‘The priorities rules in the Land Registration Act 2002 are too readily undermined
by doctrines outside the land registration system.’
Do you agree? Provide reasons for your answer.
A. Introduction
In the conveyancing of a property from one legal owner to another there are many
intricacies which take place that are not necessarily immediately discernible. The land
registration system comes in to draw the potential purchaser’s attention to, with hope,
all the rights attached to the land (this cannot be stated with certainty as there are
rights which still may be unregistered). With this knowledge, purchasers can make an
informed decision on the acquirement of the property as the rights which are attached
to it have been made clear and are therefore more straightforward to attend to. But,
even when they are made transparent, the interests which are attached to an estate
may give rise to many individual right holders whose rights arose at various times
which can complicate the act of conveyancing even more. The priorities rule comes in
to aid in this issue and to make the process simpler and assist the purchaser in an
orderly acquisition of the estate while being aware of all the different owners as well
as their distinctive rights and when they arose. There are doctrines outside of the land
registration system that effectively undermine this critical rule. In my view, the priorities
rule should be treated as a golden rule because of the benefits reaped from it. In the
next few paragraphs, I will elaborate on these doctrines and how they bring about
these implications.
B. The ‘Scintilla Temporis’ and Commercial Model
The original strict theory of ‘Scintilla temporis’ asserted that there is a slice of time in
which the purchaser has made the acquisition, but the mortgage charge has not yet
been created. This generated a moment in time in which other interests could arise
such as a trust and beneficial interests under it. The purpose of this doctrine was to
protect the mortgage lender and facilitate the free flow of capital through the sale and
mortgage of property. The ‘Scintilla temporis’ concept can be used in manipulative
manners by intentionally granting interests before the mortgage charge is registered
so as to give those interests priority over the mortgage charge and subsequently
undermining the mortgage charge, causing the bank to possibly be unwilling to enter
into such situations in the future, as a bank has no interest to enter into a mortgage
charge which has such limits imposed on it. This model therefore takes away from the
importance of the priorities rule and undermines it by essentially establishing a
loophole to avoid it. However, this model was later rejected in the case of Abbey
National Building Society v Cann1. As stated by Lord Oliver, ‘The acquisition of the legal
estate is entirely dependent upon the provision of funds which will have been provided
before the conveyance can take effect and which are provided only against an
agreement that the estate will be charged to secure them.’2 Without a mortgage
charge, the purchase of the land would not have been able to have been secured,
therefore the charge should be given precedence over any other rights. The HL held
that if it had applied the ‘Scintilla temporis’ model, it could have put an end to banks
offering purchase mortgages which would have had catastrophic effects on the
property market. This repudiation was further supported in Ingram v IRC3 where Lord
Hoffmann stated that ‘For my part, I do not think that a theory based upon the notion
of the scintilla temporis can have a very powerful grasp on reality’.4
Despite the fact that the ‘Scintilla temporis’ approach was ultimately rejected and
consequently no longer affected the priorities rule, it nevertheless opened the
floodgates for alternative doctrines with undermining qualities such as the commercial
model. This approach was advantageous to banks and mortgage lenders as it asserted
that the mortgage charge was the earliest right and will take priority over any other
rights that rose from the property. As stated by Jonathan Parker LJ, courts should ‘have
regard to the substance, rather than the form of the transaction…conveyancing
technicalities must give way to considerations of commercial and practical reality.’ 5 It
is important to note, as the Cann case came before the Land Registration Act 2002,
that this model was later additionally affirmed in the case of Scott v Southern Pacific
Mortgages Limited6. As contended by Lord Collins in this case, ‘there is also an
important public interest in the security of registered transactions.’7 This ensures the
absolute nature of property rights as by registering them, they are made inalienable
from the land and are legally enforceable against the world.
However, this idea can be said to undervalue the rights of weaker parties by strongly
favouring the interests of banks and mortgage lenders. As their interests will always
arise first according to this model, whatever the circumstances, any other rights
attached to the legal estate will automatically be weakened. Both these doctrines,
‘Scintilla temporis’, and the commercial model greatly undermine the priorities rule as
they both have the effect of offering alternative measures in order to re-establish the
order of rights attached to a certain property.
C. Overreaching interests
1
[1991] 1 AC 56 (HL)
[1991] 1 AC 56 (HL) (para. 92-93)
[2000] 1 AC 293
4
[2000] 1 AC 293 (para. 303)
5
Whale v Viasystems [2002] EWCA Civ 480 (para. 72)
6
[2015] AC 385
7
[2015] AC 385 (para. 25)
2
3
In the conveyance of land by trustees, the purchaser takes it free of certain equitable
interests. Most importantly, the beneficiary’s interest under a trust. This doctrine is laid
out in the LPA 1925.8 This model allows for certain interests efficaciously being
removed from the land with no regard whatsoever for the priorities rule. The
overreaching rules also specifically undermine sch.3 para.29 of the priorities rule, as
opined by Peter Gibson LJ in the case of State Bank of India v Sood, ‘it might be thought
that beneficiaries in occupation are insufficiently protected’.10Overreaching is a
mechanism which renders the priorities rule obsolete as when applying it the interests
are removed from the land, occasionally without the knowledge of the right holders.
One of the many benefits of the priorities doctrine is that it protects the rights of third
parties.
Overreaching creates a problem in this area as when used, trustees may arrange a sale
or mortgage without the knowledge of or consent of the beneficiaries. In these
situations, the beneficiaries’ concerns clash with the maintenance of the trust. As
asserted by Hopkins, ‘the legacy of Flegg is that on a sale or mortgage by two or more
trustees the “use” value of the home- the” thing as a thing”- is invisible to the law.’11
Unlike the priorities rule, overreaching sees homes only as wealth and in this way
completely undermines the rights of weaker third parties while the priorities doctrine
tries to protect them.
Overreaching further supports the commercial model, as expressed by Lord Oliver in
the case of City of London Building Society v Flegg, ‘the legislative policy of the 1925
legislation of keeping the interests of beneficiaries behind the curtain…financial
institutions advancing money on the security of land will face hitherto unsuspected
hazards, whether they are dealing with registered or unregistered land.’12 This
statement, supported by the doctrine of overreaching, supplements the notion
asserted above that the commercial model favours the rights of banks and mortgage
lenders thereby undermining those of third parties and ultimately the priorities rules.
D. Conclusion
8
Law of Property Act 1925, s.2(1) https://www.legislation.gov.uk/ukpga/Geo5/15-16/20/section/2
9
Land Registration Act 2002, sch.3, para.2. https://www.legislation.gov.uk/ukpga/2002/9/schedule/3
[1997] Ch 276 (CA) (para. 290)
Hopkins, ‘City of London Building Society v Flegg (1987): Homes as Wealth’ in Landmark cases in
Land Law (ed Gravells, Oxford: Hart, 2013) p 222.
12
[1988] 1 AC 54 (para. 76)
10
11
The Scintilla Temporis Model has never been clearly laid out in statute and its effect
was that of confusing the priorities rule with its cryptic notion of a moment in time
which could be abused in rather contriving actions. Its rejection, therefore, was in my
opinion a welcome step forward but unfortunately did not hinder a whole new set of
undermining doctrines from being introduced such as the commercial one.
On the other hand, although it may look like they are working against each other, the
overreaching rules and the LRA 2002 priority rules are meant to work together to
benefit all parties and make conveyancing easier from the perspective of the seller,
purchaser and all the right holders. The current rules seem to favour the purchaser and
the good of the market, over the beneficiary and the personal hardships of the
individual. Parliament must work to find a way to express these doctrines in a less
ambiguous manner and align them in a way which allows both to be exercised without
undermining the other.