent with this wider statutory scheme and is further reinforced by the Law Commission’s “policy… to keep the register free of such leases because of their short duration and the risk that they would clutter the register” – a concern that would fall away with the introduction of e-conveyancing.
Interests held by actual occupiers are of a different kind and so is the justification for their inclusion. Occupation is the trigger for, not the subject of, protection. The scope of protection is determined by the factual position of the right holder, not the type of property right: subject to the rules of overreaching, any proprietary interest is protected if its holder is in actual occupation. It follows that these interests are overriding because a purchaser can reasonably be expected to discover their existence as opposed to how unreasonable it would be to expect them to be registered.
Rectification
The Land Registration Act 2002 creates a system of guaranteed, rather than absolutely indefeasible, title. As Aruna Nair recognised (Nair, “Morality and the Mirror” in Bright (ed), Modern Studies in Property Law, Hart Publishing, 2011), “conclusiveness and accuracy of the register are competing policy goals”. The law of property sometimes has to choose between two innocent parties in what may seem like a zero-sum game. Fortunately, the current system avoids the pitfalls of this all-or-nothing approach by financially compensating the losing party.
Rectification is defined as an alteration to the register that corrects a mistake and prejudicially affects the title of a registered proprietor. But a mistake does not guarantee rectification. The current registered proprietor in possession is protected from an alteration unless he has, by fraud or lack of care, caused or substantially contributed to the mistake, or it would for any other reason be unjust not to change the register. The party who loses out as a result – ie anyone who suffered loss by reason of a rectification of the register or a mistake whose correction would involve rectification of the register – is protected by an indemnity.
This can be contrasted with the position of a disponee bound by an overriding interests who is generally left out of pocket. Since the disponee is bound by the pre-existing right regardless, he is not “prejudicially affected”. Nevertheless, the Court of Appeal in Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 330; [2015] EGLR 42 held that paragraph 1(2)(b) of Schedule 8 overrode this principle so that an indemnity was payable even though the occupier’s right to have a forged disposition set aside had taken effect as an overriding interest. Importantly, Swift illustrates a broader point: rectification and overriding interests are not hermetically sealed. Cross-fertilisation is possible; indeed, it would be desirable. In 2013-14, £11.2m out of a total revenue of £381.3m was spent on indemnities. Meanwhile, the Land Registry enjoyed a surplus of £135.1m (McFarlane et al, Land Law: Text, Cases and Materials, Oxford University Press, 2015). This flexibility should be exploited to improve the current system by making more creative use of indemnities, particularly in the context of overriding interests.
Conclusion
As the current system of land registration tackles the divergence between the allocation of rights by the common law and the register – the so-called “bijural ambiguity” – it has to balance the Law Commission’s aim for a “complete and accurate” register against countervailing policy factors. The mirror has cracks but remains intact. It works.
Michal Hain is studying on the bar professional training course at City Law School
■ Read the second and third-placed essays here
Competition exceeds expectations
The Property Bar Association revealed the results of its second annual student essay competition at its Bar & Bench party on 27 April. Originally intended to be a biennial competition, the success of last year’s inaugural event exceeded all expectations.
As a result, it is now an annual fixture in professional and academic calendars.
This year, the PBA posed the question: “Does the current system of land registration work? Give examples of its failings/efficacy.” The first-round marking panel whittled entries from across the country down to three finalists, and their essays were graded by law commissioner Nick Hopkins, and principal judge of the Land Registration Division of the First-tier Tribunal (Property Chamber), Elizabeth Cooke.
Michal Hain, of City Law School, took first prize – £1,000, a copy of Megarry & Wade and publication in EG – for an essay which the judges felt “gets the furthest into the authentic thinking behind the Land Registration Act 2002 and was able to drill down into the history of the Act to develop the arguments made”.
They said: “It also excelled at the direction in the question to give examples and contains some imaginative and sophisticated arguments.”
Harrison Fookes, of Corpus Christi, Cambridge, claimed second place and £500, for an essay that took a “refreshingly creative approach to the Act”, while Daniel Petrides, of City Law School, took third and £250 with an “ambitious argument” which the judges “enjoyed and found to be very thought-provoking”.
The two runners-up also received copies of Megarry & Wade, and publication of their essays on the EG website.
