Optimize Land Law Second Edition PTIMIZE LAW REVISION Titles in the series: Contract Law Equity and Trusts Land Law Public Law EU Law Tort Law The Optimize series’ academic advisors are: – Michael Bromby, Higher Education Academy Discipline Lead for Law 2011–2013, Reader in Law at Glasgow Caledonian University. ‘The use of visualisation in Optimize will help students to focus on the key issues when revising.’ – Emily Allbon, Senior Lecturer in Law and creator of Lawbore, City University. ‘Partnering well-­explained, comprehensive content with visual tools like maps and flowcharts is what makes the Optimize series so unique. These books help students take their learning up a notch; offering support in grappling with the subject, as well as insight into what will help make their work stand out.’ – Sanmeet Kaur Dua, Lecturer in Law, co-­creator of Lawbore, City University. ‘This series sets out the essential concepts and principles that students need to grasp in a logical way by combining memorable visual diagrams and text. Students will find that they will not easily forget what they read in this series as the unique aim higher and interaction points will leave a blueprint in their minds.’ – Zoe Swan, Senior Lecturer in Law, University of Greenwich. ‘The wide range of visual material includes diagrams, charts, tables and maps to enable students to check their knowledge and understanding on each topic area, every step of the way . . . When combined with carefully explained legal principles and solid, understandable examples, students will find this series provides them with a win-­win solution to the study of law and developing revision techniques.’ Optimize Land Law Second Edition Emma Warner-­Reed Second edition published 2017 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2017 Emma Warner-­Reed The right of Emma Warner-­Reed to be identified as author of this work has been asserted by her in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. First edition published by Routledge 2014 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Names: Warner-Reed, Emma. Title: Optimize land law / Emma Warner-Reed. Description: Second Edition. | Abingdon, Oxon [UK] ; New York : Routledge, 2017. | Series: Optimize series | Includes index. Identifiers: LCCN 2016028781| ISBN 9781138654112 (hardback) | ISBN 9781315560762 (e-book) Subjects: LCSH: Real property–England. Classification: LCC KD829.6 .W39 2017 | DDC 346.4204/3–dc23 LC record available at https://lccn.loc.gov/2016028781 ISBN: 978-1-138-65411-2 (pbk) ISBN: 978-1-315-56076-2 (ebk) Typeset in The Sans by Wearset Ltd, Boldon, Tyne and Wear Visit the companion website: www.routledge.com/cw/optimizelawrevision Contents Optimize – Your Blueprint for Exam Success Preface Guide to Using the Book and the Companion Website Table of Cases and Statutes vii ix xi xiii 1 2 3 4 5 6 7 8 9 10 11 12 13 1 35 65 89 115 135 155 183 203 231 261 287 311 Introductory Topics Estates and Interests in Land Registered and Unregistered Land Formalities for the Sale of Land Adverse Possession Resulting and Constructive Trusts Leases and Licences Trusts and Proprietary Estoppel Co-­ownership Easements Freehold Covenants Leasehold Covenants Mortgages Index 337 This page intentionally left blank Optimize – Your Blueprint for Exam Success Why Optimize? In developing the ‘Optimize’ format, Routledge have spent a lot of time talking to law lecturers and examiners about assessment, teaching and learning, and exam preparation. The aim of our series is to help you make the most of your knowledge to gain good marks – to optimize your revision. Students Students told us that there was a huge amount to learn and that visual features such as diagrams, tables and flowcharts made the law easier to follow. Learning and remembering cases was an area of difficulty, as was applying these in problem questions. Revision guides could make this easier by presenting the law succinctly, showing concepts in a visual format and highlighting how important cases can be applied in assessment. Lecturers Lecturers agreed that visual features were effective to aid learning, but were concerned that students learned by rote when using revision guides. To succeed in assessment, they wanted to encourage them to get their teeth into arguments, to support their answers with authority and show they had truly understood the principles underlying their questions. In short, they wanted students to show that they understood how they were assessed on the law, rather than repeating the basic principles. Assessment criteria If you want to do well in exams, it’s important to understand how you will be assessed. In order to get the best out of your exam or essay question, your first port of call should be to make yourself familiar with the marking criteria available from your law school; this will help you to identify and recognise the skills and knowledge you will need to succeed. Like course outlines, assessment criteria can differ from school to school, so if you can get hold of a copy of these criteria, this will be invaluable. To give you a clear idea of what these criteria look like, we’ve collated the most common terms from 64 marking schemes for core curriculum courses in the UK. viii Optimize – Your Blueprint for Exam Success research reading Evidence Clarity Understanding Structure Critical Argument Application Analysis Incorprotetion Evaluation Engagement Organisation Accuracy Use sources Originality Knowledge Presentation Common Assessment Criteria, Routledge Subject Assessment Survey Optimizing the law The format of this ‘Optimize Law’ volume has been developed with these assessment criteria and the learning needs of students firmly in mind: Visual format: Our expert series advisors have brought a wealth of knowledge about visual learning to help us to develop the books’ visual format. Tailored coverage: Each book is tailored to the needs of your core curriculum course and presents all commonly taught topics. Assessment led-­revision: Our authors are experienced teachers with an interest in how students learn, and they have structured each chapter around revision objectives that relate to the criteria you will be assessed on. Assessment led-­pedagogy: The ‘Aim Higher’, ‘Common Pitfalls’, ‘Up for Debate’ and ‘Case Precedent’ features used in these books are closely linked to common assessment criteria – showing you how to gain the best marks, avoid the worst pitfalls, apply the law and think critically about it. Putting it into practice: Each chapter presents example essays or problem questions and template answers to show you how to apply what you have learned. Routledge and the ‘Optimize’ team wish you the very best of luck in your exams and essays! Preface Optimize Land Law has been divided into 12 sections, each covering one of the core topics taught by most land law modules on undergraduate courses. There are two chapters on leases: one covering the basic concept and structure of a lease and the other covering the subject of leasehold covenants. In this edition the author has introduced brief coverage of those equitable maxims most applicable to land law; and a little more detail about the rights and remedies available in the law of equity. The section on the meaning of actual occupation in Chapter 2 has been updated and a couple of new cases introduced for discussion. Further discussion about the flaws in the system under the LRA 2002 has been included, together with a brief summary of proposals for reform. Chapter 4 contains a new section on priorities in registered land; the chapters on easements and freehold covenants contain updates on the recent reform proposals in these areas. The second edition also includes some suggested essay questions to help students to develop their ability to discuss and reflect on the law in areas of contention. In each chapter the author has set out to summarise the law in the most logical way, one point flowing to the next, with the aim of creating a whole discrete topic that the student can tackle as a stand-­alone subject as appropriate to their course module. The highly visual nature of the text is aimed to provide an efficient and effective memory aid, whilst the regular summarising of core points and issues is designed to consolidate the reader’s learning and aid revision. Land law is considered one of the most difficult of the core topics for students to grasp, predominantly because of its dual nature and the fact that the foundations of much of land law are based upon equitable concepts. However, it is possible to break down the law into a manageable series of basic elements which, if approached logically, can be quickly mastered and easily managed. As with revision in any subject, checklists and flowcharts are always a helpful aid to revision. Use those that have been provided in this revision guide and create your own from the information provided in the text. During your examination, visualise the pictures and diagrams contained within the guide to aid your memory and do not be afraid to draw your own rough diagrams or pictures to help you to visualise the situation described in the text: particularly in problem question scenarios. For example, the little houses drawn in the chapter on co-­ownership can be x Preface really useful in getting to grips with the legal and equitable rights of the characters named in a scenario. Equally, having a visual image of a right of way or drainage across land can help to prevent you from making a catastrophic error such as mistaking a grant from a reservation situation in the law of easements. Above all, enjoy your learning, be logical in your application of the law to the facts given to you and always support your findings with case law or statute where appropriate – you will always be given credit for an argument you have thought through logically and the scenario or essay question posed may support more than one answer. Guide to Using the Book and the Companion Website The Routledge ‘Optimize’ revision series is designed to provide students with a clear overview of the core topics in their course, and to contextualise this overview within a narrative that offers straightforward, practical advice relating to assessment. Revision objectives A brief introduction to the core themes and issues you will encounter in each chapter. Chapter Topic Maps Visually link all of the key topics in each chapter to tie together understanding of key issues. Illustrative diagrams A series of diagrams and tables are used to help facilitate the understanding of concepts and interrelationships within key topics. Up for Debate ‘Up for Debate’ helps you to critique current law and reflect on how and in which direction it may develop in the future. Case precedent boxes A variety of landmark cases are highlighted in text boxes for ease of reference. The facts, principle and application for the case are presented to help students understand how these courses are used in legal problems. Aim Higher and Common Pitfalls These assessment-­focused sections show students how to get the best marks, and avoid the most common mistakes. xii Guide to Using the Book and the Companion Website Table of key cases Drawing together the key cases from each chapter. Companion Website www.routledge.com/cw/optimizelawrevision Visit the Law Revision website to discover a comprehensive range of resources designed to enhance your learning experience. Resources for Optimize Law revision Revision tips podcasts Topic overview podcasts Subject maps for each topic Downloadable versions of Chapter Maps and other diagrams Flashcard Glossary MCQ questions Table of Cases and Statutes Cases 88 Berkeley Road, NW9, Re [1971] 2 WLR 307 215, 229 Abbey National Building Society v Cann [1990] 2 WLR 832 50, 52, 64 Abbott v Abbott [2007] UKPC 53 148 AG Securities v Vaughan [1990] 1 AC 417; (1988) 3 WLR 1205 161, 181, 212, 229 Albany Holdings Ltd v Crown Estate Commissioners [2004] EWHC 1480 173 Ali v Hussein (1974) 231 EG 373 224–5 Antoniades v Villliers [1990] 1 AC 417 162–3, 178, 179, 181 Archangel v Lambeth Borough Council (2001) 33 HLR 44 126 Ashburn Anstalt v Arnold [1989] Ch 1 160 Aslan v Murphy [1990] 1 WLR 766 163, 178, 180, 181 Austerberry v Corporation of Oldham (1885) 29 Ch D 750 267, 275, 282, 284, 285 Bailey v Stephens (1862) 12 CB (NS) 91 239 Ballard’s Conveyance, Re [1927] Ch 473 271–2, 285 Barclays Bank v O’Brien [1993] 3 WLR 786 318–19, 334 Barney v BP Truckstops Ltd [1995] CLY 1854 248 Basham, Re [1986] 1 WLR 1498 188, 200 Batchelor v Marlow (2003) 1 WLR 764 236 Baxter v Mannion [2010] EWHC 573 (Ch) 83, 88 Beaulane Properties Ltd v Palmer [2005] 3 WLR 554 125–6 Benn v Hardinge (1992) 66 P&CR 246 253 Berkley v Poulett [1977] 1 EGLR 24–5, 28, 34 Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 17–18, 32, 33 Berrisford v Mexfield [2011] 1 WLR 1091 161 Beswick v Beswick [1968] AC 58 273 Bickel v Duke of Westminster [1977] QB 517 297, 305 Biggs v Hoddinott [1898] 2 Ch 307 316 Billson v Residential Apartments Ltd [1992] AC 494 174 Bircham & Co (No.) Ltd v Worrell Holdings Ltd (2001) 82 P&CR 212 103 Bocardo SA v Star Energy [2010] UKSC 35 16, 33 Bookbinding Ltd v Marden [1978] 2 WLR 535 318, 321, 331 Booker v Palmer [1942] 2 All ER 674 163–4, 181 Botham v TSB Bank plc [1997] 73 P&CR D 1 26–7, 32, 34 BP Properties v Buckler [1987] 2 EGLR 168 121, 122, 132, 134 xiv Table of Cases and Statutes Breams Property Investment Co Ltd v Stroulger [1948] 2 KB 1 300 Browne v Flower [1911] 1 Ch 219 240, 291, 308 Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 165 Buchanan-Wollaston’s Conveyance, Re [1939] Ch 217 224 Buckinghamshire County Council v Moran [1991] 3 WLR 152 129 Bull v Bull [1955] 1 QB 234 212 Burgess v Rawnsley [1975] 3 WLR 99 218, 229 Burns v Burns [1984] Ch 317 140, 144–5, 150, 152, 153 Caddick v Whitsand Bay Holiday Park Ltd [2015] UKUT 63 (LC) 23, 34 Central Estates (Belgravia) Ltd v Woolgar (No.2) [1972] 1 WLR 1048 175 Cheltenham and Gloucester Building Society v Norgan [1995] 1 WLR 343 322, 333, 334 Chokkar v Chokkar [1984] Fam Law 269 63, 64 Citro (a bankrupt), Re [1991] Ch 142 225 City of London Building Society v Flegg [1988] AC 54 59–60, 64 Cityland & Property (Holdings) Ltd v Dabrah [1967] 3 WLR 605 317–18, 321, 331, 334 Clarke v Taff Ely Borough Council [1980] 10 HLR 44 294, 308 Cobbe v Yeomans’ Row Management Ltd [2008] 1 WLR 1752 151, 190–1, 195, 199, 201 Commission for the New Towns v Cooper (Great Britain) Ltd [1995] CH 259 101, 111, 114 Co-operative Retail Services Limited v Tesco Stores Limited (1998) 76 P&CR 328 265 Copeland v Greenhalf [1952] Ch 488 235, 258 Crabb v Arun District Council [1976] Ch 179 190, 193 Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 325, 327, 331, 335 Culling v Tufnal (1694) Bull NP 34 28, 34 Dalton (S) v Angus & Co. [1881–1885] All ER Rep 1 248 D’Eyncourt v Gregory (1866) LR 3 Eq 382 24, 32, 34 De Lusignan v Johnson [1973] 230 EG 499 47–8, 63 Dillwyn v Llewelyn [1862] EWHC Ch J67 185, 200 Draper’s Conveyance, Re [1969] 1 Ch 486 217, 229 Dyce v Lady James Hay (1852) 1 Macq 305 237, 241 Earl of Sefton v Tophams Ltd [1966] 2 WLR 814 267–8 Elitestone v Morris [1997] 1 WLR 687 22, 29, 34 Ellenborough Park, Re [1955] 3 WLR 892 237, 257, 258 Ellis v Loftus Iron Company (1874) LR 10 CP 10 18, 33 Elliston v Reacher [1908] 2 Ch 382 274 Ever’s Trust, Re [1980] 1 WLR 1327 223–4, 228 Eves v Eves [1975] 1 WLR 1338 142, 145 Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340 173 Facchini v Bryson [1952] 1TLR 1386 163, 165, 167, 178, 180, 181 Fairclough v Swan Brewery Co Ltd [1912] AC 565 315–16, 334 Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 273, 285 First National Bank plc v Syed [1991] 2 All ER 250 322, 333 Table of Cases and Statutes Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 102, 111, 113, 114 Fitzwilliam v Richall Holdings [2013] EWHC 86 (Ch) 109 Four Maids v Dudley Marshall (Properties) Ltd [1957] 2 WLR 531 321, 331, 333, 334 Fowley Marine (Emsworth) Ltd v Gafford [1968] 2 WLR 842 118, 119, 132, 133 Gillett v Holt [2001] Ch 210 188, 191–2, 193, 198, 201 Gissing v Gissing [1971] AC 886 140, 152, 153 Goodman v Gallant [1986] Fam 106 221, 222, 227, 230 Gore and Snell v Carpenter (1990) 60 P&CR 456 220 Grant v Edwards [1986] Ch 638 143–5 Gray v Taylor [1998] 1 WLR 1093 165 Greasley v Cooke [1980] 1 WLR 1306 169–70 Green v Ashco Horticultural Ltd [1966] 1 WLR 899 249 Greenwich LBC v Discreet Selling Estates Ltd [1990] 48 EG 113 176 Grigsby v Melville [1972] 1 WLR 1355 235 Grigsby v Melville [1974] 1 WLR 80 15, 33 Halifax plc v Curry Popeck [2008] EWHC 1692 (Ch) 110 Halsall v Brizell [1957] Ch 169 274, 277–8, 279, 282 Hammond v Farrow [1904] 2 KB 332 166 Hammond v Mitchell [1991] 1 WLR 1127 145, 153 Hamp v Bygrave (1983) 266 EG 720 25 Hapeshi v Allnatt and another [2010] EWHC 392 148–9 Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 292, 307, 308 Harris v Goddard [1983] 1 WLR 1203 214, 217, 229 xv Hastings v Saddler (1898) 79 LT 355 128 HE Dibble Ltd v Moore [1970] 2 QB 181 28–9 Heaney v Kirkby [2015] UKUT 178 (TCC) 125, 134 Herbert v Doyle [2010] EWCA Civ 1095 191 Hewitt v First Plus Financial Group plc [2010] EWCA Civ 312 319 Hill v Tupper (1863) 2 H&C 121 238–9, 258 Holland v Hodgson (1872) LR 7 CP 328 21–2, 30, 32, 34 Hollins v Verney (1884) 13 QBD 304 248 Horsham Properties Group v Clark [2008] EWHC 2327 323 Hughes v Cork [1994] EGCS 25 120, 133 Hulbert v Dale [1909] 2 Ch 570 249 Hulme v Brigham [1943] KB 152 22, 34 Hunter v Babbage [1994] EGCS 8 219, 230 Inwards v Baker [1965] 2 WLR 212 193, 198–9 Irvine’s Estate v Moran [1992] 24 HLR 1 295 James Jones & Sons Ltd v Earl of Tankerville [1909] 2 Ch 400 169 Jennings v Rice [2002] EWCA Civ 159 193, 198, 201 Jones v Challenger [1961] 1 QB 176 223, 228 Jones v Cleanthi [2006] EWCA Civ 1712 254 Jones v Pritchard [1908] 1 Ch 630 244, 259 K, Re [1985] 3 WLR 234 220–1 Kelsen v Imperial Tobacco Co. [1957] 2 QB 334 18, 33 Kenny v Preen [1963] 1 QB 499 292 Kinch v Bullard (1999) 1 WLR 423 216, 229 xvi Table of Cases and Statutes Kingsmill v Millard (1855) 11 Exch 313 127, 134 Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783 51–2, 64 Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613 315 Kreglinger (G&C) v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 317, 321, 331, 334 La Salle Recreations Ltd v Canadian Camdex Investments Ltd (1969) 4 DLR (3d) 549 26 Lace v Chantler [1944] KB 36 160, 181 Lake v Craddock (1732) 24 ER 1011 212 Lavender v Betts [1942] 2 All ER 72 292 Leigh v Taylor [1902] AC 157 26, 28, 32, 34 Lemmon v Webb [1895] AC 1 17, 33 Link Lending v Bustard [2010] EWCA 424 53, 64 Lissimore v Downing [2003] 2 FLR 208 199 Lloyds Bank v Rosset [1991] 1 AC 107 141–3, 148–9, 150, 152, 153 London & Blenheim Estates Ltd v Ladbroke Retail Parks Ltd [1992] 1 WLR 1278 236 London County Council v Allen [1914] 3 KB 642 269 Long v Tower Hamlets London BC [1996] 3 WLR 317 122 Manjang v Dammeh [1990] 61 P&CR 194 243 Marchant v Charters [1977] 1 WLR 1181 164 Markou v Da Silvasesa [1986] 18 HLR 265 164–5 Marquess of Zetland v Driver [1939] Ch 1 271 Marten v Flight Refuelling Ltd [1962] Ch 115 272 McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 104, 111, 114 McNerny v Lambeth LBC [1989] 1 EGLR 81 293 Mew v Tristmire [2011] EWCA Civ 912 23, 34 Midland Bank plc v Cooke (1995) 27 HLR 733 146–7, 149, 153 Mint v Good [1951] 1 KB 517 291 Moody v Steggles (1879) 122 ChD 261 238–9, 258 Mott, Re [1987] CLY 212 226 Moule v Garrett (1872) LR 7 Exch 101 299, 309 MRA Engineering Ltd v Trimster Co Ltd [1987] 56 P&CR 1 243, 258 National & Provincial Bank Ltd v Ainsworth [1965] AC 1175 50, 64 NCR Ltd v Riverland Portfolio No.1 Ltd (No. 2) [2005] 2 EGLR 42 297 Newton Abbot Co-operative Society Ltd v Williamson & Treadgold Ltd [1952] Ch 286 272 Nielson-Jones v Fedden [1974] 3 All ER 38 218–19, 228, 230 Noakes & Co Ltd v Rice [1902] AC 24 316 Norris v Checksfield [1991] 1 WLR 1241 164 Norwich & Peterborough Building Society v Steed [1992] EWCA Civ 5 83, 88 O’Brien v Robinson [1973] 2 WLR 393 294 Ofulue v Bossert [2008] 3 WLR 1253 130, 134 Owen v Gadd [1956] 2 QB 99 292 Oxley v Hiscock [2004] 3 All ER 703 146–7, 149, 152, 153 P&A Swift Investments v Combined English Stores Group plc [1988] 3 WLR 313 266, 275, 282, 285 Palk v Mortgage Services Funding plc [1993] Ch 330 326 Table of Cases and Statutes Pankhania v Chandegra [2012] EWCA Civ 1438 211 Pascoe v Turner [1979] 1 WLR 431 188, 192, 193 Peffer v Rigg [1977] 1 WLR 285 110 Pereira Fernandes (J) SA v Mehta [2006] 1 WLR 1543 (Ch D) 101, 113 Perera v Vandiyar [1953] 1 WLR 672 292 Pettitt v Pettitt [1970] AC 777 139, 152, 153 Phipps v Pears [1964] 2 WLR 996 237, 258 Pink v Lawrence (1978) 36 P&CR 98 213 Pinto v Limm [2005] EWHC 630 (Ch) 84, 88 Powell v Benney [2008] P&CR D31 189, 198, 200 Powell v McFarlane (1979) 38 P&CR 452 118, 120, 134 Pugh v Savage [1970] 2 QB 373 239 Pye (JA) (Oxford) Ltd v Graham [2000] 3 WLR 242 122, 130, 134 Pye (JA) (Oxford) Ltd v United Kingdom (application 44302/02) [2007] 46 EHRR 130, 131 Quick v Taff-Ely BC [1986] QB 809 295, 308 R v Secretary of State for the Environment, ex parte Davies [1990] 61 P&CR 487 120, 126, 133 Rainbow Properties Ltd v Tokenhold [1998] 1 WLR 980 304 Rains v Buxton (1880) 14 Ch D 537 119, 132 Record v Bell [1991] 1 WLR 853 98–9, 111, 113, 114 Regis Property Co Ltd v Redman [1956] 2 QB 612 240 Reid v Bickerstaff [1909] 2 Ch 305 274 Renals v Cowlishaw (1878) 9 Ch D 125 270 Rhone v Stevens [1994] 2 AC 310 267, 275, 284 xvii Roake v Chadha [1984] 1 WLR 40 273 Robson v Hallet [1967] 2 QB 939 171 Rogers v Hosegood [1900] 2 Ch 288 271, 285 Ropaigealach v Barclays Bank plc [2000] QB 263 323, 335 Ropemaker Properties Ltd v Noonhaven Ltd [1989] 34 EG 40 174–5 Rosebery Ltd v Rocklee Ltd LTL 2/2/2011 18, 33 Royal Bank of Scotland plc v Etridge (No. 2) [2001] 3 WLR 1021 319, 321, 331, 334 Rugby School (Governors) v Tannahill [1935] 1 KB 87 174, 181 Sanders v Sanders (1881) 19 Ch D 373 126 Sarson v Roberts [1895] 2 QB 395 293 Savage v Dunningham [1974] Ch 181 139 Scala House and District Property Co Ltd v Forbes [1974] QB 575 173 Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52 50, 64 Seddon v Smith (1877) 36 LT 168 118 Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997 325 Sledmore v Dalby (1996) 72 P&CR 196 189–90, 199, 201 Smirk v Lyndale Developments Ltd [1975] Ch 317 128 Smith and Snipes Hall Farm Limited v River Douglas Catchment Board [1949] 2 KB 500 267 Smith v Marrable (1843) 11 M&W 5 293, 296, 308 Solihull MBC v Hickin [2012] UKSC 39 209, 229 Southwark LBC v Mills [1999] 4 All ER 449 291, 292, 307 Spencer’s Case (1583) 5 Co Rep 16a 302, 305, 309 Spiro v Glencrown Properties Ltd [1991] Ch 537 102, 114 xviii Table of Cases and Statutes Stack v Dowden [2007] UKHL 17 147–8, 149, 150, 152, 153 Stafford v Lee (1992) 65 P&CR 172 244, 258 Strand Securities v Caswell [1965] Ch 958 52, 64 Street v Mountford [1985] AC 809 160, 161, 162, 163, 165, 167, 178, 179, 180, 181 Sugarman v Porter [2006] EWHC 331 273 Swan v Sinclair [1924] 1 Ch 254 253 Taylor Fashions Ltd v Liverpool Victoria Trustees Co. Ltd [1982] QB 133 151, 186–7, 196, 197, 200 Taylor v Dickens [1998] 1 FLR 806 198 Taylor v Hamer [2003] 03 EG 127 20, 34 Tecbild Ltd v Chamberlain (1969) 20 P&CR 633 119, 133 Tehidy Minerals v Norman [1971] 2 QB 528 249 Thamesmead Town v Allotey (1998) 37 EG 161 277–8, 279 Thomas v Clydesdale Bank plc [2010] EWHC 2755 52, 64 Thorner v Major [2009] 1 WLR 776 151, 192, 195, 201 Tower Hamlets London Borough Council v Barrett [2006] 1 P&CR 132 128 Trustees of Grantham Christian Fellowship v Scouts Association [2005] EWHC 209 121, 134 Tulk v Moxhay (1848) 2 PH 744 268–9, 275, 282, 284, 285, 300 Ungurian v Lesnoff [1990] Ch 206 145–6 Union of London and Smith’s Bank Ltd’s Conveyance, Re [1933] Ch 611 270 United Bank of Kuwait plc v Sahib [1996] 3 WLR 372 327 Van Laethem v Brooker [2005] EWHC 1478 (Ch) 195, 200 Wallis’s Cayton Bay Holiday Camp Ltd. v Shell-Mex and BP Ltd [1974] 3 WLR 387 128–9, 134 Walsh v Lonsdale (1882) 21 Ch D 9 166–7, 178, 327 Warren v Keen [1954] 1 QB 15 290, 308 Westminster City Council v Clarke [1992] 2 AC 288 161–2, 181 Wheeldon v Burrows (1879) 12 Ch D 31 243, 245–6, 247, 251, 254, 255, 257, 258 White Rose Cottage, Re [1965] Ch 940 328 Whittaker v Kinnear [2011] EWHC 1479 (QB) 191 Wilford’s Estate, Re (1879) LR 11 ChD 267 215, 220 William Aldred’s case (1610) 9 Co Rep 57b 240, 258 Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 49–50, 64 Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 59, 63, 64 Williams v Hensman (1861) 1 John & H 546 216, 220, 222, 227, 228, 229 Wilmott v Barber [1880] 15 ChD 96 186, 187, 188, 200 Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 169 Wollerton & Wilson Ltd v Richard Costain (Midlands) Ltd [1970] 1 WLR 411 19, 32, 33 Wong v Beaumont Property Trust Ltd [1965] 1 QB 173 245, 258, 259 Wright v Macadam (1949) 2 KB 744 246–7, 259 Wright v Robert Leonard (Developments) Ltd [1994] NPC 49 98–9, 111, 113, 114 Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 279–80 Table of Cases and Statutes Wycombe HA v Barnett (1982) 47 P&CR 394 295, 308 Insolvency Act 1986 s 335A 225–6, 227 Yaxley v Gotts [1999] 3 WLR 1217; [2000] Ch 162 106, 114, 194, 201 Yellowly v Gower (1855) 11 ExD 274 290 Judicature Act 1873 9 Judicature Act 1875 9 Statutes and statutory instruments Administration of Estates Act 1925 6 Administration of Justice Act 1970— s 36 322–3, 324, 331, 333 Administration of Justice Act 1973— s 8 323 Aviation Act 1982— s 76(1) 17 Commonhold and Leasehold Reform Act 2002 39 Contract (Rights of Third Parties) Act 1999 266 s 1 266 Criminal Law Act 1977— s 6 173 s 6(1) 322, 333 Defective Premises Act 1972 294, 296 s 4 293 Electronic Communications Act 2000— s 7 102 Family Law Act 1996 56, 63 Financial Services and Markets Act 2000 105–6, 111 Forfeiture Act 1982— s 2(2) 220 Human Rights Act 1998 226, 323 Infrastructure Act 2015— s 43 16 xix Land Charges Act 1925 6 Land Charges Act 1972 55–8, 61, 63, 269, 278, 329 s 4(5) 329, 330 s 4(6) 278 Land Registration Act 1925 6, 68–9, 71, 74, 85, 110 s 52 278 s 75 123 s 84 280 s 84(2) 280 Land Registration Act 2002 46–7, 54, 61, 73–5, 110, 124, 131, 133, 159 s 3 75–6 s 4 108–9 s 10(2) 78 s 11 78 s 12(6) 79 s 27 170, 178, 251 s 27(2) 43, 46, 48, 62, 108–9, 328, 331 s 28 110 s 29 109–10, 111, 171, 178 s 32 171, 251, 278 s 34-36 329, 330 s 38 251 s 48 329, 330, 332 s 58 73 s 65 81, 85 s 79 69 s 116 170 Schedule 1 75 Schedule 3 48, 49, 50, 63, 75, 85, 170–1, 251, 328, 331 Schedule 4 81, 82, 85, 87 Schedule 6 119, 125 Schedule 8 83, 85, 86, 87 Schedule 12 299 xx Table of Cases and Statutes Land Registration Rules 2003— Rule 58 108, 123 Landlord and Tenant (Covenants) Act 1995 276, 299, 301, 308 s 3 302, 305, 307 s 3(5) 301 s 5 301, 305, 307 s 6 301, 302, 305 s 11 301, 307 s 16 301 s 17 302, 305, 308 s 19 302, 305 s 22 298, 305 Landlord and Tenant Act 1927— s 19(1) 297, 305 s 19(2) 298 Landlord and Tenant Act 1985 294, 295, 296 s 11 294, 296 Landlord and Tenant Act 1988— s 1(3) 297, 305 Law of Property (Miscellaneous Provisions) Act 1989— s 1 107 s 2 97, 100, 102, 104–6, 111, 112, 166–7, 178, 190 Law of Property Act 1925 5–7, 10, 12, 273 s 1(2) 42–3, 46, 61, 158, 242, 277, 314, 331 s 1(3) 44 s 1(6) 206, 208, 228 s 2 58 s 6 251, 255 s 34(2) 206, 228 s 36 207 s 36(2) 213, 215–16, 226 s 52 166, 178, 242, 278, 314, 331 s 52(1) 43, 107, 111 s 53(1) 44, 327 s 53(2) 138 s 54(2) 105, 160, 166, 178 s 62 20, 243, 246–7, 254, 255, 257 s 77 299 s 78 273 s 78(1) 267, 273, 283, 284 s 79 267, 269, 284, 299, 300 s 84 280–1 s 84(2) 280 s 85 314, 331 s 97 330 s 101 324, 326, 327, 328, 331, 333 s 103 324, 326, 331, 333 s 105 326, 333 s 109 326 s 136 266, 282 s 141 300, 302, 305 s 142 300, 302, 305 s 146 173–7 s 146(4) 175 s 205 160 s 205(1)(ix) 13, 28, 31, 32 s 205(1)(xix) 39 s 205(1)(xxvii) 158, 180 Legal Aid, Sentencing and Punishment of Offenders Act 2012— s 144 131 Limitation Act 1980 123, 130, 131, 133 s 15 123 s 17 123 s 32 125 Schedule 1 123 Schedule 1, para 1 119 Schedule 1, para 8(4) 129 Mental Capacity Act 2005 206 Prescription Act 1832 250, 251, 255 s 2 250 s 3 250 Property (Miscellaneous Provisions) Act 1989— s 2 327 Quia Emptores 1290 5–6 Race Relations Act 1976— s 24 297 Table of Cases and Statutes Rentcharges Act 1977— 43 s 2(3) 276 Senior Courts Act 1981— s 37 303 Settled Land Act 1925 6 Sex Discrimination Act 1975— s 31 297 Statute of Westminster 1275 249 Tenures Abolition Act 1660 5–6 Tribunals, Courts and Enforcement Act 2007— s 71 304 xxi Trustee Act 1925 6 Trusts of Land and Appointment of Trustees Act 1996— s 14 223–4, 227, 228 s 15 223–5 European and international legislation European Convention on Human Rights— Art 8 287 This page intentionally left blank 1 Introductory Topics Revision objectives • Do you understand the difference between: (a) tenures and estates; (b) common law and equity; and (c) real and personal property? Understand the law • Can you describe what is included in the legal definition of land? • Can you remember how far above and below the land’s surface the ownership of land extends? Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Can you explain the difference between a fixture and a chattel and the tests that apply to each? • Do you understand the limitations of land ownership both above and below the earth and how these limits are applied? • Can you accurately describe and discuss the purpose of annexation test, giving examples of its application? • Can you begin to see how an understanding of the law relating to boundaries or fixtures might be significant in other areas of law; for example in relation to the sale and purchase of a property? • Can you identify whether an object is a fixture or a chattel, applying the degree and purpose of annexation tests as relevant? • Are you able to define the legal extent of land above and below the earth in a problem question scenario? Chapter Map Characteristics of land Land ownership is divided into legal and equitable ownership All land is held on licence from the Crown There is only one remaining form of tenure: the tenure in free and common socage There are two forms of legal estate: freehold (unlimited) and leasehold (limited) The legal and equitable owners may be the same, or different people The legal owner is the formal ‘paper’ owner The equitable owner holds the beneficial interest What land includes Hereditaments (inheritable rights over the land) Buildings or parts of buildings Incorporeal (without physical form) Corporeal (physical) Including easements and privileges Including land and buildings Land of any tenure The ownership of land is a right ‘in rem’ This means the owner can claim the land’s return if dispossessed Mines and minerals Whether on the surface of the land or beneath it With the exception of fossil fuels and gold and silver All other forms of property are entitled only to damages and not the item’s return Leases are ‘chattels real’ as they are personal property but with the benefit of rights in rem The airspace above the earth Lower airspace (included) Upper airspace (not included) All that lies below the surface of the earth Excluding fossil fuels and gold and silver 4 Optimize Land Law Introduction – what is land? This chapter introduces a series of closely related but individual topics all designed to answer the same question: what is land? Firstly, there is a brief history of land law in England and Wales and an explanation of the development of the courts of the common law and equity. Together these provide a picture of what it means to own land in England and Wales, and the dual nature of land ownership in a legal context. Secondly, there follows an explanation of real and personal rights in land. This describes the nature of the various rights which attach to the land itself. And finally the bulk of the chapter deals with how land is defined in a legal context and what is and is not included on its sale or purchase. Aim Higher As you work through the chapter, consider how these introductory sections relate to other topics in land law, such as formalities for the sale of land, co-­ ownership and trusts of land. This will help your understanding of these and other topics and how they interact. For example, if a contract for the sale and purchase of land does not give an adequate description of the property then knowledge of the law of fixtures will be vital in the event of a dispute over what is included in the sale. History of land law: the 1925 legislation Introduction The history of modern land law begins with the Norman Conquest in 1066. When William the Conqueror invaded Britain he brought with him a new system of landholding which to this day still forms the building blocks on which modern land law in England and Wales is based. All land was in the ownership of the king, who then granted rights to use the land, known as tenures, to those he favoured. All land was in the ownership of the King In turn, lesser tenures would be granted by those holding the land to others for the purpose of farming. This process could be repeated a number of times, until a chain of landholding was created: starting with the king as absolute owner of the land, and stretching down to the most lowly peasant, who was given simple rights of occupation in return for working the land on behalf of their immediate lord. Introductory Topics 5 Crown Free tenures Unfree tenures Although in reality tenures were many and diverse in nature, broadly speaking all tenures could be divided into two kinds: free tenures, which were more like land management roles and which did not require any form of menial labour and unfree, or copyhold, tenures which required the landholder to actually farm the land. Common Pitfalls The term ‘tenure’ and ‘estate’ are often used interchangeably, but this is incorrect as the terms refer to two quite different things: the tenure of the land describes the basis on which the land is held (i.e. what conditions apply to the landholding, if any); the estate is the period for which the tenure is held, which may be either unlimited (freehold) or limited to a fixed period of time (as with a lease). The system was a good one in that all land was held on licence from the Crown and the king, as absolute owner of the land, maintained ultimate control of all the land over which he presided. However, the system was not without its flaws. The granting of numerous and successive tenures over a period of time resulted in the existence of a vast, multi-­layered framework of property ownership which was in dire need of simplification. As a first step towards the simplification of tenures, in 1290 an early form of statute known as the Quia Emptores outlawed the creation of further tenures by anyone other than the Crown. This prevented any progressive subdivision of the land, but did nothing to simplify the existing system of landholding. And it was, in fact, not until the Tenures Abolition Act in 1660 that any progress was made in this respect. Under the Act of 1660, all existing freehold tenures were converted into a single kind of tenure: the freehold in ‘common socage’. Whilst vastly improving the system, the changes nevertheless still left numerous forms of unfree tenure, and these were not abolished for a further 250 years with the advent of the Law of Property Act 1925. 6 Optimize Land Law Tenures Abolition Act 1660 Quia Emptores 1290 Abolition of new tenures Law of Property Act 1925 Only one free tenure Abolition of unfree tenures Following the changes made by of the Law of Property Act 1925, we are now left with only one simple form of tenure: the free tenure in common socage, or ‘freehold’, which is how all land in England and Wales is held today. One tenure • Free tenure in common socage (or freehold tenure) The 1925 reforms and the doctrine of estates The abolition of unfree tenures was not the only amendment to the process of land law of England and Wales made in 1925. In fact, the Law of Property Act 1925 was one of a series of six statutes enacted in this year. These were: The Law of Property Act 1925 The Trustee Act 1925 The Land Registration Act 1925 The Settled Land Act 1925 The Administration of Estates Act 1925 The Land Charges Act 1925 The Acts brought about a number of sweeping changes, albeit that the Law of Property Act is the most significant for the undergraduate study of land law. As well as reducing the number of tenures to one, the Law of Property Act 1925 also reduced in the number of legal estates in land. Estates are different from tenures in that, whereas the tenure of the land, historically, describes the terms on which the property is held, the estate in the land describes the length of time for which that tenure exists. An estate in land can therefore be said to be a right to use land for a certain period of time. Tenure denotes conditions of landholding Estate denotes period of landholding Introductory Topics 7 As with tenures, before the advent of the Law of Property Act 1925 there were a number of different kinds of estate in land. However, these have now been reduced to two remaining estates: the ‘fee simple absolute in possession’ (or freehold) and the ‘term of years absolute’ (or leasehold). Two estates • Freehold • Leasehold A freehold denotes the right to hold the land for an unlimited period of time which will come to an end only on the death of the landholder in the absence of a valid will or living relatives; a leasehold denotes the right to hold the land for a limited period of time, after which it will revert to the freeholder. Points to remember about tenures and estates Individuals cannot ‘own’ land ❖ All land is on licence from the Crown, who is the absolute owner of all land in England and Wales. Land is held on tenure from the Crown ❖ There is only one remaining form of tenure: the tenure in free and common Individuals own an ‘estate’ in the land ❖ There are two forms of legal estate in the land, denoting the period for which the socage, or ‘freehold’ tenure. tenure runs. These are the freehold (unlimited) and leasehold (limited to a defined period). Understanding: legal and equitable rights in land The division between law and equity The legal system in England and Wales is unique in that it is separated into two distinct parts: law and equity. 8 Optimize Land Law The reason for this is historic. During the Middle Ages there was only one court: the court of the common law. In this court judges applied the law of the kingdom strictly in accordance with precedent. Whilst the remedies available under the common law were therefore available as of right, the law was harsh and unbending, and it was easy to fall foul of the rules. And so in time, it became commonplace for parties who did not agree with the judgments handed down to appeal directly to the king for justice. The king passed these applications on to his secretariat to administer, with such success that by the 1600s the secretariat was recognised formally as a court with its own judicial power. This was the birth of the court of equity. The two courts operated quite separately: whereas the court of the common law dealt with strict matters of law; the court of equity handed down their judgments on the principles of fairness or conscience. Unlike the court of the common law which applied its legal rules strictly, any remedy available in equity was entirely at the discretion of the judge presiding over it. Common law • Designed to uphold the law of the kingdom • Rigid and based on precedent • Available as of right Equity • A court of conscience • Designed to apply justice where the strict application of common law rules resulted in an unfair outcome • All remedies in equity are discretionary Initially this handing down of judgments based on nothing more than the individual judge’s own moral code led to an alternative system of justice that was both erratic and unreliable. However, the keeping of court records in the sixteenth century served to temper this very personal meting out of justice and over time a number of equitable rules, or doctrines, developed. These guidelines or standards of the court, that later became known as the ‘maxims of equity’, acted as a set of moral markers for the court of equity; thus, the court was not bound to follow them (although they usually would) and remedies in equity remained discretionary, but the court could draw upon the maxims when forming decisions and use them as a framework for their decision making. There are quite a number of equitable maxims, many of which are more pertinent to a textbook on the subject of equity and trusts, than one on land law. However, the maxims do play a significant role in much of the law of property and as such it is well worth learning to recognise and understand the meaning of the most commonly used maxims. These include: Introductory Topics 9 He who comes to equity must come with clean hands He who seeks equity must do equity Equity regards as done that which ought to be done Equity follows the law Equity looks to substance, not form Equity acts in personam Having two separate systems of law applicable in every situation was far from ideal, as anyone seeking both legal and equitable rulings would have to make two different applications to the two separate courts. This problem was eventually resolved by the Judicature Acts of the 1870s, to administer both legal and equitable rulings, albeit that both systems of justice still operated under completely separate rules. This is still the case in modern times. Two courts: common law and equity One single court: common law • Middle Ages The two courts are combined administratively • 1600s • 1870s Legal and equitable ownership of land As a result of this dual system of law it is commonplace to split the ownership of land itself into two: thus every piece of land will consist of both a legal and an equitable title. The qualities attributable to these two facets of land ownership mirror the principles of law and equity. So, the legal ownership of the property refers to the formal, paper ownership of the property, denoting the person with the right to deal with that land at common law and to dispose of it. The equitable ownership of that same property denotes the beneficial rights a person has over it, including the right to live in it or to make money from it, either through its sale or rental. Legal ownership • Refers to the formal, paper ownership of the property • Gives the owner the right to deal with the property at law Equitable ownership • Refers to the beneficial rights of the individual in the property • Gives the owner the right to live in the property or to receive income from it 10 Optimize Land Law The legal and equitable ownership of property can be held either by a single person or by two or more different people. In the case of a single legal owner, they can hold the whole of the legal and equitable interest in the property for themselves: LAW Alice EQUITY Alice Or they can hold the property for the benefit of themselves and another: LAW Alice EQUITY Alice Ben Or they can simply hold the legal title to the property on trust for the benefit of a third party in equity: LAW Alice EQUITY Ben Where there is multiple ownership but the legal and equitable property owners are the same people, this division of the legal and equitable ownership of the land is achieved automatically under statute. Under section 36 of the Law of Property Act 1925 a trust of land is imposed, whereby the legal owners of the property are viewed as holding the legal title at law on trust for the benefit of themselves in equity. Introductory Topics 11 Points to remember about the dual ownership of land the dual nature of land ownership the different qualities of legal and equitable ownership legal and equitable owners may be different ❖ The ownership of land is divided into two: legal ownership and equitable ownership. ❖ The legal owner is the formal ‘paper’ owner; the equitable owner holds the beneficial interest in the property. ❖ The legal and equitable owners may be the same, or different people. The proprietary nature of land: real and personal property Introduction One more aspect of land as a form of property that makes it unique is that it is subject to its own special treatment by the courts. Whereas all other types of property, including large items such as cars and boats, and smaller items such as laptops, phones etc. by law have the benefit only of a right ‘in personam’, or personal action, land has the benefit of a right ‘in rem’ or real action. The difference between the two is significant: Personal property Dam a by ri ges ght Real property Reco of th very el by ri and ght 12 Optimize Land Law Personal property If someone takes your personal property from you, you have the right to seek financial compensation for its loss through the courts against the person who has taken it. You have no right to seek the item’s return, however, although the court may choose to order the return of the item if this is still possible. This limited right is known as a right ‘in personam’ and property which benefits from this right is known as personal property, or chattels. Right to compensation Rights ‘in personam’ Personal property, or chattels No right to the return of the item Recovery of the item at the court's discretion Real property If a third party dispossesses you of your land, on the other hand, you are entitled at common law as of right to make a claim through the courts for that land to be returned to you. This right is known as a right ‘in rem’ and property which benefits from this right is known as real property. Rights ‘in rem’ Real property, or land Right to recovery of the land Recovery is as of right, not discretionary Financial compensation at the court’s discretion Chattels real Leases are given their own special form of categorisation, separate from freehold land. The reason for this is that the basis of a lease is formed in contract and the benefit of a contract is therefore deemed a form of personal property by the courts. Thus, although we study leases in the context of land law and they are recognised as one of the two legal estates in land under the Law of Property Act 1925, their basic definition has historically been that of a chattel, or personal property, only. In spite of this, the significance of the lease as conveying legal rights over land has led it to attract the same benefits as freehold land. This means that if a tenant Introductory Topics 13 under a lease is dispossessed of his leasehold property, he can apply to the court for the return of that land under a real action. Leases can therefore be categorised as chattels real: that is, personal property with the benefit of a real action. Classed as a chattel (personal property) ‘Chattels real’ Leasehold property But with real rights Right to recovery of the land Points to remember about real and personal property All land carries rights ‘in rem’ Other types of property carry rights ‘in personam’ ❖ All forms of land ownership, including leases, carry the benefit of a real action, enabling them to claim the return of the land itself into their possession. ❖ Any other form of property is entitled only to the benefit of a personal action for damages as against the dispossessor. Understanding: the definition of land Introduction The legal definition of land is set out in the Law of Property Act 1925, at Section 205(1)(ix). Section 205(1)(ix) ‘Land’ includes land of any tenure, and mines and minerals, whether or not held apart from the surface, buildings or parts of buildings (whether the division is horizontal, vertical or made in any other way) and other corporeal hereditaments . . . incorporeal hereditaments, and an easement, right, privilege, or benefit in, over, or derived from land. 14 Optimize Land Law This breaks down as follows: ‘Land of any tenure’ As all land is held on tenure from the Crown, the definition therefore includes all land. ‘Mines and minerals’ The statutory definition states that land includes any mines dug or existing under the surface of the land and any minerals found, whether they are discovered under the ground or on its surface and regardless of whether or not they are physically attached to the surface of the land. However, it should be noted that there are actually certain kinds of minerals that are excluded from private ownership. These are: Gold and silver Fossil fuels (coal, petroleum and gas) Such minerals belong to the Crown and the State or its representatives and cannot be privately owned. ‘Buildings’ The statute also tells us that land includes any building or part of a building which stands on it. ‘Corporeal and incorporeal hereditaments’ A hereditament is a something that can be inherited. Corporeal hereditaments have physical form, and as such include the land itself and anything built on it. Incorporeal hereditaments are rights over the land that have no physical form. These include the items listed in the statutory definition, like an easement, which is a right of user such as a right of way, or a privilege, which is a right to take something from the land, such as the right to fish. Corporeal hereditaments Incorporeal hereditaments Inheritable rights Inheritable rights With physical form With no physical form Including land and buildings Including rights of user or the right to take the produce of the land Introductory Topics 15 Land above and below the surface The legal definition of land is quite extensive but, with the exception of a brief mention of mines and minerals below the surface of the earth, does not specifically deal with the subsoil reaching below the land or the airspace above it. In order to get a full definition of land therefore we need to look to the common law that pre-­dates the statute. This says that a person who owns the earth owns everything above it and everything below it down to the centre of the earth. He who owns the earth . . . owns everything above it up to the heavens above and everything below it, down to the centre of the earth Land below the surface of the earth The courts have traditionally construed the rule strictly, as can be seen in the leading case of Grigsby v Melville [1974], below. Case precedent – Grigsby v Melville [1974] 1 WLR 80 Facts: A cellar existed under the claimant’s property, accessible only from the neighbouring property. When the claimant discovered the existence of the cellar, they sued the defendant for trespass. The court found in favour of the claimant. Principle: A person who purchases land acquires everything that lies below its surface. Application: In a problem question scenario, use this case to support your argument that the person who owns land also owns everything below it, down to the centre of the earth. Remember that this is irrespective of the means of access. 16 Optimize Land Law Aim Higher In a problem question scenario, do not forget that, whilst the owner of the land theoretically owns everything down to the centre of the earth, including mines and minerals (as set out in section 205), this is subject to the caveat that the ownership of fossil fuels, gold and silver are actually controlled by the State. An examiner will expect you to apply this to your problem question, where appropriate. Up for Debate Whilst the ownership of these minerals remain with the State, the case of Bocardo SA v Star Energy [2010] UKSC 35 nevertheless found that a landowner was entitled to compensation for subterranean trespass where agents of the State had entered onto the claimant’s private land to access the minerals without prior consent. This was even though the mining had taken place more than 900 metres below the earth. The suggestion here was that ownership of the minerals did not equate to ownership of the land from which they were extracted. However, most recently section 43 of The Infrastructure Act 2015 undermines this principle because it permits a form of mining called hydraulic fracturing, commonly known as ‘fracking’, to take place underneath privately owned land, below a surface level of 300 metres, without the consent of the landowner. Airspace The common law states that a person who owns land also owns everything above that land, including the airspace. However in recent times this maxim has been modified, dividing the airspace into two strata: lower and upper airspace. The lower airspace is included with the property and the upper airspace is not. Upper airspace Lower airspace Introductory Topics 17 Case precedent – Bernstein of Leigh (Baron) v Skyviews & General Ltd [1978] QB 479 Facts: A company flew its aeroplane over private property in order to photograph it. The claimant sued the company for trespass but the court found against him. The aeroplane had been flying several hundred feet above the ground and as such had no impact on the claimant’s use or enjoyment of his property. Principle: Lower airspace belongs to the land; upper airspace does not. Application: You can use this case as authority for the division of airspace above property into lower and upper airspace. Consider the facts of the case against your own problem scenario and decide which applies to you. Up for Debate Since this case was heard, the Aviation Act 1982 has been enacted. Section 76(1) of the Act gives immunity from trespass or nuisance to any aircraft flying ‘at a height above the ground which, having regard to wind, weather and all the circumstances of the case is reasonable’. The flying of aircraft above property therefore no longer poses the threat of trespass. Where the trespass complained of is into the lower airspace, the rule is applied quite strictly, so that a person will be liable for any trespass into the airspace of a privately owned property, regardless of how small, or whether the trespass causes any real damage. Case precedent – Lemmon v Webb [1895] AC 1 Facts: Branches of the defendant’s tree which overhung the claimant’s property were held to be trespassing on the claimant’s land, and the claimant was therefore entitled to lop off the overhanging branches. Principle: Trespass into lower airspace. Application: Use this case to illustrate the fact that, if a third party enters into the property owner’s airspace, they will be guilty of trespass regardless of whether any damage is caused to the property. 18 Optimize Land Law Case precedent – Ellis v Loftus Iron Company (1874) LR 10 CP 10 Facts: The court held that the defendant had committed a trespass by allowing his horse’s head to cross a dividing fence between two neighbouring properties. Principle: Trespass into lower airspace. Application: Use this case to show just how strictly the rule relating to trespass into lower airspace is applied, given the difficulty the defendant would have had in keeping the horse’s head from crossing the line of the fence. Case precedent – Kelsen v Imperial Tobacco Co. [1957] 2 QB 334 Facts: The company erected an advertising sign that crossed into the airspace of the claimant’s property by less than ten centimetres. The court nevertheless held that the company should remove it. Principle: Trespass into lower airspace. Application: Use this case to show just how strictly the offence of trespass into lower airspace is applied. If a third party enters into the land owner’s airspace, they will be guilty of trespass regardless of how minimal that trespass is. Where does lower airspace end? The lower airspace does not stretch to any particular distance; rather, it is measured by virtue of the amount of sky reaching above any particular property that the individual needs for the ordinary use and enjoyment of their land. Aim Higher Contrast this with the facts of Bernstein of Leigh (Baron) v Skyviews & General Ltd, in which an aeroplane flying several hundred feet over the claimant’s property was held not to have committed a trespass. Up for Debate A recent case has shown that the courts will take a pragmatic approach. In Rosebery Ltd v Rocklee Ltd LTL 2/2/2011 the owner of a sixth-floor apartment was refused an injunction to prevent building into the airspace above their property by the owner of the flat above. The court found that a lease of the sixth floor included only property at sixth-floor level, and not anything above it. This is logical, given the existence of property owners both above and below the claimant. Introductory Topics 19 Case precedent – Wollerton & Wilson Ltd v Richard Costain (Midlands) Ltd [1970] 1 WLR 411 Facts: The defendant’s crane overhung the claimant’s premises some fifteen metres above the level of the claimant’s roof. Despite the fact that this was a considerable height above the claimant’s premises, an injunction was nevertheless granted to restrain the crane from trespassing over the land. Principle: The extent of lower airspace. Application: Use this case to illustrate the extent of lower airspace. The lower airspace can be seen to extend to a generous distance above property, taking into account the reasonable use and enjoyment to which the landowner may wish to put the land. Points to remember about the definition of land Land includes buildings on it and rights over it The landowner owns everything below the ground The landowner owns the lower, but not the upper airspace ❖ Land includes not only the land itself, but also anything built on it and any rights granted over it. ❖ A person who owns land owns everything below it down to the centre of the earth, with the exception of certain mines and minerals. ❖ He also owns the lower airspace above the land in accordance with his need for the ordinary use and enjoyment of the property. 20 Optimize Land Law Understanding: fixtures and chattels What are fixtures and chattels? Fixtures are objects which are considered to form part of the land and which are therefore transferred with the land automatically when the land is sold. An example of a fixture would be a fitted kitchen unit or a fixed fireplace surround in a house Chattels are simply personal possessions that have no connection with the land. They therefore remain in the possession and ownership of the seller when the landowner sells their land, and the landowner can take those items with them. An example of a chattel would be a grandfather clock or a kitchen table Why do we need to know the difference between them? Section 62 of the Law of Property Act 1925 says that a sale of land includes any ‘fixtures’ attached to that land, provided that there is no contrary provision in the contract for the sale of the property excluding them (s 62(4)). The extent of the land to be transferred on sale is determined at the date of the contract for the sale of the property. Prior to exchange of contracts taking place, the landowner may remove any items that he or she wishes from the property; however, once the contract is complete, any fixtures that were on the land at the date of the contract will be automatically transferred as part of the land sold. Up for Debate In the case of Taylor v Hamer [2003] 03 EG 127 the buyers argued successfully that fixtures to be included in a sale were determined even earlier: at the time when the property is offered for sale. In this case, the claimant had agreed to purchase a house from the defendant for the sum of £3.15 million. Chattels, on the other hand, will not be transferred with the land because they are simply the personal property of the seller and not part of the land at all. If an argument arises as to whether an item should have been included in the sale of property, if there is no mention in the contract of which items are going to be removed on the sale, we therefore need to determine whether that item is a fixture, and therefore included in the sale, or a chattel, and therefore excluded. Introductory Topics 21 How is a fixture created? An object becomes a fixture either through the actual physical attachment of that object to the land or because its purpose is considered to be so wholly connected to the land that it cannot be separated from it. At law the attachment of fixtures to the land is called ‘annexation’. There are two tests to determine whether an item is a fixture or a chattel: the ‘degree of annexation’ test and the ‘purpose of annexation’ test (Holland v Hodgson (1872) LR 7 CP 328): 1. The degree of annexation test is the principal test and should always be applied first. This test looks at the level of physical attachment of the object to the land. 2. The purpose of annexation test should be applied wherever the degree of annexation is insufficient. This looks at the reason for the placing of the item on the land. Degree of annexation What we need to know here is the extent of the physical attachment of any given object to the land. The more firmly or irrevocably the object’s attachment to the land, the more likely it is to be a fixture. Applying this principle, the contrast between a series of fitted kitchen base or wall units, which cannot be removed without taking them apart, and a completely freestanding kitchen dresser, serves as a good illustration. Generally speaking, if detaching the object from the land would mean either having to destroy the object itself or significantly damage the property to which it is attached, then it will be a fixture. Case precedent – Holland v Hodgson (1872) LR 7 CP 328 Facts: Spinning looms bolted to the floor of a mill were held to be fixtures. Principle: Degree of annexation. Application: In a problem question scenario, compare the facts you are given to those in Holland v Hodgson to help decide whether or not the object in question is a fixture under the degree of annexation test. Ask yourself whether the item is attached to the land or simply resting on its own weight. If, on the other hand, the object is simply resting on the land by virtue of its own weight, it will not be considered a fixture. 22 Optimize Land Law Case precedent – Hulme v Brigham [1943] KB 152 Facts: Heavy printing machinery resting on its own weight on the floor of a printing press was held to be a chattel only. Principle: Degree of annexation. Application: In a problem question scenario, compare the facts you are given to those in Holland v Hodgson to help decide whether or not the object in question is a fixture under the degree of annexation test. Ask yourself whether the item is attached to the land or simply resting on its own weight. However, note the case of Elitestone v Morris: Case precedent – Elitestone v Morris [1997] 1 WLR 687 Facts: A wooden bungalow resting on concrete pillars was considered a fixture. Principle: Degree of annexation. Application: The key here is that the bungalow would have to be dismantled in order to move it. It was therefore held to be a fixture even though it was not technically attached to the land. The following diagram may help to put this into context: Simply resting on the ground Lower degree of physical attachment Standing on a plinth or base that is attached to the ground Attached, but its removal would not cause damage Very firmly fixed: would cause damage to remove Higher degree of physical attachment Introductory Topics 23 Up for Debate Interestingly, the fact that the item in question is somebody’s home is not relevant in the question of fixtures and fittings: it is the moveability of the object that carries weight in the courts’ decision-­making. This is illustrated in two recent cases of Mew v Tristmire [2011] EWCA Civ 912 and Caddick v Whitsand Bay Holiday Park Ltd [2015] UKUT 63 (LC). In Mew v Tristmire, the claimants, who lived on houseboats that rested on wooden platforms in the harbour, sought to claim that their homes were fixtures. The court held that the houseboats were chattels, however. The reason for this was that, unlike the bungalow in Elitestone v Morris, the houseboats could easily be moved away from the harbour without demolition. The Land Tribunal’s recent decision in Caddick v Whitsand Bay Holiday Park Ltd [2015] UKUT 63 (LC), in which it was held that a holiday park home was not a fixture, supports this premise. Aim Higher It is significant that the court, in making their decision in Mew v Tristmire, highlighted the fact that the original purpose of the houseboats was that they should be moveable and not a permanent addition to the land. Points to remember about the degree of annexation Holland v Hodgson and Hulme v Brigham Elitestone v Morris ❖ If the item is resting on its own weight, it is likely to be a chattel, regardless of size or weight. ❖ If the structure cannot be moved without destroying it, it is likely to be a fixture, even if it is not physically attached. 24 Optimize Land Law Purpose of annexation Having first applied the degree of annexation test and shown that the object you are testing is not sufficiently attached to the land to make it a fixture, it may nevertheless be possible to show that the object is a fixture by applying the purpose of annexation test. 1. Degree of annexation 2. Purpose of annexation The focus of the purpose of annexation test is not on the physical attachment of objects to the land; rather it looks at the motivation behind the placement of the object in its setting. If it can be shown that the object was placed on the land with the intention that it should become a permanent addition to the land, then it will be deemed a fixture. Case precedent – D’Eyncourt v Gregory (1866) LR 3 Eq 382 Facts: A stone garden seat and large marble statues of lions were placed at certain points around the landowner’s garden. Held: the placing of the statues in particular locations within the garden clearly showed the landowner’s intention that they would form a permanent part of the garden design. They were therefore fixtures rather than chattels despite their not being in any way attached to the land. Principle: Purpose of annexation. Application: In a problem question scenario, compare the facts you are given to those in Berkley v Poulett to help decide whether or not the object in question is a chattel. Ask yourself whether the placement of the objects is purely for their enjoyment as individual items or as part of a larger scheme or design. If, on the other hand, it can be shown that the object was placed on the land merely for convenience, or for the purpose of creating some kind of temporary improvement or look, then it will be deemed a chattel. Introductory Topics 25 This means that a single stone statue in a garden, if placed randomly and resting on its own weight, would not become a fixture; but if the same statue was made the focal point of a garden design – for example the central piece in a circular rose garden or the focal point at the end of a trellis walk – it could easily be construed as a fixture under the purpose of annexation test. Case precedent – Berkley v Poulett [1977] 1 EGLR Facts: A statue and sundial resting on their own weight in a garden were held to be chattels. The court held that their placement within the garden was simply to enjoy the object for their individual aesthetic value and not as part of an overall garden design. Principle: Purpose of annexation. Application: In a problem question scenario, compare the facts you are given to those in D’Eyncourt v Gregory to help decide whether or not the object in question is a chattel. Ask yourself whether the placement of the objects is purely for their enjoyment as individual items or as part of a larger scheme or design. Which test is more important? Although the degree of annexation test is the older, more established test, the purpose of annexation test takes precedence between the two (Hamp v Bygrave (1983) 266 EG 720). Aim Higher Examiners will be looking for you to apply the degree of annexation test first and then, if there isn’t a sufficient degree of annexation for the object to be a fixture, to look at the purpose of annexation test to see if the item might still be deemed a fixture due to its placement or setting. Because of the precedence given to the purpose of annexation test over the degree of annexation test, it is possible that an object which is very firmly attached to the land and as such would be considered a fixture under the degree of annexation test, may nevertheless be deemed a chattel if the reason for attaching it to the land is simply to enable the owner to better enjoy the object as a chattel. 26 Optimize Land Law Case precedent – Leigh v Taylor [1902] AC 157 Facts: Tapestries tacked to the wall in a building were held to be chattels and not fixtures, and so had not become a part of the land in question. Principle: Purpose of annexation. Application: Use this case where the facts show that the level of attachment of the object is overridden by the purpose for doing so. Remember that the only way in which the tapestries could be viewed and enjoyed was by tacking them to the wall. It was not the intention of the property owner in doing this to make them a permanent fixture of the land. To give the case a more modern interpretation, one might say that the same reasoning would apply in the case of fitted carpets and curtains. In any event, each case should be treated individually on its own merits and a common-­sense approach applied in every case. Thus in Botham v TSB Bank plc [1997] 73 P&CR D 1, the facts of which are discussed below, fitted carpets were held to be chattels, but in the earlier case of La Salle Recreations Ltd v Canadian Camdex Investments Ltd (1969) 4 DLR (3d) 549, wall to wall carpeting in a hotel that incorporated the hotel’s design motif was held to be part of the overall hotel design and therefore a fixture. An object affixed purely to allow the better enjoyment of that object will remain a chattel However, if the object forms part of a larger design, it may nevertheless be a fixture Degree of annexation Purpose of annexation The leading case in this area is that of Botham v TSB Bank plc, which concerned an argument over whether various items in Mr Botham’s flat were fixtures: Introductory Topics 27 Case precedent – Botham v TSB Bank plc [1997] 73 P&CR D 1 Facts: The question arose as to whether certain objects in the claimant’s flat were fixtures or chattels. The items were: fitted carpets, light fittings, gas fires, curtains and blinds, bathroom fittings (towel rails, soap dishes, lavatory roll holders and the bathroom taps), kitchen units including the sink and the white goods in the kitchen. Applying first the degree and then the purpose of annexation tests, the Court of Appeal decided that bathroom fittings and built-­in kitchen units and some of the light fittings were fixtures. The rest of the items were chattels. Principle: Degree and purpose of annexation. Application: Use the examples given in this case to help decide whether or not the object in question is a fixture or a chattel. It is interesting to note that integrated kitchen appliances, including a freestanding cooker which, although connected electrically, remained in position by its own weight, were not held to be fixtures in this case. In making his decision in the case, Roch LJ proposed a useful set of indicators to be used when deciding whether objects attached to land were fixtures or chattels: Is it an ornament and is the attachment to the building intended to allow the item to be enjoyed as an ornament? Can the item be removed without damaging the fabric of the building? What type of person installed the item? Was it the builder or a specialist installer or the occupier? Is it freestanding or set into the surrounding part of the building? Did the person who brought the item onto the land own it? The type of person who installed the item and who brought the item onto the land are perhaps surprising, albeit logical questions, but perhaps given less precedence than the others in modern application. Aim Higher Read the judgment of Roch LJ and make a list of all of the items discussed in Mr Botham’s flat. You could create a very useful revision tool by listing all those items which were held as chattels and all those which were held to be fixtures. 28 Optimize Land Law Points to remember about the purpose of annexation Leigh v Taylor D’Eyncourt v Gregory and Berkley v Poulett ❖ If the purpose of annexation is only to enable the chattel to be enjoyed as a chattel, the item remains a chattel. ❖ If the purpose of annexation is to make a permanent improvement to the property (for example through an overall scheme of architectural design), it becomes a fixture. Can a building ever be a chattel? One final point to make about fixtures relates to buildings on the land. The definition of land given in section 205(1)(ix) of the Law of Property Act 1925 states that land automatically includes any buildings on that land. It may seem odd, then, that we would want to contemplate a building being anything other than a fixture (and therefore part of the land on which it rests). However, there is case law to show that under certain circumstances a building can be construed as a chattel and can therefore be removed from the land by the landowner on a sale of the property. Case precedent – Culling v Tufnal (1694) Bull NP 34 Facts: A Dutch barn resting on its own weight was held not to be a fixture and therefore could be removed by the landowner on the sale of the land. Principle: Buildings as chattels. Application: In a problem question scenario, use the facts in Culling v Tufnal to help decide whether or not the object in question is a fixture under the degree of annexation test. Remember, the size is irrelevant – with the degree of annexation, it is the manoeuvrability that counts. The court in the much more recent case of Dibble v Moore came to a similar conclusion in respect of some greenhouses: Introductory Topics 29 Case precedent – HE Dibble Ltd v Moore [1970] 2 QB 181 Facts: Greenhouses which were described as ‘moveable’ were held to be chattels by the court. Principle: Buildings as chattels. Application: In a problem question scenario, use the facts in Dibble v Moore to help decide whether or not the object in question is a fixture under the degree of annexation test. Remember, the size is irrelevant – with the degree of annexation, it is the manoeuvrability that counts. The final case worth mentioning on the subject of buildings as chattels in the context of fixtures is the House of Lords case of Elitestone v Morris, in which the court suggested that an element of common sense should be applied in such cases. Elitestone v Morris is a good example of where a building will be considered a fixture, despite a lack of foundations anchoring it to the earth. Up for Debate It is arguable that, on the basis of the purpose of annexation test, the bungalow in Elitestone v Morris might have been considered a fixture in any event. Why do you think this is? Aim Higher The buildings cases can be easily cross-­referenced with the degree of annexation cases that relate to the size and scale of an object when considering whether an item is easily moveable and therefore a chattel. Examiners will give you credit for making the connection and using these cases when discussing your answers in a problem question scenario. Chapter summary All land in England and Wales is held on tenure from the Crown, by means of an estate limited to a specified finite period (leasehold) or for an unlimited duration (freehold). There are two courts of law in England and Wales: the courts of the common law and the courts of equity. Common law remedies are governed by precedent and available as of right; equitable remedies are discretionary. 30 Optimize Land Law The ownership of land is divided into two: legal ownership and equitable ownership. The legal and equitable owners may be the same or different people. An action in respect of land is unique in that a claimant dispossessed of his land can claim recovery of the land itself. This is a real action. The owners of all other forms of property are entitled only to seek compensation from the dispossessor. Land includes not only the land itself, but also anything built on it and any rights granted over it. A person who owns land owns everything below it down to the centre of the earth, with the exception of certain mines and minerals. He also owns the lower airspace above the land in accordance with his need for the ordinary use and enjoyment of the property. Land also includes any fixtures upon it; but it does not include chattels, which at all times remain the personal property of the individual landowner. There are two tests to determine whether an item is a fixture or a chattel: the ‘degree of annexation’ test and the ‘purpose of annexation’ test (Holland v Hodgson (1872)). The Degree of Annexation looks at the level of physical attachment of the object to the land; the greater the attachment, the more likely it is to be a fixture. The Purpose of Annexation looks at the reason for the placing of the item on the land. If it can be shown that the object was placed on the land with the intention that it should become a permanent addition to the land, then it will be deemed a fixture. Under certain circumstances a building can be construed as a chattel and can therefore be removed from the land by the landowner on a sale of the property. Putting it into practice 1. Rasul buys a plot of land with two dilapidated barns on it and a river running across the southernmost boundary. On the purchase deed, the property is described as ‘Plot of land at Menston, East Howshire’. Rasul intends to restore the barns and convert them into dwellings, one for him to live in and the other to let, as he plans on starting his own business running fishing holidays on the land. Advise Rasul on the following: a) Rasul arrives on Monday morning only to discover the former owner of the land demolishing the barns and loading the resultant stone, tile and rubble onto a flatbed truck, to take away. When Rasul challenges the former owner, he says that the buildings are not part of the land and so were not included in the sale. b) Rasul walks down to the lake to find Archie, the former owner’s son fishing in the river. When Rasul asks Archie what he is doing, he says that fishing rights were not included in the sale. Introductory Topics 31 c) Rasul turns to walk back to the gates of the property. As he turns something glints in the silt at the side of the lake; it is a small stone that looks like water-­smoothed glass. He picks it up and puts it in his pocket. Intrigued as what it is, he shows it to a friend, who is a geologist. The friend excitedly tells Rasul that it is a diamond, uncut and in its natural form. It appears that Rasul may have found a source of diamonds on his land! With the help of the geologist, Rasul sets to work organising a small exploratory mining operation on the land. Returning to the land on Wednesday morning, however, he finds two very official looking men waiting for him at the gate. They tell him they are agents of the state and that they are claiming any diamonds found on the land on behalf of the government. d) Somehow the story leaks to the press. Seeing a worthy news story, a local newspaper flies a helicopter over the land, trying to get photos of the site. 2. In 1991 Lance bought the ‘show flat’ on an exclusive development of waterfront apartments in the city centre. He was pleased to have secured the flat because, being the show flat, it had been designed and dressed for sale by a local, but fairly well-­known, interior designer in order to showcase the features of the apartment to their very best advantage. Lance was particularly excited about the bed in the master bedroom, which had a black leather headboard with in-­built reading lamps, the ‘cubist’ fitted bookshelves in the living room and the free standing stainless steel range cooker in the kitchen. Lance completed on the sale last week. However, when he entered the flat he was devastated to find that the apartment had been stripped bare. All the furniture and fittings were gone, including the bed, bookshelves and cooker. There are wires hanging out of the walls where the reading lamps had been removed and the removal of the bookshelves has left small screw-­holes in the damask wallpaper in the wall against which it had been affixed. The cooker, which was gas, had been disconnected. When Lance contacted the developer to complain, they said that the furniture was for show only and had not been a part of the sale. Lance wants his furniture back. Advise Lance. Feedback on putting it into practice 1. We are not told about the reservation of any of these matters to the seller in the purchase deed. Nor are the various items mentioned in the description of the property given in the purchase deed. We therefore need to look to the statutory definition of land in order to answer the question. a) According to the definition given in s 205(1)(ix) of the Law of Property Act 1925, land includes all buildings on it. Therefore the sale of the plot of land will include the barns and the former owner has no right to take them. 32 Optimize Land Law b) Section 205 also states that land includes incorporeal hereditaments, including privileges, which are the right to take produce from the land. Rasul has therefore also bought the right to fish on his lake, when he buys the land. c) In addition section 205 includes in the definition of land mines and minerals found on the land, whether or not held apart from the surface. The diamonds would be included within this definition. Diamonds do not form part of the mines Royal, and so the Crown has no right to take them – they are the private property of Rasul. d) According to the common law maxim, he who owns land, owns everything above it, up to the heavens. However, this maxim has now been limited to the lower airspace, following the case of Bernstein of Leigh (Baron) v Skyviews & General Ltd. This case, which turned on similar facts, found in favour of the owner of the aeroplane. The same would be true here unless he can prove that the helicopter was flying particularly low, or in a way that interfered with his ordinary use and enjoyment of the property (see also Wollerton & Wilson Ltd v Richard Costain (Midlands) Ltd). 2. Bed: Degree of annexation – the headboard is affixed to the wall of the apartment (Holland v Hodgson) and the lamps are set into the headboard, which would suggest a degree of permanence. Their removal has left loose wires, which would suggest a high degree of annexation. We are given no information on the bed itself, which may be simply placed against the wall and not fixed. Purpose of annexation – we are not told whether the bed itself matches the design of the headboard. If it does, there may be a case for arguing that it is part of a larger design (D’Eyncourt v Gregory). Bookshelves: Degree of annexation – we are told the removal of the bookcase has made small holes in the wallpaper where it was fixed to the wall. This suggests a moderate degree of annexation, but it could have been affixed simply to prevent it from toppling over and therefore to better enjoy it as a chattel (Leigh v Taylor). Cooker: this is a free standing range cooker, albeit that it is attached via the gas pipe which has been disconnected. Under the degree of annexation test, using Botham v TSB, this is unlikely to be considered a fixture. However, consider whether the cooker forms the focal point of the kitchen and therefore could be construed as part of the overall design under the purpose of annexation test. Introductory Topics 33 Table of key cases referred to in this chapter Defining land Case name Area of law Grigsby v Melville [1974] Ownership of land below the surface of the earth Bocardo SA v Star Energy [2010] Land below the surface Bernstein of Leigh Lower and upper (Baron) v Skyviews & airspace General Ltd [1978] Lemmon v Webb [1895] Lower airspace Ellis v Loftus Iron Company (1874) Lower airspace Kelsen v Imperial Tobacco Co. [1957] Lower airspace Wollerton & Wilson Lower airspace Ltd v Richard Costain (Midlands) Ltd [1970] Rosebery Ltd v Rocklee Ltd (2011) Airspace above leasehold property Principle Whoever owns land owns everything below the surface of that land, to the centre of the earth. Whoever owns land owns everything below the surface of that land, to the centre of the earth. The lower airspace is deemed to belong to the property and the upper airspace is not. Where a third party enters into the landholder’s airspace, they will be guilty of trespass even if no damage is caused to the property. Where a third party enters into the landholder’s airspace, they will be guilty of trespass even if no damage is caused to the property. Where a third party enters into the landholder’s airspace, they will be guilty of trespass even if no damage is caused to the property. Where a third party enters into the landholder’s airspace, they will be guilty of trespass even if no damage is caused to the property. With a lease of part of a building there should be no presumptions about the extent of airspace included in it. 34 Optimize Land Law Fixtures and chattels Case name Area of law Principle Holland v Hodgson (1872) Degree of annexation The more firmly an object is fixed to the property, the more likely it will be a fixture. D’Eyncourt v Gregory (1866) Purpose of annexation Berkeley v Poulett [1977] Purpose of annexation Leigh v Taylor [1902] Purpose of annexation Botham v TSB Bank plc [1997] Fixtures in general Culling v Tufnal (1694) Buildings as fixtures Mew v Tristmire [2011] Buildings as chattels Taylor v Hamer [2003] Hulme v Brigham [1943] Elitestone v Morris [1997] Time of annexation Degree of annexation Buildings as fixtures Caddick v Whitsand Buildings as Bay [2015] chattels Fixtures to be included in a sale of property will be determined when the property goes on the market. An object resting on its own weight, regardless of size and manoeuvrability, will be a chattel. Objects forming part of a scheme of design can be fixtures, even when not physically attached to the land. Objects placed on the land purely for their enjoyment by their owner will remain chattels. If an object is affixed to the land solely for the purpose of better enjoying that item, it will remain a chattel. Usefully lists items which will generally be considered to be fixtures, and those which will not, under both the degree and purpose of annexation tests. A building can be a chattel if it rests upon its own weight and is capable of being moved. If a building or other object must be dismantled or destroyed in order to move it, it will be a fixture. If a structure was intended to be moveable it will be a chattel. If a building can be moved without demolition it will be a chattel. @ Visit the book's companion website to test your knowledge Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary www.routledge.com/cw/optimizelawrevision 2 Estates and Interests in Land Revision objectives • Do you understand the difference between an estate and an interest in land? Understand the law • Can you describe the principle of overreaching? • Can you remember what the five different legal estates in land are? Remember the details • Can you explain how to protect a legal or equitable interest in land? • Do you understand the doctrine of notice and how this is applied? Reflect critically on areas of debate • Can you accurately describe how the process of overreaching works and discuss it giving case law examples? • Can you see how the issues discussed relate to the conveyancing process and why it is important to adequately protect your interest in land? Contextualise Apply your skills and knowledge • Can you identify whether an estate or interest in land is legal or equitable, taking into account creation and registration considerations? Chapter Map Two legal estates Freehold Five legal interests Leasehold Easements Mortgages Rentcharges Commonhold Protection in registered land Three categories of interest: Registrable dispositions Third party interests Must be registered in order to take effect Leases of over seven years Legal easements Legal mortgages Rentcharges Rights of entry Estate contracts Protect by Notice or Restriction on the Land Register Restrictive covenants Interests under a trust But can be overreached by payment to two trustees Equitable interests Miscellaneous statutory charges All other interests are equitable, including: Rights of entry Equitable easements and mortgages Estate contracts Restrictive covenant Beneficial interests under a trust Protection in unregistered land Legal rights ‘bind the whole world’ Except for puisne mortgages Unregistered or ‘overriding’ interests Do not need to be registered to be protected Leases under seven years Puisne mortgages Easements acquired by implication or prescription Estate contracts Interests in actual occupation Equitable rights are either: Registrable as a land charge Restrictive covenants Subject to the doctrine of notice Equitable easements post 1925 Family Law Act charges 38 Optimize Land Law Introduction In Chapter 1 you were introduced to the concepts of tenures and estates in land. This second chapter takes us a step further by introducing the various lesser rights that an individual may have over land, both legal and equitable, and how those rights may be discovered or protected. In particular you will be taking a look at unregistered (or ‘overriding’) interests in land, which are often the focus of exam questions. You will also be considering the concept of overreaching which, again, is a device that you will be expected to be able to understand and apply in an exam scenario. Understanding: estates in land There are two legal estates in land: the ‘fee simple absolute in possession’ (or freehold) and the ‘term of years absolute’ (or leasehold). Freehold • fee simple absolute in possession Leasehold • term of years absolute Freehold The formal term for the freehold estate: ‘fee simple absolute in possession’, can be broken down into smaller sections: Fee Simple • The estate is inheritable • There is no restriction on who can inherit Absolute • The right is not subject to any conditions In possession • The right is available now, and not at some point in the future A freehold estate, therefore, is an inheritable estate in the land which exists in the present and which will continue for an unlimited period of time. The only reason this kind of estate will be brought to an end is where the owner dies without leaving anyone to inherit. In this case the land will be returned to the Crown, as absolute owner. Estates and Interests in Land 39 Common Pitfalls It should be noted that the term ‘in possession’ does not require actual physical possession of the property; under section 205(1)(xix) of the Law of Property Act 1925, if the freeholder is in receipt of rents or profits made from the land, this will be sufficient to denote ‘possession’ for legal purposes. Leasehold The leasehold, or ‘term of years absolute’, is more limited than the freehold, continuing only for a specified period of time, or ‘term of years’: Term of years • The estate lasts for a specified period of time, or ‘term’ Absolute • The right is not subject to any conditions When the specified period comes to an end, the leasehold estate will cease and the land will be returned to the freehold owner of it. The nature of leasehold property is discussed in more detail in Chapter 7. Aim Higher Can you see what element of the fee simple absolute in possession is not present from the statutory definition of the term of years absolute? A leasehold estate in land does not have to take effect ‘in possession’. This means that it is possible to have the benefit of a lease which starts at some point in the future. Commonhold The Commonhold and Leasehold Reform Act 2002 created a new form of landholding, called commonhold. The concept of commonhold land was created primarily to overcome difficulties faced by owners of leasehold property in enforcing covenants (that is, promises to do, or not to do, something) against neighbouring properties, but it has not proved a popular device. 40 Optimize Land Law Common Pitfalls Commonhold should not be mistaken for another form of estate in land, however. In fact, it is simply an alternative method of holding freehold land. Anyone buying commonhold land is therefore buying the freehold in the property, but subject to the rules and regulations of the commonhold. The features of commonhold can be summarised as follows: Each separate property within the commonhold is called a commonhold ‘unit’. The shared, or ‘common’ parts of the commonhold are owned by a commonhold association, who are in charge of the commonhold’s management and maintenance. Every unit holder is a member of the commonhold association so that all the unit holders share in the running of the common parts. The commonhold association abides by rules set out in a ‘commonhold community statement’. Unit holders pay a management or service charge to the commonhold association for the upkeep of the common parts. Commonhold units Commonhold community statement Commonhold Common parts Commonhold association Estates and Interests in Land 41 Understanding: interests in land Introduction In addition to the two legal estates in land, it is also possible to have an interest in land. This is a lesser right over the land which falls short of possession, but which is nevertheless proprietary in nature: that is, the owner of an interest in land has real rights over the land and not simply a personal interest in it. For a reminder of the difference between proprietary and personal interests, go back and re-­read the section entitled ‘The proprietary nature of land’ at page 10. Anyone can own an interest in land It is not always necessary to own land to have an interest in land. For example, a privilege, or ‘profit à prendre’, allows the owner of that interest to enter a person’s land in order to take produce from it, such as crops or firewood, without actually being the owner of any land themselves. Aim Higher There are exceptions to this rule: as easement can only benefit an individual as the owner of the benefited land. This is discussed in further detail in Chapter 9. As a property right, an interest in land can be sold by the owner of the interest or transferred to a third party in the same way that an estate in land can. The owner of an interest in land can also protect their interest as against a third party purchaser of the estate in which the interest is held. carries proprietary rights does not require ownership of the land itself can be protected against a purchaser of the legal estate is a lesser right over the land Interest in land 42 Optimize Land Law Legal and equitable interests in land Interests in land can be legal or equitable. Legal interests According to section 1(2) of the Law of Property Act 1925, there are five legal interests which can exist over land. These are: a) b) c) d) e) an easement, right or privilege; a rentcharge; a charge by way of legal mortgage; miscellaneous statutory charges; rights of entry. Rentcharge Easement Mortgage Legal interests Right of entry Statutory charges Section 1(2)(a) Easements and privileges An easement is the right of one landowner to use or to restrict the use of the land of another. The most common right of user would be a right of way. A privilege is an old fashioned legal term for a ‘profit à prendre’. Profits differ from easements in that they allow the owner of the profit to take produce from the land, such as fish, wood or hay, as opposed to simply making use of the land in some way. Profits à prendre are a very ancient class of right and are rare. Easement: a right to use the land Profit à prendre: a right to take something from the land Estates and Interests in Land 43 Section 1(2)(b) Rentcharges A rentcharge is the right to receive a periodic payment from the owner of freehold land. The concept of the rentcharge is now largely outdated and the creation of new rentcharges, with the exception of the estate rentcharge (a charge made to pay for the provision of services and maintenance on a housing estate), has been prohibited under the Rentcharges Act 1977. Under the Act, all other existing rentcharges are also being phased out by 2037. Section 1(2)(c) Charge by way of legal mortgage A ‘charge by way of legal mortgage’ is the correct legal terminology for a mortgage entered into under the Law of Property Act 1925. A mortgage is where a person borrows money, usually to buy a house, and the lender takes as security for the loan a charge or mortgage over the property. Lender exchanges money (a loan) for an interest in the property This gives the lender a legal interest in the property, which entitles them to take possession of the house and sell it to repay the outstanding debt if the borrower does not repay the loan. Section 1(2)(d) Miscellaneous statutory charges There is no form of legal interest under the current law that fits into this category. Section 1(2)(e) Rights of entry A right of entry is the right for a landlord to enter their tenant’s property and reclaim possession of it, where the tenant has breached one or more of the terms of the lease. Creation of legal interests In order for any interest in land to be legal it must be: a) one of the five kinds of interest listed under section 1(2) of the Law of Property Act 1925; and b) made by deed (s 52(1) LPA 1925). c) In addition where the land is registered the interest must be registered against the property at the Land Registry in order to become a valid, legal interest (s 27(2)(d) Land Registration Act 2002). s 1(2) Deed Register Legal 44 Optimize Land Law d) Easements and profits must also be created for a period equivalent to a legal estate in land: that is, either for an unlimited period (in fee simple absolute), or for a fixed and certain period of time (term of years absolute). Failure to comply with any of these requirements will result in the interest taking place in equity only. It is in this way that it is possible to have an equitable easement or an equitable mortgage. Failure to comply with the formalities for the creation of a legal interest may result in the creation an equitable one It should be noted that the minimum requirement for an equitable easement is that it must be made in writing, under s 53(1)(a) LPA 1925. Easements are considered in more detail in Chapter 9. Equitable interests Under section 1(3) of the Law of Property Act 1925, any interest in land which does not fall within the categories listed at section 1(2) of the Act will exist only in equity. There are many different types of equitable interest in land, but the most common of these are estate contracts, restrictive covenants and beneficial interests under a trust. Restrictive covenants Equitable interests Interest under a trust Estate contracts Estate contracts An estate contract is a contract for the sale and purchase of land. A simple contract for the purchase of residential property is the most common form of estate contract but there are also other forms of estate contract, including options to purchase (the right to purchase the land within a fixed time period) and pre-­ emption rights (rights of first refusal on land). Estates and Interests in Land 45 Estate contracts Contract for the sale of land Option to purchase Pre-emption right Restrictive covenants A restrictive covenant is a promise by the landowner not to do a particular act on or in relation to their land. This might include a covenant not to build on the land, or not to use premises for business purposes, for example. You will be considering the concept of restrictive covenants in detail in Chapter 10. Beneficial interests under a trust A trust of land will exist wherever one person holds the legal title to property on behalf of, or for the benefit of another. You have seen how this can happen in Chapter 1 where land is jointly owned by two or more persons. LAW The trustee holds the legal interest EQUITY The beneficiary holds the beneficial interest Points to remember about estates and interests in land Two legal estates ❖ There are two legal estates in land: freehold and leasehold. ❖ Commonhold is an alternative form of holding freehold land. Five legal interests ❖ There are five legal interests in land. ❖ Only four of these are currently in use. These are: easements, mortgages, All other interests are equitable rentcharges and rights of entry. ❖ There are five legal interests in land. ❖ Only four of these are currently in use. These are: easements, mortgages, rentcharges and rights of entry. 46 Optimize Land Law Aim Higher Being able to identify the various different types of legal and equitable estates and interests in land is vital to being able to answer a question on the topic of interests in land in an exam scenario, and a great first step to take towards mastering this topic. However, examiners will also expect you to be able to explain how to protect these various interests and apply this to the facts of a problem question scenario. The next section of the chapter shows you how to do this. Protecting interests in registered and unregistered land Registered land The current system of land registration under the Land Registration Act 2002 separates rights and interests in land into three categories: Registrable interests or dispositions Third party rights and interests Unregistered or ‘overriding’ interests Registered land Registrable interests Third party rights and interests Unregistered interests Registrable interests Registrable interests are listed under section 27(2) of the Land Registration Act 2002. Included in this category are the four current legal interests in land listed under section 1(2) of the LPA 1925. Legal leases for over seven years’ duration also come within this category. Legal mortgages Rentcharges Registrable interests Rights of entry Expressly granted legal easements Legal leases for over seven years Estates and Interests in Land 47 Rights in this category must be registered in order to take legal effect. If they are registered, they will bind any purchaser of a legal estate in the land affected by the interest. Registrable interest Registration at the Land Registry Binding Third party interests Any other kind of interest in land is classed under the Land Registration Act 2002 as a third party interest in land. Such interests include all equitable interests over land, including equitable easements and mortgages, restrictive covenants, interests behind a trust and estate contracts. Registration of third party interests is not compulsory, but the owner of the interest can protect it by registering the interest against the property over which they hold the right, either by ‘Notice’ or ‘Restriction’. The burden of a restrictive covenant or estate contract would be protected by Notice; an interest under a trust by Restriction. Equitable easements and mortgages Protect by Notice Restrictive covenants Protect by Notice Interests under a trust Protect by Restriction Estate contracts Protect by Notice Third party interests Failure to register an interest as a Notice or a Restriction will mean that a third party will not be bound by interest. This is regardless of whether the third party knew about the interest or not. Case precedent – De Lusignan v Johnson [1973] 230 EG 499 Facts: A lender knew that a contract had been entered into for the sale of property over which the lender was taking a mortgage, but the lender was able to take free of the contract because it had not been registered at the Land Registry. 48 Optimize Land Law Principle: Failure to register a third party interest will result in the owner of the interest having no way of protecting that interest. Application: Use this case to show the strict application of this principle. Non-­ registration will result in no protection regardless of knowledge. Unregistered or ‘overriding’ interests In spite of the above, there are certain third party interests that will bind a purchaser of registered land even where those interests have not been protected by the registration of a Notice or Restriction at the Land Registry. These interests are listed at Schedule 3 of the Land Registration Act 2002 and include: Schedule 3 paragraph 1 • Legal leases granted for seven years or less Schedule 3 paragraph 2 • Interests of people ‘in actual occupation of the property’ Schedule 3 paragraph 3 • Legal easements acquired by implication or prescription Legal leases granted for seven years or less As we have seen above, legal leases granted for over seven years are registrable dispositions under section 27(2) of the Land Registration Act 2002. They must therefore be registered in order to take legal effect as an estate in land. Legal leases granted for any lesser period of time are unregistered interests and will therefore be protected as against a third party, regardless of whether or not they appear on the register at the Land Registry. In the case of legal leases for between three and seven years’ duration, these can be noted as a Notice on the Land Register, but will in any event be protected if they are not registered. Leases for less than three years are incapable of entry on the Land Register. Estates and Interests in Land 49 Aim Higher It is worth considering together all the different categories of lease at this point in order to get a fuller picture of how each different kind can be protected. The chart below should help with this. Legal leases for >7 years Legal leases for 3–7 years Legal leases for <3 years Equitable leases May be registered as a Notice Cannot be registered May be registered as a Notice But will be protected as an unregistered interest in any event But will be protected as an unregistered interest in any event Or may be protected as an overridng interest (see below) Must be registered Interests of people in actual occupation This third category of interest under Schedule 3 of the Land Registration Act 2002 is designed to protect those people who may have an equitable interest in the property in which they are residing. Examples of such people would include a person who owns the beneficial interest in the property, but who has no legal interest on which to rely (as we saw in Chapter 1), or a tenant under an equitable lease. Case precedent – Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 Facts: The family home was in the husband’s sole name but the wife had an equitable interest in it by virtue of her contribution to the purchase price. The husband failed to keep up the mortgage repayments on the house and the mortgage company sought to repossess it. Held: the wife had an overriding interest in the property by virtue of her actual occupation of it. The bank was therefore bound to take the house subject to her interest. Principle: A person in actual occupation will have an overriding interest provided their interest in the land is a proprietary one. Application: Use this case to show that a person’s occupation will create an overriding interest, provided they have a beneficial interest in that property. Compare the case against the facts of your own scenario in order to draw a comparison. 50 Optimize Land Law Case precedent – National & Provincial Bank Ltd v Ainsworth [1965] AC 1175 Facts: A wife claimed the right to occupy the property on the basis of her status as the wife of the legal owner, and not by virtue of any equitable right attributed to her on the basis of financial contribution to the purchase of it. The House of Lords held that she could not have an interest in actual occupation because her rights were personal and not of a proprietary nature. Principle: A person in actual occupation will not have an overriding interest unless they can establish proprietary rights in the property. Application: Contrast the facts of this case with the facts of Williams & Glyn’s Bank v Boland, above, in which the occupant’s interest in the property was proprietary. Aim Higher The ability of an occupier to establish proprietary rights under a sale and leaseback agreement has recently been discussed in the controversial case of Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52. Albeit seemingly unfair to the innocent occupant of the property, the court held that no proprietary interest could have been granted by the company who were subject to the terms of a mortgage. What constitutes actual occupation? In Williams & Glyn’s Bank v Boland there was no dispute that the wife was actually living at the property, but in other cases proof of actual occupation is one of fact and degree. Case precedent – Abbey National Building Society v Cann [1990] 2 WLR 832 Facts: A family had bought a house but had not yet moved because they were having building work carried out at the property. They were held not to be in actual occupation for the purposes of Schedule 3, paragraph 2 of the LRA 2002. Principle: In order to claim an overriding interest by virtue of actual occupation, the occupation must be permanent and continuous. Putting a few pieces of furniture in the property prior to moving in is not sufficient. Application: Use this case to support your argument that actual occupation is required in order for an interested party to benefit. Under Sched 3. Estates and Interests in Land 51 Paragraph 2 says that a person with an equitable interest in property who is in actual occupation of the property in question will have an overriding interest provided: the occupation would have been obvious on a reasonable inspection of the land; or the interest is disclosed on reasonable enquiry. Obvious upon reasonable inspection Equitable interest Occupation Unregistered or ‘overriding’ Interest or Disclosed upon reasonable enquiry Is there an extra toothbrush in the bathroom? Are there additional coats or shoes by the door? Are there clothes in the cupboards? Is the interest-holder’s presence obvious? Are there other belongings of that person around the house? Are there other obvious indicators? Case precedent – Kingsnorth Finance Co Ltd v Tizard [1986] 1 WLR 783 Facts: The family home was in the husband’s sole name but the wife had an equitable interest in it by virtue of her contribution to the purchase price. The couple split up and the wife moved out but continued to return to the house every day to look after the children. The court found that whilst the wife’s occupation of the property had not been reasonably discoverable upon inspection, the bank should have been put on notice of the possibility of her occupation as they were aware of the couple’s recent separation. They should therefore have made further enquiries of the husband. 52 Optimize Land Law Principle: The interest of a person in actual occupation will be overriding provided either that the interest is not disclosed on reasonable enquiry or the occupation would have been obvious on reasonable inspection. Application: Is a useful case because it can be used to support a finding against the holder of an interest if their occupation would not have been obvious on inspection of the property, or to support a finding in favour of the holder of an interest if the claimant should have made enquiries but did not. Continuity or permanence of occupation Apart from the occupation of the person with the interest being obvious upon reasonable inspection, the occupation must be continuous or permanent. Case precedent – Strand Securities v Caswell [1965] Ch 958 Facts: The defendant lived in the country but also owned an apartment in the city of London which he used when he was working there. He also let his daughter live in the apartment free of rent. He was found by the court not to have an overriding interest in the property because he did not live there on a permanent basis. His daughter’s residence was immaterial because the occupation had to be by the owner of the interest. Principle: In order to claim an overriding interest by virtue of actual occupation, the occupation must be continuous. Application: Use this case to show that occupation must be continuous. Compare it with the facts of your exam scenario to support your argument. Up for Debate In making his judgment in Abbey National v Cann Lord Oliver said, obiter, that, for the purposes of acquiring an interest in actual occupation, occupancy did not necessarily require the interest-­holder’s actual physical presence: a caretaker could occupy property on his employer’s behalf and an employee on behalf of their company. In the light of this, it seems that builders were working at a house as agents of the claimants could legitimately be construed as occupying a property for this purpose. This was confirmed in the recent case of Thomas v Clydesdale Bank plc [2010] EWHC 2755, in which builders and interior designers employed to carry out work before the family moved into the property were held to be sufficient evidence of actual occupation to give the bank knowledge of their interest. Estates and Interests in Land 53 In the same vein, short absences from the property, either in hospital or on holiday, will not affect the enforceability of the interest. Case precedent – Link Lending v Bustard [2010] EWCA 424 Facts: Mrs Bustard had an equitable interest in the property but had not been living there for a year due to an extended hospital stay on account of mental illness. The court nevertheless found that she had an interest in actual occupation under Sched 3 because it had never ceased to be her intention to return to the property once she had recovered. Principle: Temporary absences from the property do not negate actual occupation so long as it remains the occupant’s intention to return. Application: Use this case to show that even an extended absence from the property will not defeat a claim to an interest in actual occupation if the intention is not to leave the property on a permanent basis. Legal easements acquired by implication or prescription These will be discussed further in Chapter 9, but essentially easements acquired by implication or prescription are acquired informally and therefore do not require the same formality for their creation as easements which have been expressly granted. As with interests in actual occupation, the protection of easements acquired by implication or prescription as overriding interests are subject to provisos. These are that: the existence of the easement is known to the purchaser of the burdened land; and either the existence of the easement is obvious upon a reasonable inspection of the land; or the easement has been exercised within one year prior to the disposition. Easements as overriding interests Is there an overriding interest? Does the purchaser of the land know about the easement? Could he have discovered it by inspecting the property? Has the easement been in use for the last year? Buyer can take free of the interest when the land is bought. 54 Optimize Land Law Common Pitfalls Although commonly used it should be noted that, technically speaking, the use of the term ‘overriding interest’ is incorrect. Under the Land Registration Act 2002 these interests are called ‘unregistered interests’ in land. The reference to overriding interests refers back to the law which the 2002 Act supersedes. However, this category of interests is still commonly referred to as ‘overriding’ in order to prevent confusing them with interests in unregistered land. Aim Higher You are now able to explain how to protect the various interests you identified earlier in the chapter in registered land. Don’t forget to test your knowledge further by considering how you might protect these same interests in unregistered land, after reading the next section. Points to remember about the protection of interests in registered land Three categories of interest in registered land Registrable dispositions Third party rights Unregistered or ‘overriding’ interests ❖ There are three categories of interest in land under the Land Registration Act 2002. ❖ These are: registrable interests or dispositions, third party rights and interests and unregistered or ‘overriding’ interests. ❖ Registrable dispositions include leases of seven years’ duration or greater and all of those interests listed under s 1(2). ❖ They must be registered in order to be afforded protection against third parties. ❖ Third party rights include all equitable interests in land. ❖ They must be registered as a Notice or Restriction in order to be protected, unless they are overriding in nature. ❖ Overriding interests include leases of less than seven years’ duration, interests in actual occupation and legal easements acquired by implication or prescription. ❖ They will bind a purchaser regardless of registration. Estates and Interests in Land 55 Unregistered land Legal interests in unregistered land With the exception of puisne mortgages, dealt with below, all legal interests in unregistered land abide by the common law rule that ‘legal rights bind the whole world’. A purchaser of unregistered land will therefore buy the land subject to any legal rights over it, regardless of whether they were aware of that right when they purchased the property. ‘Legal rights bind the whole world’ Equitable interests in unregistered land The majority of remaining interests in land, most of which are equitable, must be registered in a central public register, called the Central Land Charges Register, in order to be protected against purchasers of the land over which the interests were held. This is in accordance with the provisions of the Land Charges Act 1972. Common Pitfalls Do not mistake the Central Land Charges Register, which relates to unregistered land only, with the Land Registry, which holds details of registered land. The Central Land Charges Registry is a single entity, based in Plymouth, Devon, and is quite separate from the Land Registry, which has offices all over the country. There are six classes of interest (A to F ) listed in the Act which can be registered against unregistered land in this way. Of these, the five most common types of interest that you are likely to come across in practice are: Class C(i) • Puisne mortgages Class C(iv) • Estate contracts Class D(ii) • Restrictive covenants Class D(iii) • Equitable easements Class F • Family Law Act charges 56 Optimize Land Law Puisne mortgages Puisne mortgages are legal mortgages which are not protected by the deposit of the title deeds with the lender. Puisne mortgages are the only legal interest capable of registration under the Land Charges Act. Estate contracts As we have seen above, an estate contract is an equitable interest in land and the legal term used for a contract for the sale of land (although it exists in other forms). Restrictive covenants Class D(ii) applies only to restrictive covenants created after 1926. Restrictive covenants created before this are subject to the equitable doctrine of notice, which states that a purchaser of land would have to take that land subject to any equitable interests which existed over it UNLESS they could show that they were a ‘bone fide purchaser for value of the legal estate without notice’ in the land. Equitable easements An equitable easement will usually be created in situations where either an attempt to create a legal easement has failed, because the correct formalities have not been adhered to, or where the easement has not been created for a duration equivalent to a legal estate in land. This category would therefore include an easement created for life, for example. As with Class D(ii), this Class of interest applies only to equitable easements created after 1926. Easements created before this are subject to the equitable doctrine of notice, as above. Family Law Act charges The Family Law Act 1996 gives a spouse a right of occupation in the matrimonial home where that spouse is not a legal owner of the property. This is a right of occupation only and does not amount to an interest in the land. Non-­registration of interests under the Land Charges Act 1972 If a person with an interest in unregistered land fails to register their interest under the Land Charges Act 1972 the effect will depend on the type of interest they have failed to register. Under section 4 of the Act: Unregistered puisne mortgages under Class C(i) and Class F charges under the Family Law Act 1996 will be void (invalid) against a purchaser of any interest in the land (including an equitable one). They would therefore remain binding against a person who was given the land as a gift, for example. Unregistered equitable interests, including estate contracts (Class C(iv)), restrictive covenants (Class D(ii)) and equitable easements (Class D(iii)), will be Estates and Interests in Land 57 void against a purchaser for money or money’s worth of a legal estate in the land. They would therefore remain binding against the purchaser of an equitable interest in the land or a person receiving the legal estate as a gift. Failure to register a Land Charge Purchase of the legal estate No protection Equitable interests not covered by the 1972 Act Any interest in the land not covered by the provisions of the Land Charges Act 1972 is subject to the rules that applied before the provisions of the Act came into being. These state that the interest will bind any purchaser of the land, unless they are a bone fide purchaser for value without notice. Such interests include: restrictive covenants and equitable easements created before 1926 informally created equitable interests, such as an interest created by virtue of contribution to the purchase of the property (including resulting or constructive trusts) interests arising by estoppel (an explanation of estoppel is given in Chapter 6). Aim Higher In order to gain a more thorough understanding of the doctrine of notice and what constitutes notice itself, the following article is a very helpful guide: Howell, J, ‘The doctrine of notice: an historical perspective.’ Conv. 1997, Nov/ Dec, 431–441. The article not only puts the doctrine in a historical context, but also provides an excellent summary of the different kinds of notice and how they are constituted and applied today. Points to remember about protecting interests in unregistered land Legal rights bind the whole world ❖ A purchaser of unregistered land buys subject to any legal rights over it (with the exception of puisne mortgages), regardless of whether they were aware of that right when they purchased the property. 58 Optimize Land Law Most equitable interests are registrable as land charges ❖ Puisne mortgages and most equitable rights over the land must be registered as Any other interest is governed by the doctrine of notice ❖ Any other interests in the land not covered by the provisions of the Land Charges a Land Charge in order to be protected. ❖ Failure to register an interest as a Land Charge will result in it being void against a purchaser of the property burdened by that interest. Act 1972 are protected against veryone except a bone fide purchaser for value without notice. Understanding: the principle of overreaching What is overreaching? The principle of overreaching exists to protect innocent purchasers of property, enabling the purchaser to take free of the equitable interest in the land without the benefit of the interest being lost to the interest holder. Overreaching works by removing the equitable interest from the land when it is sold and placing it instead on the purchase monies. This results in the holder of the interest having an interest in the money, rather than in the land. The interest lifts itself from the property Payment to two trustees Attaching itself to the purchase monies The interest is therefore not lost; rather it simply moves to another location The Law of Property Act 1925, section 2, states that any interest under a trust of land can be ‘overreached’ by a purchaser of the legal estate of the land burdened by the interest, provided that the purchaser pays the purchase monies to two trustees or a trust corporation (that is a company paid to act professionally in the place of trustees to a trust). Estates and Interests in Land 59 That the purchase money is paid to two trustees is crucial for the concept of overreaching to work. Two contrasting cases illustrate the importance of this: Case precedent – Williams & Glyn’s Bank Ltd v Boland [1981] AC 487 Facts: The family home was in the husband’s sole name but the wife had an equitable interest in it by virtue of her contribution to the purchase price. The wife’s interest in the property was not registered at the Land Registry, but took effect as an overriding interest because she was in actual occupation of the property. The court held that when the bank repossessed the property they had taken it subject to the wife’s interest. Principle: Overreaching can only take place when the purchase monies are paid to two trustees. Application: Use this case to illustrate when overreaching will not work. Compare the facts of the case to the facts in your own problem question scenario and use them to support your findings. Case precedent – City of London Building Society v Flegg [1988] AC 54 Facts: The family home was in the joint names of a husband and wife, but the wife’s mother and father, who lived with them, had an equitable interest in it by virtue of their contribution to the purchase price. When the building society sought to repossess the property the parents tried to argue that the building society should take subject to their equitable interest. However, it was held that the interests of the parents had been overreached. Principle: Overreaching will defeat even an overriding interest in the land, if the money is paid to two trustees. Application: Use this case to illustrate the working of overreaching in practice. Compare the facts of the case to the facts in your own problem question scenario and use them to support your findings. In the first case overreaching could not have occurred because the monies, in this case in the form of the loan, had been paid to a single trustee (that is the husband, as holder of the property on trust for himself and his wife). However, in the second case the interests of the parents could be overreached because the loan monies had been paid out to two trustees (the husband and wife). This was even though the parents were in actual occupation of the property and therefore had an overriding interest in it. 60 Optimize Land Law Aim Higher Do you think the outcome in the case City of London Building Society v Flegg seems unfair on the parents? The principle of overreaching is a creation of land law, designed to protect innocent purchasers of a property and not those with an interest in the land. The interests of the parents in theory are instead protected by the law of trusts. As trustees of the monies received by them from the building society, the daughter and son-­in-law have had a duty to hold the monies on trust on behalf of the parents in proportion to the parents’ share in the property. Any breach of this duty would therefore be dealt with under the rules relating to breaches of trust. Points to remember about overreaching Overreaching enables a purchaser to take free of the interest Overreaching takes place wherever the purchase monies are paid to two trustees Overriding interests can be overreached ❖ Overreaching is where the equitable interest detaches itself from the land and instead attaches to the proceeds of sale of the property. ❖ Any interest under a trust of land can be ‘overreached’ by a purchaser of the legal estate of the land affected by the interest provided that the buyer pays the purchase money to two trustees of the trust or a trust corporation. ❖ This is even where the interest is overriding in nature. Estates and Interests in Land 61 Chapter summary There are two legal estates in land: freehold and leasehold. Commonhold is an alternative form of holding freehold land. There are five legal interests in land. Only four of these are currently in use: easements, mortgages, rentcharges and rights of entry. All other interests in land are equitable. There are three categories of interest in land under the Land Registration Act 2002. These are: registrable interests or dispositions, third party rights and interests and unregistered or ‘overriding’ interests. Registrable dispositions include leases for over seven years’ duration and all those interests listed in s 1(2) LPA 1925. They must be registered in order to be afforded protection against third parties. Third party rights include estate contracts, restrictive covenants and interests under a trust of land. They must be registered as a Notice or Restriction in order to be protected, unless they are overriding in nature. Overriding interests include leases for less than seven years’ duration, easements acquired by implication or prescription and interests in actual occupation. They will bind a purchaser regardless of registration. A purchaser of unregistered land buys subject to any legal rights over it (with the exception of puisne mortgages), regardless of whether they were aware of that right when they purchased the property. Puisne mortgages and most equitable rights over the land must be registered as a Land Charge in order to be protected. Failure to register an interest as a Land Charge will result in it being void against a purchaser of the property burdened by that interest. Any other interests in the land not covered by the provisions of the Land Charges Act 1972 are protected against everyone except a bone fide purchaser for value without notice. Overreaching is where the equitable interest detaches itself from the land and instead attaches to the proceeds of sale of the property. Any interest under a trust of land can be ‘overreached’ by a purchaser of the legal estate of the land affected by the interest provided that the buyer pays the purchase money to two trustees of the trust or a trust corporation. This is even where the interest is overriding. Putting it into practice 1. How would you protect the following interests in registered land: a) b) c) d) e) A covenant not to use the land for business purposes. A right of way granted for a period of ten years only. An easement granted for life. The right of a landlord to re-­enter property on non-­payment of the rent. A contract for the sale of land. 62 Optimize Land Law f ) A mortgage created by deed. g) The right of a spouse to a share in the property by virtue of their financial contribution to its purchase. 2. Janice and Elodie together buy their dream property, Buddlea Farmhouse, from a local Farmer called Mr Biggs. On moving in, however, they are dismayed to find Mrs Biggs still at the property, apparently with no intention of moving out. Mr Biggs had ever made any mention of his wife, and when they visited the property they had never seen any evidence of her living there. Buddlea Farmhouse had been registered at the Land Registry in Mr Biggs’ sole name. When they question Mrs Biggs about it, she says that as Mr Biggs’ wife she has every right to live at the property, and besides, she ‘paid her fair share’ for the farmhouse when it was purchased. a) Advise Janice and Elodie as to what rights Mrs Biggs may have in Buddlea Farmhouse, and how she might have protected these. b) How would your answer differ if Buddlea Farmhouse had been unregistered? c) Is there any way in which Janice and Elodie can take free of Mrs Biggs’ interest? d) What if the property had been in the joint names of Mr Biggs and his brother, Ted? Feedback on putting it into practice 1. a)A restrictive covenant is an equitable interest in land and a third party interest under the Land Registration Act 2002. It must therefore be protected by entering a Notice on the Land Register. b) Assuming this is a legal easement, it is a registrable disposition and must be registered in order to be afforded protection against a purchaser of the burdened land (s 27(2) LRA 2002). c) An easement granted for life is an equitable easement. Equitable interests in land must be protected by the entry of a Notice on the Land Register. (Only easements acquired by prescription or implication are overriding.) d) A right of re-­entry is a legal interest in land. It is a registrable disposition and must be registered in order to be afforded protection against a purchaser of the burdened land (s 27(2) LRA 2002). e) A contract for the sale of land is a kind of estate contract and is therefore equitable in nature. It must be protected by the entry of a Notice on the Land Register. f ) A mortgage is a legal interest in land. It is a registrable disposition and must be registered in order to be afforded protection against a purchaser of the burdened land (s 27(2) LRA 2002). g) The spouse has an equitable interest in the property by virtue of their contribution to the purchase price. This is a third party interest and must Estates and Interests in Land 2. 63 be protected by entering a Restriction on the Land Register. However, if the spouse fails to do this, their interest may also be protected as an overriding interest by virtue of their actual occupation in the property (Sched 3, para 2 LRA 2002). a)It appears that Mrs Biggs has an equitable interest in Buddlea Farmhouse by virtue of her contribution to the purchase price. As the property is registered, she must protect her interest by registering a Restriction against the property at the Land Registry, preventing Mr Biggs from selling Buddlea Farmhouse without her consent. If she has not done this however (presumably not, as Janice and Elodie have just bought it), her interest may still be protected as an unregistered or overriding interest by virtue of her occupation in the farmhouse. This will be the case provided her occupation was discoverable upon a reasonable inspection of the property or that it was disclosed upon reasonable enquiry. The facts given above suggest that her occupation of the house was not visible upon inspection, however. Janice and Elodie would need to establish whether Mr Biggs had been questioned as to whether anyone else was living at the property and if he had not disclosed his wife’s interest at this point they would be bound by it. The fact that she has been absent from the house for two months is irrelevant (Chokkar v Chokkar [1984] FLR 313). b) If the farmhouse had been unregistered, as an equitable interest not covered by the Land Charges Act 1972 Mrs Bigg’s interest will be governed by the doctrine of notice, and thus Janice and Elodie will not be bound by the interest unless they had notice of it. As a spouse, Mrs Biggs might also have been able to register a right to occupy the property as a Class F Land Charge under the Family Law Act 1996. This is a simple right to occupy the family home, however, and not an interest in the farmhouse itself. c) If Mrs Biggs has either a registered third party interest or an overriding interest, Janice and Elodie may still take free of it if they pay the purchase monies to two trustees of the interest, through the principle of overreaching. As Mr Biggs is the sole legal owner of the property, however, this will not have been the case (William & Glynn’s Bank v Boland). d) If the purchase monies had been paid to Mr Biggs and his brother Ted, Mrs Biggs’ interest will have been overreached, and Janice and Elodie will therefore take free of it. Table of key cases referred to in this chapter Case name De Lusignan v Johnson [1973] Area of law Registration of third party interests Principle Failure to register a third party interest will result in the owner of the interest having no way of protecting that interest. 64 Optimize Land Law Case name Williams & Glyn’s Bank v Boland [1981] Area of law Interests in actual occupation National & Provincial v Ainsworth [1965] Interests in actual occupation Scott v Southern Pacific Mortgages Ltd [2014] Interests in actual occupation Abbey National Building Society v Cann [1990] Interests in actual occupation Strand Securities v Caswell [1965] Interests in actual occupation Chhokar v Chhokar [1984] Interests in actual occupation Link Lending v Bustard [2010] Interests in actual occupation Williams & Glyn’s Bank Ltd v Boland [1981] Overreaching Kingsnorth v Tizard Interests in actual [1986] occupation Thomas v Interests in actual Clydesdale Bank plc occupation [2010] City of London Building Society v Flegg [1988] Overreaching Principle A person in actual occupation will have an overriding interest provided their interest in the land is a proprietary one. A person in actual occupation will not have an overriding interest unless they can establish proprietary rights in the property. No proprietary interest could have been granted by the company who were subject to the terms of a mortgage. Occupancy does not necessarily require the physical presence of the holder of the interest. The interest will only be protected where occupation of the property is obvious on reasonable inspection. Occupation must be by the holder of the interest. Occupation by an employee can be sufficient evidence of actual occupation. Temporary absences from the property do not amount to a cessation of occupation. Even an extended absence will not constitute a break in actual occupation if the intention is to return. The purchase monies must be paid to two trustees for overreaching to occur. The purchase monies must be paid to two trustees for overreaching to occur. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 3 Registered and Unregistered Land Revision objectives Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Do you understand what is meant by registered land? • Are you able to explain the difference between registered and unregistered property? • Can you describe how a chain of title is created in unregistered land? • Do you know what the constituent parts of the Register of Title are and what they contain? • Can you outline the pros and cons of land registration? • Are you able to name and discuss the three principles of land registration? • Can you see where knowledge of the land registration system would help you in other areas of land law? For example, when you are considering rights and interests over registered land and their protection. • Can you find your way around the Register of Title? • Do you know where an amendment will be made to the Register and what kinds of error warrant compensation? Chapter Map The Land Register Propietorship Register Property Register Property description Details who owns the estate Details rights benefiting the land Absolute Good leasehold Class of title Possessory Qualified Alteration and indemnity Alteration of the Register (s 65 and Sched 4 LRA 2002) To correct a mistake To update the register Exceptions from first registration Rectification To remove superfluous entries Where the proprietor consents to the change Used only where a mistake has prejudicial effect Where the proprietor has caused the mistake Charges Register Restrictions on transfer Burdens on the land Mortgages Indemnity (Sched 8 LRA 2002) Payable wherever a person suffers loss because of a mistake on the Register and: Where it would be unjust not to correct the mistake Mistake has caused loss to the claimant Correction of the mistake has caused loss Non-rectification has caused loss 68 Optimize Land Law Introduction – what is registered land? Prior to 1925, the seller proved their right to sell their land to the buyer by exhibiting to them a series of linked documents showing how the property had passed down from one owner to another over a set period of time, ending with them as seller. This was known as a ‘chain of title’. However, due to a number of inherent flaws in the unregistered conveyancing process (detailed below) the decision was taken to make wholesale change to the way in which the transfer and ownership of land was undertaken and documented. This was finally achieved by the Land Registration Act 1925, which introduced a new centralised system of land registration throughout England and Wales. ‘Registered land’ is land which has been registered under this system. Aim Higher As you have already seen from Chapter 2, whether or not land is registered affects not only how the property is transferred and how that transfer is documented; it also dictates how interests affecting that land are protected and whether or not they can be overcome. Having a good understanding of registered and unregistered land is therefore vital to your understanding and application of land law. As you progress through the chapter, try to think about the differences between the two systems and how they might be applied on a practical level: for example, how the different classes of title might affect a sale of the property and how the same information might be discovered in an unregistered land scenario. Why study both the unregistered and registered land systems? At present only around 75% of the land in England and Wales is registered, the other 25% remaining unregistered. As a result, anyone studying and practicing land law must learn about both the unregistered and registered systems of land holding and transfer. There are several reasons why, almost 90 years after the statute was imposed, large parts of England and Wales remain unregistered: 1. The registration of land across the country was slow to commence. Although the Land Registration Act came into force on 1 January 1926, registration remained voluntary in many areas until December 1990. Even then, it was only compulsory to register property on its sale; therefore gifts of land or land being handed down by will or in intestacy remained outside the requirement Registered and Unregistered Land 69 to register. In 1998 new ‘triggers’ for the compulsory registration of land were introduced, including gifts of land, transfers on death and mortgaging property. This has increased the rate of land registration considerably, but there is still some way to go. Aim Higher For a full list of all the circumstances under which registration of title is now compulsory in England and Wales, take a look at Land Registry practice guide 1 on the Land Registry’s website, which is at: www.landreg.gov.uk/assets/ library/documents/lrpg001.pdf 2. 3. 4. Under the original provisions of the Land Registration Act 1925, it was not possible to register land held by the Crown. This was because the statute made provision only for the registration of estates and interests in land, and not land owned absolutely, as is the case with Crown land. Section 79 of the Land Registration Act 2002 has resolved the problem, however, enabling the Crown to grant an estate in land to itself and which can in turn be registered. Both farms and large country houses, which often have large swathes of agricultural land attached to them, tend to be passed down from generation to generation. They might therefore only change hands two or three times during the course of a century. Add to this the fact that it has only been compulsory to register a change of ownership on a death since 1998, and you are left with a situation where many of the country’s larger estates may continue to remain unregistered for another 30 to 40 years. Government and other institutional properties are also rare to change hands and in the case of large companies may never change hands at all. These properties are unlikely to be registered under the existing statutory provisions. late introduction of compulsory registration inability to register Crown land Reasons for non-registration estates and agricultural land being slow to change hands Land government and institutional properties Unregistered land is the name given to land that has not yet been registered under the 1925 land registration system, and to which the law that pre-­dates land registration must therefore be applied. As unregistered land does not appear on the centralised land register, the ownership of an unregistered property has to be proved by other means. 70 Optimize Land Law Whilst at first glance it might seem logical simply to provide the buyer with a copy of the deed which transferred the legal ownership of the property to the seller, this is not necessarily sufficient for conveyancing purposes. This is because unregistered conveyancing practice seeks to show the history of that property’s ownership over the course of a minimum of 15 years immediately preceding the sale, by tracing an unbroken ‘chain of ownership’ from owner to owner and ending with the seller. As such, there may be a number of documents that need to be produced to the buyer, if the seller bought the property less than 15 years ago. In addition to proving a chain of ownership for the property, the seller also has to produce evidence of any interests which exist for the benefit of the property, or which restrict its use in some way. These may appear in other deeds or documents that pre-­date the chain of title. The following shows how a timeline in unregistered land converts into a chain of title for conveyancing purposes: 1997 – Arthur Swift sells Oak House to Hettie Argent by deed of conveyance from Arthur Swift to Hettie Argent 2005 – Hettie Argent sells to Annie and Robert Barnes by deed of conveyance from Hettie to Annie and Robert 2009 – Annie Barnes dies certificate of death for Annie Barnes 2013 – Robert sells Robert produces the 1997 conveyance, going back at least 15 years, plus the conveyance of the property to him, and his wife’s death certificate, showing he is now the sole owner of the property and entitled to sell. Problems with the unregistered conveyancing system The unregistered system is not without its difficulties: It is time consuming and expensive As can be seen from the illustration above, every time the property changes hands the solicitor acting for the seller must carry out a check of the title deeds to produce evidence of an unbroken chain of ownership for the buyer’s solicitor. As the title deeds and documents can span many years or even centuries and does not come in a prescribed form, this can be a laborious and time-consuming process. Registered and Unregistered Land 71 The system lacks security If the title deeds for the property are lost or stolen, proof of ownership is extremely difficult to establish as its acquisition may not be documented elsewhere. In addition, the deed making the transfer legal no longer exists. There is no transparency of ownership The private system of document holding prevents the State from building up any clear picture of who owns land at any one time and it can be difficult to find out who owns land in situations where it may be necessary to do so, for example, where the council wish to make a compulsory purchase of property. It was for these reasons that the government decided to introduce a centralised system of land holding in England and Wales, whereby details of the holding of all property at any given time, together with any rights or burdens affecting that land, should be held on a central register. The organisation that maintains this register is called the Land Registry. Understanding: land registration Introduction Land Registration was introduced under the Land Registration Act 1925. Under the Act, the purpose of land registration is to: Simplify the conveyancing process, the seller having to produce only one document: a copy of the register of title appertaining to the property being sold; Create a clear and public record of property ownership nationwide; Remove the difficulties caused by the loss or theft of title deeds, there being always a central record of the property to refer back to; Provide a guarantee from the State that the ownership of any given property is as it appears on the Land Register. Unregistered land Registered land simple cumbersome opaque insecure transparent secure guaranteed 72 Optimize Land Law The principles behind registration of title There are three jurisprudential principles which underpin the concept of land registration. These can be stated as: the mirror principle the curtain principle the insurance principle Mirror Curtain Insurance Mirror The mirror principle embodies the idea that the register should reflect the whole of the title to the property; in other words it should show every right and interest that exists over the property at a glance. The mirror principle is not fully operational under the current system of land registration, however, as you have seen in Chapter 2. This is because of the existence of overriding interests which do not appear on the Register of Title but which nevertheless bind a purchaser of the land. In defence of the current system, commentators would say that the land register was never designed to circumvent the need for a potential purchaser of the land to carry out a physical inspection of what they are purchasing. All overriding interests operate on the basis that they are either known about or could be reasonably discoverable upon inspection of the property. The land register does then arguably reflect the full position of the property as to title. Registered and Unregistered Land 73 Curtain The curtain principle refers to the need for certain interests in land to be hidden to third parties by placing them behind the ‘curtain’ of a trust of land. The idea here is that a purchaser of the property need not know the details of any trust affecting the property; their only interest is in the legal title to the property, which can be viewed effectively by looking at the register. The privacy of any trust affecting the property is therefore protected, whilst the rights of the purchaser are unaffected provided they follow the correct formalities. This would be done by ensuring that the purchase monies were paid to 2 trustees, thus overreaching the equitable interests of the beneficiaries under the trust. Insurance The insurance principle is the fundamental tenet of land registration that, as stated earlier in the chapter, if title to a property is registered at the Land Registry, that title is guaranteed by the State. Therefore if anyone buys land relying on information contained on the register but then that information turns out to be false or inaccurate, the State will pay compensation to that person through a statutory indemnity scheme set out in the Land Registration Act 2002. This is a vital part of the Land Registration system because it maintains public confidence in the system and encourages people to use it and abide by it. From the property owner’s point of view, section 58 of the LRA 2002 states that the registered proprietor shall be deemed to have been vested with the legal estate ‘as it is noted on the register’. This means that the owner can rely on the register as conclusive proof of their ownership of the property, regardless of how they came across it. £ £ £ 74 Optimize Land Law The need for reform Land registration is at present governed by the Land Registration Act 2002, which superseded the Land Registration Act 1925. The original land registration system had a number of problems. In particular, overriding interests had been the focus of a significant amount of litigation, and were considered to undermine the ‘mirror principle’. At length a report carried out by the Law Commission in 1998 and entitled ‘Land Registration for the Twenty-­ First Century: A Consultative Document’ (Law Com No. 254, 1998), made recommendations for a comprehensive reform of the law, indicating that it considered the process of land registration under the 1925 legislation was both unnecessarily complicated and outmoded, given that it made no provision for advances in modern technology. The Report advised that: 1. 2. 3. overriding interests should either be reduced in number or abolished; the time gap between the sale or transfer of land and registration of the change of ownership created uncertainty and should be closed using e-­conveyancing; and the rules relating to adverse possession needed reform. Following the Law Commission Report the Land Registration Act 2002 was enacted. Whilst the new Act repealed the LRA 1925 in its entirety, in actual fact the 2002 Act made very little change to the original provisions, its primary purpose being to pave the way for electronic conveyancing. Thus many of the original principals remain. The objectives of the LRA 2002 are: 1. 2. 3. 4. that the Register should be a complete and accurate reflection of the land in any title at any given time; the reform of the law on adverse possession; the reduction in number or removal of overriding interests in land; and the recognition of advances in modern technology in conveyancing practice. For the most part the LRA 2002 Act can be said to have achieved its first goal: a buyer of land only being bound by limited categories of rights on the payment of valuable consideration. These categories are: a) registrable charges; b) interests protected by entry of a notice on the Register; and c) unregistered interests that override a registered disposition. The law on adverse possession has been also reformed. Registered and Unregistered Land 75 Under Schedules 1 and 3 of the Act the number of unregistered interests that override the Register have been reduced. Nevertheless, their retention could be flagged as a bit of an anomaly, particularly given that one of the main objectives of the LRA 2002 was to make the Register as accurate and complete a record of the title as possible. After all, the continued existence of rights that bind a registered estate and yet do not appear on the Register is somewhat at odds with this fundamental objective. The concept behind e-­conveyancing and aim of a conclusive Register are inconsistent with overriding interests. This has been recognised, hence the attempt at reducing overriding interests in number. However, for the register to be genuinely conclusive with all aspects of conveyancing being done online, overriding interests would ultimately have to be eliminated. As this would presumably be too draconian and would itself result in injustice, however, it must be assumed that there will always be a core of overriding interests. The implementation of a full system of electronic conveyancing has been slow to be implemented. The use of electronic signatures has been trialled in places by the Land Registry, and some lenders now use e-­charges, but in 2011 the Land Registry rather disappointingly announced that it had scrapped plans to introduce electronic transfer despite a heavy investment in the scheme. In addition we still do not have simultaneous completion and registration and therefore the registration gap is still an issue. In support of the fact that the LRA 2002 has not achieved all of the objectives originally proposed by the Law Commission and that, in 2015, we still do not have a totally electronic system, the Commission are currently undertaking a further period of consultation in relation to the registered land system, its aim being to put forward a report and bill for reform in 2017. It is hoped that the report and proposed reforms will bring us a little closer to realising this objective. The Land Register The Land Register is a vast database containing the details of around two million properties in England and Wales. What can be registered? The Land Registration Act 2002 provides, under section 3, in the main for estates in land to be registered under the land registration system, although some other interests which can exist ‘in gross’ (in other words you don’t have to have own an estate in land yourself in order to own the interest), such as rentcharges and profits à prendre, can also be afforded their own individual entry on the register. For the purposes of this chapter we will be concentrating on the registration of estates in land, however. 76 Optimize Land Law All lesser interests are registered against the estates which they both burden and benefit, invariably in the form of a Restriction or Notice on the Register, as detailed in the previous chapter. Estates Profits Rentcharges Eligible for registration under s 3 LRA 2002 Each estate in land is recorded individually on the Register under its own unique Title Number. This makes the task of proving title to the property on a sale quite a simple one: the seller’s solicitor simply looks at the Register of Title for that particular property and gets all the information he or she needs for the sale. As was mentioned earlier in the chapter, the entries on the register come with a State guarantee so the buyer’s solicitor can be confident that they can rely on the information contained within it. The details for each property are recorded on the Register in the following way: This is a copy of the register of the title number set out immediately below, showing the entries in the register on 2 April 2013. TITLE NUMBER: DV748953 PROPERTY REGISTER DEVON: FRODSHAM 1. 2. (12 June 1990) The Freehold land shown edged with red on the plan of the above Title filed at the Registry and being 32 Hill Close, Frodsham (DV6 6LR). (12 June 1990) The land tinted brown on the title plan has the benefit of the following rights granted by the Conveyance dated 3 December 1902 referred to in the charges register:‘TOGETHER WITH the benefit of a right of way through the passage that passes across the rear of 34 Hill Close.’ END OF PROPERTY REGISTER Registered and Unregistered Land 77 TITLE NUMBER: DV748953 PROPRIETORSHIP REGISTER 1. 2. ABSOLUTE FREEHOLD (20 August 2009): PROPRIETOR: ELLIE-­MARIE STRUTHERS and JORDAN LUKE STRUTHERS of 32 Hill Close, Frodsham (DV6 6LR). (20 August 2009) Except under an order of the registrar no disposition by the proprietor of the land is to be registered without the consent of the proprietor of the charge dated 20 August 2009 favour of the Devon Bank plc referred to in the Charges Register. END OF PROPRIETORSHIP REGISTER TITLE NUMBER: DV748953 CHARGES REGISTER 1. (12 June 1990) A Conveyance of the land tinted pink on the title plan dated 16 October 1978 made between (1) Shane Lott (Vendor) and (2) Arlo James Bridgcombe (Purchaser) contains the following covenants:‘THE Purchaser hereby covenants with the Vendor that the Purchaser and his successors in title will not use the whole or any part of 32 Hill Close for business purposes.’ 2. 3. REGISTERED CHARGE dated 20 August 2009 to secure the moneys including the further advances therein mentioned. PROPRIETOR Devon Bank plc of 3 Market Place, Frodsham DV6 7TQ. END OF REGISTER The Register is divided into three sections: Property register The property register describes the property, usually by reference to its postal address and an attached plan. The property register also details rights and interests over other properties that benefit the property. In the example given above the property has the benefit of a right of way across the neighbouring property. Property register • description • address • plan • benefits 78 Optimize Land Law Proprietorship register The proprietorship register tells you who is the current registered owner of the property and whether there are any restrictions on that ownership, for example, restricting the sale of the property without the consent of a third party, such as a mortgage lender. It also shows the ‘class of title’ that the property has been awarded by the Land Registry when the property was first registered. This is fundamental to the saleability of the property as it will dictate not only whether the property is subject of any restrictions on its ownership, but also whether or not a mortgage can be obtained for its sale. Proprietorship register • ownership • class of title • restrictions The Land Registry can grant four different grades of title. These are: absolute freehold or leasehold title good leasehold title possessory title qualified title Absolute title Absolute title is the best title to the property you can be granted, and is the grade of title given to most freehold estates in land. Under s 11 of the LRA 2002 absolute freehold title means that the registered property owner is awarded a fee simple estate in the land together with all the beneficial rights and interests that are attached to it. This is subject only to overriding interests, rights of adverse possessors and registered protected interests that appear on the register, such as the burden of a right of way across the property, for example. Aim Higher Do you remember what it means to hold a fee simple estate in the land? Take a look back at the description given in Chapter 1 to remind yourself. A person registered with absolute leasehold title has the same rights, but is also bound by all express and implied covenants contained within the lease. It is less common to be granted absolute leasehold title, however, because the Land Registry require proof of the landlord’s title to grant the lease to the leaseholder, in order to grant it (s 10(2) LRA 2002). Covenants in leases are discussed in Chapter 8. Registered and Unregistered Land 79 Good leasehold title Good leasehold title is the more common class of title granted to the holder of a leasehold estate in land. Unlike absolute title, there is no need for the tenant to provide proof of the landlord’s right to grant the lease; it is only necessary for the tenant to show that they have been granted a valid lease themselves. The holder of a good leasehold title has all the same rights as someone with absolute title, save that they are also subject to any interests affecting the landlord’s title to the property (s 12(6) LRA 2002). Title absolute Landlord’s title to grant the lease has been proved Good leasehold Landlord’s title to grant the lease has not been proved Leasehold Possessory title Possessory title is granted to persons in possession of the land who are not able to prove their title to it. Thus this is the title given to people in adverse possession of the land, or those who have lost their title deeds to the property prior to first registration. A possessory title is subject to all interests that exist over the land at the date of registration and as such the owner of a possessory title could find themselves at a later date subject to adverse interests over the property which might affect the land’s value or use but of which they were not aware at the time of registration. For this reason it is very difficult to get a mortgage over land which has only possessory title, as the land does not provide a secure investment for the lender. Qualified title Qualified title is reserved for titles which are subject to some fundamental defect that cannot be disregarded by the Land Registry. For example, qualified title may be given whereupon first registration it is discovered that a transfer within the chain of title was carried out in breach of trust. Qualified title would be awarded on the basis that the owner would take ownership subject to the interests of any of the beneficiaries under the trust arising in the future. The Land Registry will only register such a title where there is some reasonable prospect that the title can be upgraded to either an absolute title or good leasehold title at some point in the future. It is very rare to see someone registered with qualified title, in practice. 80 Optimize Land Law Absolute title Good leasehold Possessory title Qualified title Illustration showing relative strengths of title Charges register The charges register gives details of any mortgages or other rights of third parties that burden the property. In the example given above the property is subject to a restrictive covenant preventing the property from being used for business purposes and a mortgage in favour of the Devon Bank plc. Charges Register Third party rights Third party mortgages rights and interests Other interests that burden the land Aim Higher Knowing your way around the Register of Title is helpful when answering questions about the protection of interests in land, as detailed in Chapter 2. Take some time to remind yourself of the various interests and how they are protected, then look at where they might appear on the Register. Points to remember about registration of title The Register of Title The three sections of the register ❖ The register records the ownership of estates and interests in land and any rights that affect those interests. ❖ The register comprises: the property register (which defines the land and any rights benefiting it), the proprietorship register (which details ownership and class of title) and the charges register (which details any burdens affecting it). Registered and Unregistered Land Principles behind land registration 81 ❖ Land registration encompasses three jurisprudential principles: the mirror principle; the curtain principle; and the insurance principle. Alteration of the register and indemnity As is stated above, the LRA 2002 sets out a statutory scheme through which changes can be made to the Land Register under certain circumstances. Section 65 and Schedule 4 of the LRA 2002 set out the circumstances under which the register can be altered. These are: 1. 2. 3. 4. to correct a mistake on the register; to bring the register up to date (for example, where there has been a change in a company name or address); to give effect to any estate or interest that was excepted from first registration (this would apply to interests not noted on a good leasehold, qualified or possessory title); and to remove superfluous entries (this might apply, for example, where a lease comes to an end and the leasehold title therefore expires). The correction of mistakes on the register may be done by the Land Registry registrar where there has been a simple error. However, more serious mistakes must be altered either by the registrar or by order of the court, by way of ‘rectification’ of the register. Does an interest need noting on the register? Is there a mistake on the register? Is the register out of date? Does the register need to be rectified? Are the entries superfluous? 82 Optimize Land Law Rectification Rectifications of the register are subject to their own set of rules, which are set out in Schedule 4 of the LRA 2002. A rectification of the register can only be made where: A mistake has been made on the register; and The mistake could prejudicially affect the title of the registered proprietor Mistake Prejudicial effect Rectification The requirement that a mistake has been made on the register does not require any proof of fault; simply that there is a correction that needs to be made. Thus, a mistake on the register recording the perpetrator of a fraudulent property transfer would be capable of rectification in the same way as an amendment to reflect an addition or removal of property accidentally included within the title because of a mistake on the drawing of the title plan. There is no need to prove fault However the need for the mistake to have a prejudicial effect on the registered proprietor is vital to a rectification being made. Thus, whereas a fraudulent entry on the register recording the wrong person as owner of the estate would clearly be prejudicial, as would an incorrect recording of the extent of the land, the registration of an overriding interest on the title could not be entered by way of rectification. This is because its absence from the register was not prejudicial to the landowner: they were bound by the overriding interest in any event. This would apply to an interest in actual occupation, for example, as this should have been discovered by the landowner upon inspection of the property prior to their purchase. In addition to this, rectification of the Register of Title is subject to 3 further provisos: 1. 2. 3. that the registered proprietor consents to the change; if the registered proprietor has caused or substantially contributed to the mistake by virtue of a fraud or negligence; or if it would be unjust not to correct the mistake. Registered and Unregistered Land 83 Up for Debate Under what circumstances will it be unjust not to correct the mistake? Contrast Norwich & Peterborough Building Society v Steed [1992] EWCA Civ 5 in which the court held that a similar provision in the 1925 Act did not imply a general power to rectify wherever it was considered equitable to do so; and Baxter v Mannion [2010] 1 WLR 1594, in which the court took the view that it will essentially always be ‘unjust’ not to correct a mistake on the register. If a case for rectification can be established and one of the three circumstances listed above applies, the court or the registrar must order rectification unless there are exceptional circumstances which would justify their not doing so (Sched 4, paras 3 and 6). What these exceptional circumstances might be has yet to be established by the courts. Has a mistake been made? Could it prejudicially affect the registered proprietor's title? Does the registered proprietor consent to the change? Has the registered proprietor caused or contributed to the mistake? Would it be unjust not to correct the mistake? Compensation In addition to this, Schedule 8 of the LRA 2002 gives the Land Registry the power to pay ‘an indemnity’ or compensation when a person suffers loss because of a mistake on the Register. Mistake Rectification Compensation 84 Optimize Land Law In order for compensation to be paid there must have been a mistake on the Register that qualifies for a rectification of the title. In addition, one of the following three circumstances must apply: the mistake has caused loss to the claimant (albeit that it has now been rectified); the correction of the mistake has caused loss (for example where the name of an innocent party who has bought the property under fraudulent circumstances has been removed from the Register); where a mistake that should have been rectified is not corrected and loss has been suffered as a result. caused by the rectification caused by the mistake caused by lack of rectification Loss In the first two instances the amount of compensation payable will be assessed according to the value of the land immediately before rectification is ordered (see Pinto v Limm (2005)). In the third instance, however, the amount of indemnity is assessed according to the loss suffered when the mistake was made, as opposed to when the register was rectified. This is because the compensation paid is meant to reflect the loss caused by the mistake itself, and not the correction. Indemnity will only be paid where the claimant is an innocent party to the mistake. Thus, if any part of the claimant’s loss is caused by their own fraud, or is caused by a lack of proper care by the claimant, their claim will either be reduced or denied accordingly. Points to remember about alteration of the register and indemnity Correction of mistakes on the register ❖ Changes can be made to the Land Register where: there has been a mistake; the register is out of date; to give effect to an estate or interest excepted from first registration; and to remove superfluous entries (LRA 2002). Registered and Unregistered Land 85 Rectification under Sched. 4 LRA 2002 ❖ More serious mistakes must be altered either by way of ‘rectification’ of the Indemnity under Sched. 8 LRA 2002 ❖ The Land Registry can pay compensation when a person suffers loss, either because register. Rectification can only be made where a mistake has been made on the register and the mistake could prejudicially affect the title of the property owner. of a mistake on the register, or because of the correction of that mistake or a failure to do so. Chapter summary The Land Registration Act 1925 introduced a new centralised system of land registration throughout England and Wales. The purpose of land registration is to: This is explained by way of the mirror principle; the curtain principle; and the insurance principle. Schedule 3 of the LRA 2002 provides for all estates in land to be individually registered, together with rentcharges, franchises and profits à prendre. All lesser interests are registered against the estates which they both burden and benefit by way of Notice or Restriction on the Register. The Register is divided in to three sections: simplify the conveyancing process; create a clear and public record of property ownership nationwide; remove the difficulties caused by the loss or theft of title deeds; and provide a State guarantee in respect of all property appearing on the register. the Property Register (which details the property and any interests benefiting it); the Proprietorship Register (which details the owners and class of title); and the Charges Register (which details all burdens affecting the land). Section 65 and Schedule 4 of the LRA 2002 set out the circumstances under which the register can be altered. These are: to correct a mistake on the register; to bring the register up to date; to give effect to any estate or interest that was excepted from first registration; and to remove superfluous entries. 86 More serious mistakes must be altered either by the registrar or by order of the court, by way of ‘rectification’ of the register. A rectification of the Register can only be made where: Optimize Land Law a mistake has been made on the register; and the mistake could prejudicially affect the title of the registered proprietor. In addition Sched 8 LRA 2002 gives the Land Registry the power to compensation when a person suffers loss because of a mistake on the Register. Putting it into practice 1. Can you find your way around the Register of Title? Take a look at the sample Register of Title relating to 32 Hill Close, Frodsham above and find the answers to the following questions: a) b) c) d) e) f) 2. Who is the owner of the estate recorded under this title number? What kind of estate in land do they hold? What class of title does the estate owner have? What interests burden the land? What interests benefit the land? Where can you find a restriction on the register? How would you go about changing the following entries on the register and which may be entitled to claim compensation: a) Boowa’s title plan is shown as including an additional piece of land from the next door neighbour’s garden; b) Siwa’s title includes a notice detailing an option to purchase which has now expired; c) Dawa has been registered as the proprietor of a piece of land, but has been the victim of a fraudulent sale; d) Kwala wishes to insert a restriction on the title of her matrimonial home, under which she has established a claim in equity. Feedback on putting it into practice 1. a)The registered proprietor, or owner, of the estate in the land is recorded in the Proprietorship Register. Here we have joint proprietors: ELLIE-­MARIE STRUTHERS and JORDAN LUKE STRUTHERS. b) Details of the property registered are contained in entry 1 in the Property Register. The register shows that the Struthers hold a freehold estate in the land. c) We can see from the Proprietorship Register that the estate owners have absolute freehold title to the property. Registered and Unregistered Land 2. 87 d) Burdens affecting the land are recorded in the Charges Register. We can see from entries 1, 2 and 3 on the Charges Register that there is a restrictive covenant against the property preventing business use, and a mortgage in favour of the Devon Bank plc. e) Details of interests that benefit the land are contained in the Property Register. We can see in this case that our property has the benefit of a right of way across the neighbouring property, 34 Hill Close. f ) Restrictions on the sale of the property are contained in the Proprietorship Register. In our example register, we can see that the Devon Bank plc have placed a Restriction on the property, preventing it from being sold without their consent. a)An innocent mistake by the Land Registry as to the extent of the land held can be easily corrected by Land Registrar on production of evidence as to the correct extent of the title. This can be done simply under Schedule 4 of the LRA 2002. If, however, Boowa has bought the land believing the additional land belongs to the title, this may warrant rectification of the register, because it could affect the value of the property and therefore be prejudicial to Boowa as registered proprietor of the land. Any loss in the value of the property as a result of removal of the additional land from the title could be claimed by way of indemnity from the Land Registry under Schedule 8 LRA 2002. b) This is a simple entry on the register requiring removal because it is out of date. This can be done by the Registrar under Schedule 4 LRA 2002. c) Dawa is the innocent victim of a fraud. He has been registered as the proprietor of the land, but rectification as the result of the fraud will result in Dawa’s removal from the register, to restore the defrauded owner of the property. This must be done by way of rectification as there has been both mistake and a prejudicial effect on the registered proprietor of the land. Dawa can claim compensation by way of indemnity under Schedule 8. d) This entry can be made under Schedule 4 as a simple update of the register. There is no ground for rectification here because Kwala has an overriding interest in the property in any event, by virtue of her actual occupation of the property. Her addition of a restriction is merely a formalisation of a pre-­existing equitable right. Essay question Has the Land Registration Act 2002 been successful in meeting its objectives? Hint: look at the section entitled ‘need for reform’ earlier in the chapter. 88 Optimize Land Law Table of key cases referred to in this chapter Case name Area of law Baxter v Mannion (2010) Rectification of the register Pinto v Limm (2005) Indemnity Norwich & Peterborough Building Society v Steed (1992) Rectification of the register Principle The 1925 Act did not imply a general power to rectify the register wherever it was considered equitable to do so. In accordance with the LRA 2002 it will always be ‘unjust’ not to correct a mistake on the Register. The amount of compensation payable will be assessed according to the value of the land immediately before rectification is ordered. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 4 Formalities for the Sale of Land Revision objectives • Do you know what is required to transfer land legally to a third party? Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Can you name the five stages in a conveyancing transaction? • What are the requirements for a valid contract for the sale of land? • Are you able to say why the decision in Record v Bell remains contentious? • Can you see where the concepts learned in this chapter impact on other areas of the law, such as the need to be precise in describing what is included in the sale of property? • Can you answer the questions in the putting it into practice section of the chapter and complete the essay and problem questions provided? Chapter Map Five stages in a conveyancing transaction Physical inspection and enquiries Investigation of title Registered: by production of official copies of the register Searches of the Local Authority and others Unregistered: by production of title deeds Building survey to assess physical condition In writing (subject to s 2(5) exceptions) Contracts for short leases Contracts made at auction Contracts made under 2000 the FSMA Resulting and constructive trusts Contract Completion s 2 LP(MP)A 1989 By deed s 52(1) LPA 1925 Registration Registered: within 30 working days’ priority period Unregistered: within two months of completion s 2 requirements Incorporates all the terms agreed between the parties Collateral contracts (Record v Bell) Wright v Robert Leonard (Developments) Signed by both parties to the agreement Variations must comply with s 2 Must be a written signature McCausland v Duncan Lawrie Spiro v Glencrown 92 Optimize Land Law Introduction Whether property is unregistered or registered, whether a huge amount is paid for it or whether it is a gift, in order for property to be legally transferred from one party to another, the transfer must be made by deed. We will be considering the requirements for a valid deed later on in the chapter. Conveyancing practice goes beyond this simple requirement for a deed, however. The majority of property sales and purchases follow a standardised system of conveyancing practice that has evolved over a period time, the purpose of which is to ensure not only that the property is transferred legally, but also to take into account a number of practical considerations and precautions. There are two reasons for this: 1. 2. Land is a valuable asset. When an individual buys their home it is in all likelihood the most expensive purchase they will ever make. It is therefore essential to ensure the buyer is getting what they pay for before they commit themselves to making the purchase. The sale and purchase of land in England and Wales is underpinned by the Latin maxim: ‘caveat emptor’, which means ‘let the buyer beware’. Caveat emptor – ‘let the buyer beware’ The effect of this maxim is that, unless the transaction is fraudulent, the seller is not liable for any matter concerning the property that the buyer fails to discover either at the time of their purchase or subsequently. This places firmly upon the buyer the responsibility to make sure that: the seller has the right to sell the property; the property is not subject to any third party rights that might affect either its market value or the buyer’s enjoyment of it; and the buyer is fully aware of the property’s physical condition. Aim Higher The marketability and saleability of property underpins every aspect of land law. As you work through the topics in this text, try to think about how the various issues might affect the sale or purchase of a property, or the owner’s enjoyment of it. For example a right of way across someone’s garden could affect its marketability and its value, if the right of way rendered the property less private. This will aid your understanding of the various concepts on a practical level, and how they interact. Formalities for the Sale of Land 93 Understanding: the modern conveyancing process There are 5 basic steps in a residential conveyancing transaction: 1. Investigation of title where the buyer’s solicitor investigates the title to the property and carries out pre-contract searches 2. Physical inspection and enquiries where the buyer’s solicitor investigates the physical aspects of the property and the buyer instructs a building survey to be carried out 3. Contract in which the buyer and seller enter into a formal binding contract for the sale of the property. This is often referred to as ‘exchange’ or ‘exchange of contracts’ 4. Completion where the transfer deed is prepared and completed and the formal legal transfer of the property takes place 5. Registration where the change of ownership of title is registered at the Land Registry Investigation of title Before a buyer commits to a purchase of land, they will want to be confident that the seller is the actual owner of the property and that they are entitled to sell it. Investigation of title Is the seller entitled to sell the land? In order to establish this, the buyer will ask the seller to ‘prove their title’ to the property: in other words, to give evidence that they have the right to sell it. This is done in one of two ways: 94 Optimize Land Law If the property is registered, by providing an up to date copy of the register entries for that particular property held at the Land Registry. If the property is unregistered, by evidencing through the production of successive title deeds to the property, that there is an unbroken ‘chain of ownership’ via which the property has passed from owner to another over a minimum period of 15 years, ending with the seller. Proving title in Registered and Unregistered Land Unregistered Land – production of title deeds Registered Land – official copies of the Register or Title As well as seeking reassurance that the seller has the right to sell the land, the buyer will also want to establish whether anyone else has any rights over the land, either to use it in a certain way, or to restrict the buyer’s use of it. For example, the property may be subject to a right for third parties to graze cattle on the land, or there might be a covenant over the land, preventing the owner of the land from building on it. This would render the land useless to someone wishing to use it for the construction of their dream home. Investigation of title Is the seller entitled to sell the land? Does anyone else have any rights over it? The buyer can discover whether any such rights exist whilst checking the official copies of the Register issued by the Land Registry in the case of registered land or, in the case of unregistered land, by looking at the wording in the title deeds and documents provided to them by the seller. Physical inspection and enquiries Investigating the condition of the property Having discovered everything they wish to know regarding the legal position of the property, the buyer now needs to consider whether there is any physical aspect of the property that might make their purchase of it undesirable. Such matters would include not only the physical condition of the property itself, but also the locality within which the property lies. The buyer will invariably carry out their own visual inspection of the property, but they may also instruct a surveyor to carry out a building survey to establish the physical condition of any buildings on the land being purchased. Physical inspection and enquiries What is the condition of the property? Formalities for the Sale of Land 95 Other enquiries of the seller In addition, the buyer’s solicitor will also carry out a number of searches and enquiries to establish whether there are any other physical considerations that may affect the property’s marketability or use. These will invariably include, amongst others: a search of local authority records, to discover any planning restrictions affecting the property as well as the ownership of any roads leading to the property and who is responsible for maintaining them; a coal mining search, to check whether there are any mine shafts on or near the land which might prove dangerous or cause subsidence to the property; an environmental report, to make sure there is no contaminated land on or near the property; and a drainage search, to check the position and maintenance of drains and sewers serving the land. Physical inspection and enquiries What is the condition of the property? Are there any other matters that affect it? The seller’s solicitor will usually also ask some more general questions of the seller, such as whether there are any maintenance or service charges attached to the property or even whether there are any disputes with neighbours that might cause a problem. The purpose of all these enquiries is to establish whether the property is a viable property to purchase, in accordance with the buyer’s requirements. Does the seller have the right to sell? Am I getting what I bargained for? Buying a house Does anyone else have the right to use it? Can I use it in the way that I want to? 96 Optimize Land Law Contract Introduction Once the title and condition of the property have been thoroughly investigated and the buyer is sure that they are happy to go ahead with their purchase, the parties will usually proceed to the contract stage of the conveyancing transaction. Entering into a binding contract for the sale and purchase of the land prior to its legal transfer is not compulsory but it is seen as standard practice, particularly in the purchase of residential property. The reason for this is primarily a practical one: whilst it may be quicker and, in the short term cheaper (it is usual for the buyer to pay a deposit of around 10% at the point of exchange), to move directly to the transfer stage of the transaction, entering into a contract for the sale and purchase with the transfer date set at a later date gives the parties the opportunity to arrange for the transfer of services to the property, such as gas, electricity and water, and to organise removers. If they go to all this trouble without exchanging contracts first, there is in theory nothing to stop the other party pulling out of the transaction at the last minute, wasting valuable time and money on both sides. The payment of the deposit and the threat of breach of contract, however, give both sides security and allows them to make the necessary arrangements for the transfer of the property without fear of this happening. This is equally the case for the buyers and sellers of commercial property, who may have even more at stake than a residential purchaser. If work needs to be carried out prior to the buyers taking possession of the property or planning permission for building works or a change of use are required, it can be done between contract and completion safe in the knowledge that the parties are bound to complete on the prescribed date. no contract contract time speed cost practicality security Formalities for the Sale of Land 97 The form of the contract In order to be valid a contract for the sale of land must comply with the provisions of Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The section states that: Section 2 (1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document. (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract. ‘In writing’ Section 2(1) clearly states that a contract for the sale of land must be in writing on order to be valid. It is therefore not possible to create a contract for the sale and purchase of land orally. ‘Incorporates all the terms’ Section 2(1) also states that in order to be valid the contract must incorporate ‘all the terms which the parties have expressly agreed’. This is significant because it means that if any of the terms agreed between the buyer and seller is omitted from the contract then the whole of that contract will be rendered void (not just the additional terms). by including them in the main contract in a separate document referred to in the contract Incorporate all the terms The easiest way to ensure that all the terms of the agreement are incorporated under Section 2 is simply to include them in the contract itself. However, Section 2(2) of the Act also states that the terms of the agreement may be incorporated by reference to some other document. 98 Optimize Land Law It is useful to be able do this where the terms of the agreement are lengthy or where a plan is required: for example, in residential conveyancing transactions a plan showing the boundaries of the property to be purchased is routinely attached to the contract for sale and the property described as ‘shown edged in red on the attached plan’. Common Pitfalls When introducing additional documents, care should be taken to ensure that they are properly incorporated into the agreement. If the contract fails to mention any additional terms agreed and documented separately, a strict interpretation of the Act would dictate that the contract would be void to failure to incorporate all its terms. additional terms failure to incorporate contract is void The courts have not always been strict with their interpretation, however. The two contrasting cases of Record v Bell [1991] 1 WLR 853 and Wright v Robert Leonard (Developments) Ltd [1994] NPC 49 serve as a useful comparison: Case precedent – Record v Bell [1991] 1 WLR 853 Facts: The parties entered into a contract for the sale and purchase of land, agreeing as a condition of completion that the sellers would produce some additional documentation. The seller produced the required documentation but the buyer refused to complete, alleging that the contract was void because it did not incorporate all the terms of the agreement. The court found in favour of the seller, stating that the agreement to produce documentation was collateral to the main contract and therefore did not have to comply with section 2. Principle: In order to be valid, a contract for the sale of land must incorporate all the terms agreed between the parties. Application: In a problem question scenario, use this case to support your argument that additional terms contained in a separate agreement will not render the main contract void; rather they will form a separate agreement, collateral to the main contract. Formalities for the Sale of Land 99 Up for Debate So why did the court find in favour of the seller in Record v Bell [1991]? By finding that the agreement to produce the additional documentation was a collateral contract, independent from the sale of land but dependent on the transaction as consideration for the agreement, the court was able to circumvent the strict requirements of the Act. The decision was not well received, however, and has not been followed in later cases. In Wright v Robert Leonard (Developments) Ltd [1994] NPC the Court of Appeal took a much stricter line: Case precedent – Wright v Robert Leonard (Developments) Ltd [1994] NPC 49 Facts: A dispute arose as to what was included in the sale of the show home on a development. The buyer believed that contents of the show home were included in the purchase. The sellers disagreed. There was no reference to the contents of the property in the contract. The court held that the contract did not comply with Section 2 as it did not incorporate all the terms of the agreement and was therefore void. Principle: In order to be valid, a contract for the sale of land must incorporate all the terms agreed between the parties. Application: In a problem question scenario, use this case to support your argument that any additional terms agreed will render the contract void unless they have been properly incorporated into the contract. Compare the facts contained in your scenario to the facts of the case and draw a comparison. It is worth mentioning that, despite the court’s judgment on the issue of the contract, Mr Wright did get his fixtures and fittings in the end. Finding that there had been an error in the drafting of the contract, the court ordered that the contract be rectified to show the inclusion of the flat contents in the sale. Aim Higher The trick to interpreting and applying these cases is to ask the question: is the term essential to the sale agreement or is it merely a side issue? Consider whether the term agreed is capable of standing alone or whether it is an integral part of the sale. If it relates to the description or extent of the land, the title, the price or the identity of the parties, then it should be part of the main contract and incorporated accordingly; if it is an agreement to throw some old garden tools in with the sale, then it could be construed as collateral to the main contract and not essential to it. 100 Optimize Land Law ‘Exchange of contracts’ Section 2 makes reference both in subsections (1) and (3) to contracts being ‘exchanged’. This is a reference to the common practice of solicitors to produce two identical copies of the contract for the sale and purchase, sending one copy to the other party to sign and retaining the other copy for signature by their own client. Contract signed by buyer Contract signed by seller This is often done because it is impractical to arrange for both parties, who may live some distance apart, to both sign the same document. Once signatures have been obtained the contracts are then physically swapped, so that each party has the part of the contract signed by the other. Common Pitfalls The use of two documents, one being incorporated as part of the terms of the other, should not be confused with the production of two identical copies of the agreement in an exchange of contracts. Whilst it is accepted practice for duplicate contracts to be produced and one signed by each party, the position is quite different where a single contract is produced with an additional document attached to it. In this case, it is the contract itself that must be signed by both parties: the signature by one party on the supplementary document or plan will not be sufficient. A contract cannot be created by correspondence The concept of exchange of contracts is also quite separate from an agreement reached through an exchange of correspondence. Again, whilst in an exchange of contracts situation, two identical copies of the contract are produced, one party signing each, with a simple exchange of letters the two parties are not both signing one single agreement; nor are all the terms necessarily all incorporated into one document. Formalities for the Sale of Land 101 Case precedent – Commission for the New Towns v Cooper (Great Britain) Ltd [1995] CH 259 Facts: In this case it was held that letters passed between the parties did not constitute an exchange of contracts for the purpose of Section 2. Principle: It is not possible to create a contract under Section 2 by correspondence: there must either be one document signed by both parties to the agreement, or two identical documents with a signature on each. Application: In a problem question scenario, use this case to support your argument that it is not possible to create a contract under Section 2 by correspondence. Aim Higher Further reading: to gain a useful insight into the use of collateral contracts by the courts as a method of circumventing section 2, read RJ Smith’s article, entitled: ‘Contracts for the sale of land: collateral contracts.’ LQR 1992, 108(Apr), 217–221. ‘Signed by all the parties’ There are two arms to this requirement under section 2: 1. 2. the need for a written signature the requirement for the signature of all parties to the agreement. Up for Debate In the case of J Pereira Fernandes SA v Mehta [2006] 1 WLR 1543 (Ch D), it was held that a typed signature at the bottom of an email could theoretically be sufficient to create a binding contract, although in the case in question the signature had been created automatically as an ‘auto signature’, which was held to be insufficient, because the relevant party had not intentionally ‘signed’ it. It is unlikely that such signatures will be generally accepted in the near future, however, because of the obvious security issues this would create. For further insight and discussion of this issue, see: the case comment entitled, ‘Emails can create “signed” contracts.’ PLB 2006, 27(4), 25,31. 102 Optimize Land Law Case precedent – Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 Facts: The buyer prepared a letter for the seller to sign, setting out the seller’s agreement to sell the land ‘shown on the enclosed plan’. The seller signed and dated both the letter and the plan, but the buyer signed only the plan and not the letter. Held: the contract was invalid. The plan was merely a document incorporated into the agreement; it did not form the contract for sale. It was the letter needed to have both signatures on it. The buyer had not signed the letter and the fact that his name appeared typed at the top of the letter was not sufficient to satisfy the provisions of section 2. Principle: The typing or printing of a name does not constitute a signature. Application: In a problem question scenario, use this case to support your argument that a valid contract has not been created. Compare the facts in your own scenario and apply the case accordingly. An electronic signature within the definition of section 7 of the Electronic Communications Act 2000 will also create a valid signature for the purposes of section 2, but again it is not current practice to do so. The case of Firstpost Homes Ltd v Johnson [1995] also shows that the court requires the signature of both parties to the agreement, and not just one. Spiro v Glencrown Properties Ltd [1991] Ch 537 provides us with a further example: Case precedent – Spiro v Glencrown Properties Ltd [1991] Ch 537 Facts: A buyer and seller entered into an option to purchase land, which was signed by both parties to the agreement. The buyer then exercised the option by serving written notice on the seller. The seller then refused to complete, claiming that the agreement was invalid because the notice did not bear the seller’s signature. The court held that, whilst the option agreement itself had to comply with Section 2, the notice exercising the option did not. The seller was therefore bound by the agreement. Principle: A contract for the sale of land must be signed by all the parties to the agreement. Application: In a problem question scenario, use this case to illustrate the requirement for the contract to be signed by both parties to the agreement. Use the facts of the case to show that a signature on any supplemental documentation will not be sufficient. Formalities for the Sale of Land 103 Aim Higher For a detailed explanation of the working of section 2, read the judgment of Hoffman J in Spiro v Glencrown Properties Ltd [1991]. Options to purchase and pre-­emption rights We came across options to purchase and pre-­emption rights in Chapter 2. The two types of contract differ because, whereas an option to purchase binds the seller to the sale of the property to the buyer within a specified time period, if the buyer serves a notice on them requiring the sale, with a pre-­emption agreement, there is no requirement for the seller to sell. It is only if the seller decides to sell the property that the pre-­emption agreement comes into play and the seller is bound to offer the property first to the buyer at the rate specified in the agreement. Options to purchase bind the seller to sell to the buyer when requested Pre-emption rights require the seller to offer to the buyer first if they sell Common Pitfalls Students are often confused into thinking that, because of the different legal emphasis on pre-­emption rights, there is no need for the original pre-­emption agreement to comply with the provisions of s 2. However, this is incorrect. The point to remember is that an agreement giving pre-­emption rights over land, regardless of how it is triggered, is nevertheless an agreement relating to land and thus must comply with the section in order to be valid. This was confirmed in the case of Bircham & Co (No.) Ltd v Worrell Holdings Ltd (2001) 82 P&CR 212. 104 Optimize Land Law Variations of contract Having established that a contract for the sale of land will only be valid if all its terms are contained or incorporated into the agreement, it is logical to assume that, if the terms of that agreement are varied in any way, the variation must also comply with section 2. So if, for example, the parties agree a reduction in the purchase price because the building survey has shown that some damp work is required to be carried out at the property, any amendment to the price must be made clear in the contract and the amendment signed by both parties to the agreement. Alternatively, a new contract can be drawn up and signed. Either way, the amended terms must be incorporated into the contract in accordance with the statutory provisions. Case precedent – McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38 Facts: The solicitors on a sale and purchase exchanged contracts but subsequently realised that they had mistakenly set the completion date for a Sunday. They therefore agreed, by letter, that completion would actually take place on the Friday before. The buyer then refused to complete and the seller sought damages for breach of contract. The court held that, following the variation of the date of completion by the solicitors by letter, the contract no longer incorporated all the terms of the contract and was therefore void. Principle: Where a contract for the sale of land is varied, the variation must comply with Section 2. Application: Compare the facts of this case to your own in a problem question scenario and use it to show that the contract is or is not valid, where terms have been varied in some way. Price? Property? Has there been a variation of contract? Date? Parties? Formalities for the Sale of Land 105 Exceptions to the requirement for writing Although most contracts for the sale and purchase land come within the remit of section 2, there are some exceptions. These are listed in Section 2(5) of the Act, which provides that: Section 2(5) This section does not apply in relation to— a) a contract to grant such a lease as is mentioned in section 54(2) of the Law of Property Act 1925 (short leases); b) a contract made in the course of a public auction; or c) a contract regulated under the Financial Services and Markets Act 2000, other than a regulated mortgage contract; and nothing in this section affects the creation or operation of resulting, implied or constructive trusts. Contracts to create short leases Section 54(2) of the Law of Property Act 1925 exempts short leases (those are leases that run for three years or less) from the usual formality of writing for their creation. It would therefore be illogical to require a contract to create such a lease to be formed in writing, and so section 2(5) excludes such contracts. The formalities required for the creation of leases will be considered in Chapter 7. Contracts made at public auction At a public auction the contract is sealed on the fall of the auctioneer’s hammer. The requirement for writing under Section 2 therefore does not apply. Contracts regulated by the Financial Services & Markets Act 2000 These might include contracts relating to unit trusts or debentures, either of which may include land. Such contracts are very specialised and you are unlikely to come across them in practice. The creation of resulting or constructive trusts The informal nature of resulting and constructive trusts dictates that they do not require writing in order to be enforceable. 106 Optimize Land Law Case precedent – Yaxley v Gotts [1999] 3 WLR 1217 Facts: The claimant had converted a house into 3 flats on the understanding that he would receive one of the flats on completion of the works. However, he was never given the flat. It was held that, pursuant to their agreement, the defendant was holding the flat on a constructive trust for the claimant. Principle: Resulting and constructive trusts are, by their nature, implied and therefore do not require writing. Application: Use this case to illustrate the fact that informally created rights in land do not require writing. Constructive trusts are considered in Chapter 6. Points to remember about contracts for the sale of land Requirements of s 2 LP(MP)A 1989 Exchange of contracts Incorporating the terms of the agreement Exceptions to s 2 ❖ They must be in writing; contain all the terms of agreement between the parties; and be signed by all parties to the agreement. ❖ The parties’ signatures can be contained either in one document or in two separate but identical documents which are subsequently exchanged. ❖ The terms of agreement may be contained within a document separate to the contract, so long as the wording of the contract incorporates them. ❖ There is no requirement for writing in the case of a contract to grant a lease for a term not exceeding three years; contracts made at public auction and certain contracts regulated by the FS&MA 2000. Formalities for the Sale of Land 107 The legal effect of the contract The effect of exchanging contracts if twofold: 1. 2. From the point of exchange the parties are legally bound to complete the transaction. The buyer becomes the owner of the property in equity in accordance with the equitable maxim ‘equity regards as done that which ought to be done’. In this context ‘that which ought to be done’ is the completion of the sale of the property. Failure to complete the sale and purchase consequently gives rise to both legal and equitable remedies. At common law, failure to complete by either party gives rise to an automatic right to receive damages for breach of contract. In equity, the remedies of specific performance (whereby the defaulting party would be forced to complete) and injunction (preventing a threatened breach of the contract) may also be available. It should be remembered that such remedies are entirely at the discretion of the court, however. contractual damages LAW Exchange of contracts injunction EQUITY specific performance Completion Once contracts have been exchanged, all that remains is for the parties to complete the formal transfer of the legal estate to the buyer. As stated at the beginning of the chapter, this can be done quite simply, by deed. The Law of Property Act 1925 requires, under s 52(1), that, in order to be legal, any transfer of property must be made by deed. The creation of a valid deed requires three components, which are set out in section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A). These are that the document must be: clear on the face of it that it is intended to be a deed (e.g. by putting the words, ‘this deed’ in the document); signed in the presence of an independent witness (that is, someone completely unconnected with the transaction); and delivered. Clear that it is a deed? Signed and witnessed Delivered Deed 108 Optimize Land Law Common Pitfalls The requirement that the deed must be delivered is not a reference to the actual physical delivery of the document itself; rather, the parties must simply show that it is their intention to commit themselves irrevocably to it. As such, dating the deed once it has been signed and witnessed is sufficient. If the land is registered, the transfer deed must be in the form prescribed by rule 58 of the Land Registration Rules 2003. The current prescribed form of transfer is on Land Registry form TR1, an example of which can be viewed on the Land Registry’s website at: www.landregistry.gov.uk/_media/downloads/forms/ TR1.pdf. In unregistered land, there is no such requirement and so the deed can take any form. The legal effect of completion depends whether the property is registered or unregistered. If the property is unregistered, the change in ownership has legal effect at the point of completion, subject to the Land Registry’s registration requirements being complied with, as detailed below. If the property is registered, the change of ownership will not operate at law until the registration of the transfer of ownership has been completed. Registration As well as completing a deed of transfer it is now also compulsory to register any change of ownership of property at the Land Registry (ss 4 and 27 LRA 2002). If the property is registered registration must take place within the ‘priority period’. This is a period of 30 working days allotted to the buyer’s solicitors by the Land Registry prior to completion of the sale. During this time, the buyer is protected against any attempt by third parties to deal with the property. As seen above, with registered property the legal title does not transfer until registration has been completed, the buyer continuing to hold the title in equity only until the change of ownership has been registered. If the property is unregistered slightly different rules apply. Here, the application to register the change must be made within two months of the transfer being completed (s 6(4)). If this is not done the legal title to the property will revert to the seller, who will hold in on trust for the buyer until another legal transfer has been completed. Formalities for the Sale of Land 109 Registration of transfer of property in registered and unregistered land Registered Unregistered within 30 working days (s 4 LRA 2002) within 2 months of transfer (s 27 LRA 2002) Legal title remains with seller until registered Legal title passes to buyer until period lapses, whereupon it reverts to the seller Priority of interests in registered land Anyone with an interest in land must protect their interest by registering it at the Land Registry. Generally a buyer will take free of any interests not entered on the Register, however there are exceptions. By virtue of s 29 Land Registration Act 2002 a registered disposition for valuable consideration will take priority over unprotected interests. Protected interests include a registered charge (mortgage), or those subject to a notice on the register, overriding interests or those excepted from the effect of registration. Requirements for a registered disposition to take priority For s 29 to become effective there must be: 1. 2. 3. Valuable consideration A registrable disposition Registration Case precedent – Fitzwilliam v Richall Holdings [2013] EWHC 86 (Ch)). Facts: Fitzwilliam’s land was transferred fraudulently to Richall Holdings as the result of a forged Power of Attorney. Principle: The registered disposition must be genuine: a forged transfer does not qualify as a disposition. Application: Use this case to show a situation in which a transfer will not qualify as a registrable disposition under s 29 LRA 2002. 110 Optimize Land Law Up for Debate In Peffer v Rigg [1977] 1 WLR 285 the judge made obiter comments to suggest that a requirement of good faith could be imported to the LRA 1925. The effect of this would have been that notice could become relevant in relation to unprotected interests. However, has been criticised for undermining the philosophy of registration and the dicta was never followed. As such interpretation is not possible under the LRA 2002. Equitable interests behind a trust In many instances the question of priority will not arise in relation to equitable interests behind a trust since overreaching will operate to transfer the interest to the proceeds of sale. Where this is not the case the beneficial interest may nevertheless rank as an overriding interest if there is an interest in actual occupation. Note that the registered disposition must be genuine: a forged transfer does not qualify as a disposition. Priority as between all other interests in registered land is determined by the order of creation (s 28 LRA 2002). Case precedent – Halifax plc v Curry Popeck ([2008] EWHC 1692 (Ch) Facts: T and J were fraudsters. They were the registered owners of a bungalow (‘the Property’). They entered into a complex chain of transactions designed to defraud lenders with the help of an allegedly incompetent or dishonest conveyancing clerk. T borrowed money from Halifax but no charge over the Property was executed. T then borrowed money from Bank of Scotland but again no charge over the whole of the Property in their favour was executed. It was accepted that Halifax had an interest based on proprietary estoppel (they thought they were getting a charge and provided a loan in reliance on this). Bank of Scotland obtained a charging order over the Property and this took effect as an equitable charge. The question was whether the proprietary estoppel had priority over the charging order or vice versa. Held: the proprietary estoppel claim had priority. Principle: Confirms the rule under s 28 LRA 2002 that competing equitable interests rank in order of date of creation. Application: Use this case to show a situation in which the exception in s 29 that wipes the slate clean of most equitable interests when there has been a ‘registrable disposition’ for ‘valuable consideration’ will not apply. The transfer to T was not for valuable consideration since it was part of a fraudulent enterprise and there had been no true transaction at all. Formalities for the Sale of Land 111 Chapter summary The sale and purchase of land in England and Wales is underpinned by the Latin maxim: ‘caveat emptor’, which means ‘let the buyer beware’. There are five basic steps in a modern conveyancing transaction: investigation of title, physical inspection and enquiries, contact, completion and registration. If the property is registered, title is investigated by providing an up to date copy of the register entries for that property at the Land Registry. If the property is unregistered, title is evidenced through the production of title deeds. A contract for the sale of land must be in writing, contain all the terms agreed and be signed by all the parties to the agreement (s 2 LP(MP)A 1989). If not all the terms of the agreement are included in the contract it will be void (Wright v Robert Leonard Developments [1994]). However, in Record v Bell [1991], the courts got around this issue by declaring the existence of a collateral contract, secondary to the main agreement. A contract may be created by the exchange of two identical contracts, each signed by one of the parties to the agreement (s 2). However, a contract may not be created by correspondence (Commission for the New Towns v Cooper [1995]). The signature must be a written one: the typing or printing of a name will not suffice (Firstpost Homes Ltd v Johnson [1995]). Any variation of a contract must also comply with Section 2 (McCausland v Duncan Lawrie Ltd [1997]). There are certain exceptions for the need for writing under s 2. These are: contracts to create short leases; contracts made at auction; and contracts regulated by the Financial Services & Markets Act 2000 (s 2(5) LP(MP)A 1989). From the point of exchange of contracts the buyer becomes the equitable owner of the property. In order to be legally binding, a transfer of land must be effected by deed (s 52 LPA 1925). It is compulsory to register any change of ownership of property at the Land Registry (ss 4 and 27 LRA 2002). Registration must take place within 30 working days in the case of registered property, and within two months of transfer in the case of unregistered property. Interests in registered land take priority in accordance with the date they are registered (s 29 LRA 2002). 112 Optimize Land Law Putting it into practice Varinder owns a property at 2 Heybrook Way, in the village of Down Thomas. On 3rd April 2013 he agrees to sell 2 Heybrook Way to Mandee. He sends her the following email: ‘Dear Mandee, Following our conversation I confirm that I will sell 2 Heybrook Way to you for the price we discussed. Please print off a copy of this email and sign and return it to me as confirmation of your agreement to the purchase. I will have my solicitors draw up the necessary papers as soon as I receive this from you. Kind regards, Varinder’ Later that evening Varinder bumps into Mandee in the local pub, the Odd Wheel Inn, and they discuss the sale further. When Mandee gets home, there is a further email from Varinder, which reads: ‘Dear Mandee, It was nice to chat this evening. As agreed, I am happy to include the hen house in the sale, although I will be taking the hens! Kind regards, Varinder’ Mandee printed off both emails, signing the first one at the bottom. She then stapled both emails together and posted them to Varinder. The next day, Mandee discovers that 4 Heybrook Way has gone up for sale, at a much lower price than that she had agreed with Varinder. She therefore wants to pull out of the sale and buy 4 Heybrook Way instead. Advise Mandee. Feedback on putting it into practice Mandee wants to know whether she is bound to complete on her purchase of 2 Heybrook Way. This will depend upon whether a valid contract for the sale of land has been created between her and Varinder. Contracts for the sale of land are governed by Section 2 LP(MP)A 1989. Section 2 requires that the contract must: be in writing, incorporate all the terms agreed between the parties and be signed by both parties to the agreement. If these formalities are not met the contract will be void. Formalities for the Sale of Land 113 Is the agreement in writing? Yes. Varinder confirmed their agreement by email. Is the agreement signed by both parties? Whilst Mandee has printed off and signed the agreement sent by Varinder, Varinder’s own signature is not on the document. It is only his printed name on the email. The traditional view is that only a hand-­written signature will suffice (Firstpost Homes v Johnson); however, there is suggestion in the case of J Pereira Fernandez v Mehta that a name printed on an email may be sufficient, provided it is intentionally typed, and not an auto-­signature. Does the contract incorporate all the terms agreed? The signed email from Varinder confirming the terms of their initial agreement is incomplete, as there is a subsequent agreement to include the hen house in the sale. This second email has not been signed by Mandee and only contains Varinder’s name typed at the bottom of it. Whilst it is possible to agree terms in a supplementary document and incorporate these into the main contract, there is no evidence that this has been done (the agreement to include the hen house is not referenced in the initial document, nor the original contract re-­drawn). Could it be argued that Mandee’s act of stapling it to the main contract before signing and returning the contract to Varinder is sufficient? The other possibility is to argue that the agreement to include the hen house is a collateral contract, the consideration for which is the entry of the parties into the main contract. This was successfully argued in Record v Bell, although the decision has been much criticised and not followed in subsequent case law. The case should, in any event, be contrasted with the case of Wright v Robert Leonard Developments, in which it was held that a contract that did not contain reference to fixtures to be included within the sale was void. Students should question whether the inclusion of the hen house is vital to the sale, or whether it could stand alone as a collateral agreement. In conclusion, it could be argued by Varinder that the contract is valid, although this is dependent upon the matter of his signature, and the argument that not all the terms of the agreement have been incorporated into the contract. 114 Optimize Land Law Table of key cases referred to in this chapter Case name Area of law Principle Wright v Robert Leonard (Developments) Ltd [1994] Contracts for the sale of land under s 2 LP(MP)A 1989 Commission for the New Towns v Cooper (Great Britain) Ltd [1995] Contracts for the sale of land under s 2 LP(MP)A 1989 In order to be valid, a contract for the sale of land must incorporate all the terms agreed between the parties into the contract. Firstpost Homes Ltd v Johnson [1995] Contracts for the sale of land under s 2 LP(MP)A 1989 Record v Bell [1991] Spiro v Glencrown Properties Ltd [1991] McCausland v Duncan Lawrie Ltd [1997] Yaxley v Gotts [1999] Contracts for the sale of land under s 2 LP(MP)A 1989 Contracts for the sale of land under s 2 LP(MP)A 1989 In order to be valid, a contract for the sale of land must incorporate all the terms agreed between the parties into the contract. It is not possible to create a contract under Section 2 by correspondence: there must either be one document signed by both parties to the agreement, or two identical documents with a signature on each. The typing or printing of a name does not constitute a signature. In order to be valid, a contract for the sale of land must carry the signatures of all the parties to the agreement. Variations under s 2 Where a contract for the sale of land is varied, the variation must comply with Section 2. Requirement for writing under s 2 Resulting and constructive trusts are, by their nature, implied and therefore do not require writing. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 5 Adverse Possession Revision objectives Understand the law Remember the details Reflect critically on areas of debate • Do you know what constitutes adverse possession? • Do you understand what a landowner can do to prevent an adverse possession claim? • Are you able to explain the mechanics of claiming adverse possession in registered and unregistered land? • Can you comment on the controversiality of adverse possession as a method of acquiring land? • Can you identify and discuss the human rights issues inherent in adverse possession claims? • Can you see where adverse possession fits in with other more formal methods of land acquisition? Contextualise Apply your skills and knowledge • Can you establish a claim in adverse possession by applying your knowledge of the requirements in a problem question scenario? Chapter Map Establishing adverse possession There must be factual possession There must be an intention to possess The possession must be adverse Preventing a claim in adverse possession By commencement of legal proceedings by the landowner Fraud, concealment or mistake Through acknowledgement of the landowner’s title Making a claim in adverse possession Limitation Act 1980 Land Registration Act 2002 After 12 years’ adverse possession the landowner is statute-barred from making a claim and his title is extinguished Claimant applies for possessory title after 12 years’ possession Applies to adverse possession of unregistered land Applies in registered land where the claim has been accrued prior to 13 October 2003 Landowner has two years to take action, after which the claimant will be given possessory title to the land Adverse possession and leasehold land Adverse possession against a tenant The claimant acquires the leasehold title to the property, but not the freehold Adverse possession by a tenant Land owned by a third party is deemed to be acquired by the tenant as agent for the landlord Land owned by the landlord is viewed as being an extension of the land in his tenancy 118 Optimize Land Law Introduction Adverse possession is a means of acquiring land belonging to another person by occupying, or ‘possessing’ that land for an extended period of time. Understanding: what constitutes adverse possession In order to establish a claim in adverse possession the person occupying the land needs to first establish the following: 1. 2. 3. 4. Possession Intention to possess That the possession is adverse Effluxation of time Possession Intention Adversity Time CLAIM Possession In order to show adverse possession the claimant must be able to show that they are in actual possession of the land. In Powell v MacFarlane Slade J defines this as asserting: ‘an appropriate degree of physical control’ over the property. Possession Asserting an appropriate degree of physical control Fencing off the land will obviously come within this definition (Seddon v Smith (1877) 36 LT 168); but any other actions which serve to effectively prevent others from using the land will be sufficient. What constitutes sufficient in terms of exclusion will be a matter of fact and degree. Case precedent – Fowley Marine (Emsworth) Ltd v Gafford [1968] 2 WLR 842 Facts: The claimants owned a tidal creek, which they managed and charged mooring fees for boats wishing to use it. Held: their management of the land, coupled with their policing of it and the charging of a mooring fee were ‘as sufficient as the location in question would permit’ in terms of evidencing their possession of it (per Wilmer LJ). Adverse Possession 119 Principle: What constitutes possession in an adverse possession claim is a matter of fact and degree. Application: Use this case to illustrate a situation in which actions other than fencing off the land will nevertheless constitute possession of it for the purpose of making a claim in adverse possession. Case precedent – Tecbild Ltd v Chamberlain (1969) 20 P&CR 633 Facts: The claimant lived next to land owned by developers. She claimed ownership of the land by virtue of adverse possession, on the grounds that her children played on the land as and when they had wished and that the family ponies had been tethered and exercised there (although they had been stabled elsewhere). Held: the claim failed. The claimant’s use of the land was not sufficient to constitute possession. Principle: In order to show adverse possession the claimant must assert ‘an appropriate degree of physical control’ over the property. Application: Compare this against the facts in your own scenario to decide whether an appropriate degree of physical control has been asserted. Dispossession or discontinuance A claim for adverse possession starts from the time the legal owner of the land is either dispossessed of the land, or discontinues their possession of it (Limitation Act 1980, Sched 1, para 1 and LRA 2002, Sched 6, para 1). Proving discontinuance is difficult and, unless the landowner has physically cut themselves off from their own property, in most cases the squatter will be viewed as having dispossessed the landowner through their occupation of the property. ‘. . . [dispossession] is where a person comes in and drives out the others from possession, [discontinuance] is where the person in possession goes out and is followed into possession by other persons’ Per Fry J, Rains v Buxton (1880) 14 Ch D 537 120 Optimize Land Law Case precedent – Powell v McFarlane (1979) 38 P&CR 452 Facts: The claimant had fenced off a Christmas tree plantation. The landowners visited the land infrequently and their inspections of it were of a cursory nature, often consisting of the landowner viewing the property from the road whilst remaining seated in their car. Held: the land had not been abandoned; rather, the squatter had dispossessed them. Principle: The courts will usually favour a finding of dispossession over discontinuance. Application: Use this case to illustrate your point that discontinuance is very difficult to establish. Intention to possess The claimant must have the intention to possess the property, or ‘animus possidendi’. Case precedent – R v Secretary of State for the Environment, ex p. Davies [1990] 61 P&CR 487 Facts: A woman claimed the right to live in a disused quarry through adverse possession but, as she had previously written to the council offering to pay rent and later to buy part of the land, it was held that she did not have the required intention to adversely possess the property. Principle: The claimant must intend to possess the property adversely. Application: Use this case to support your claim that the claimant must intend to be in adverse possession of the property in question. Note that it is irrelevant whether the squatter’s intention to possess came in the mistaken belief that they already owned the property in question, so long as they have the clear intention to possess the land. Case precedent – Hughes v Cork [1994] EGCS 25 Facts: A man mistakenly believed he owned a triangular piece of land adjoining some development land bought by him in Sittingbourne, Kent. Principle: The claimant can still have the intention to possess even though they are in the mistaken belief that they already own the land in question. Application: Use this case to show that there need only be an intention to possess, not an intention to possess adversely. Adverse Possession 121 ‘Adverse’ possession The claim for possession must be adverse; the claimant’s possession of the property must therefore be without the permission of the property owner. Case precedent – BP Properties v Buckler [1987] 2 EGLR 168 Facts: Despite the landowners, BP Properties, having legally obtained an eviction order against Mrs Buckler, who lived in the property with her son, she had refused to leave the property. However, Mrs Buckler was disabled and the case had attracted a lot of unwelcome publicity against BP. The company therefore decided to offer Mrs Buckler a licence to occupy the property rent-­free in an order to stem the public outcry at their attempts to evict the disabled woman. Mrs Buckler had never formally accepted the offer of a licence but had continued to live in the property until her death. When her son then claimed possessory title to the property on the grounds of adverse possession, however, the court found that there had been a licence granted to Mrs Buckler to occupy the property and that there was therefore no adverse possession claim to be made. Principle: Where a licence is offered but never refused this may be taken to mean that the licence has been granted. Application: This case illustrates how the court has in the past used the issue of permission to deny an adverse possession claim. Case precedent – Trustees of Grantham Christian Fellowship v Scouts Association [2005] EWHC 209 Facts: The scouts had been granted a licence to occupy some land, provided they kept it tidy. The scouts used the land for scouting activities between 1959 and 2002. In 2002, the group claimed ownership of the land by adverse possession. Held: as the licence had never been revoked or expired, the scouts’ presence on the land had always been with the permission of the landowner. There could be no claim in adverse possession. Principle: The squatter’s possession of the property must be without the permission of the property owner. Application: Use this case to support your argument that possession with permission cannot be adverse. 122 Optimize Land Law Aim Higher The finding in BP Properties v Buckler has been criticised because it suggests that a landowner may defeat an adverse possession claim simply by unilaterally granting a licence to the occupier. In his judgment in the case Dillon LJ said that the occupier should have rejected the offer in writing to prevent it from being granted. However, findings in later cases, including Long v Tower Hamlets London BC [1996] 3 WLR 317, suggest that this was a singular case distinguished by its facts and that the courts may in future reject any such line of attack put forward by dispossessed landowners. For a more in-depth critique of this case and its implications see Herbert Wallace, ‘limitation, prescription and unsolicited permission’ Conv. 1994, May/ Jun, 19–210. JA Pye Ltd v Graham (2002) 3 WLR 242 In this seminal case the House of Lords set out a definitive set of principles under which adverse possession cases can be made. Claimants who show the required degree of exclusive physical possession, coupled with an intention to possess, will be able to establish the basis of a claim. Aim Higher Lord Browne-­Wilkinson in paras 31–46 of his judgment in the case of JA Pye Ltd v Graham summarises very clearly the law in relation to adverse possession claims and the requirements for establishing a successful case. It is well worth taking time to read the judgment for a clear overview of the law in this area. The full judgment can be found online at: www.bailii.org/uk/cases/UKHL/ 2002/30.html. Effluxation of time The claimant must have been in possession of the land for a minimum of 10 or 12 years, depending on whether the land is registered or unregistered, and when the period of adverse possession took place. Understanding: making a claim in adverse possession The rules relating to the making of a claim in adverse possession depend upon when the adverse possession took place and whether the land in question is registered or unregistered: Adverse Possession 123 Adverse possession: which rules apply? Limitation Act 1980 All claims in unregistered land Registered land where the claim has accrued prior to 13 October 2003 Land Registration Act 2002 Registered land where the claim has accrued from 13 October 2003 Limitation Act 1980 The provisions of the Limitation Act 1980 apply both to unregistered land, and to registered land where the rights of the squatter have been acquired prior to the Act coming into force on 13th October 2003. Under the Limitation Act 1980 a landowner has 12 years to bring a claim against a squatter for adverse possession of land. After this time, the landowner is statute-­ barred from taking action against them (s 15) and his rights in the land are extinguished (s 17). 12 years’ adverse possession landowner is statute-barred from taking action landowner’s title is extinguished A right of action starts to accrue from the date of the landowner’s dispossession or discontinuance from the land (Part 1; Schedule 1). From this date all a claimant need do is to adversely occupy the land for a continuous period of 12 years or more and the original landowner is powerless under the terms of the act to bring any action to recover it from them. Aim Higher If the land is registered, whilst the landowner’s rights will still lapse after completion of the limitation period, the landowner’s title will nevertheless continue to show on the Register at the Land Registry until it is removed. The landowner will therefore be deemed to hold the land on trust for the claimant until they register their possessory title at the Land Registry (s 75 LRA 1925). 124 Optimize Land Law Land Registration Act 2002 There is no limitation period governing adverse possession under the 2002 Act, although the minimum period within which a squatter can acquire property by adverse possession is still 12 years. Rather, the Act stipulates in Schedule 6, Para 1 that, after a period of no less than 10 years’ adverse possession, a squatter can apply to be registered as the proprietor of the land. On receipt of the squatter’s application for registration, the land registrar is required to notify the landowner of the application. From this point onwards, the landowner has two years in which to take enforcement action against the squatter and evict them from the land. Subject to certain provisos, if the legal owner has not commenced eviction proceedings within two years of the notice being served, their rights will be lost and the squatter will be entitled to register a possessory title to the property at the Land Registry. The former landowner’s title to the land will be extinguished. The rules are complicated, but can be summarised as follows: Procedure for claiming adverse possession under the LRA 2002 After 10 years’ adverse possession: Apply to register possessory title at the Land Registry If one of the three circumstances under Sched 6, para 5 applies (estoppel, boundary dispute or other reason), title will be registered. If not application will be rejected After a further two years from the date of rejection of the original application: Reapply to register possessory title Title must be awarded to the squatter provided profeedings have not been commenced against them by the paper owner or an eviction order awarded After a further 12 years from the date of registration of possessory title: Apply for title to be upgraded to absolute freehold or good leasehold title. The new provisions mean that, whilst theoretically a squatter could still make a claim for adverse possession of property within a 12-­year period, they accrue no legal rights in the land until the time the notice is served on the landowner. Before this, it does not matter whether the squatter has been in possession of the property for 10, 20 or even more years, until notice is served they have no rights and the passing of time alone will not prevent the legal owner from asserting their rights over the property and dispossessing a squatter. The notice system has the additional benefit of alerting a property owner who might not be aware of an adverse possessor on their property to an unwanted presence which needs to be dealt with. Adverse Possession 125 In theory, then, it should be very difficult for a squatter to claim adverse possession in registered land. Up for Debate But beware! In the recent case of Heaney v Kirkby [2015] UKUT 178 (TCC) the Court of Appeal upheld a judgment made against the paper owner of a grass verge on the basis that the adjoining landowner had already established a right to adversely possess the land to the paper owner’s acquisition of it. The rights of the original landowner were thereby held to have been extinguished prior to the paper owner’s purchase of the land. It is likely that the judgment in this case will be subject to fierce criticism because of the far-­reaching implications of the decision for landowners. Preventing a claim in adverse possession Where a claimant is in adverse possession of land, the landowner may quash any potential claim by: commencing legal proceedings to recover their land (Limitation Act 1980, s 32; Sched 6, para 6 LRA 2002); proving fraud, concealment or mistake on the part of the claimant (Section 32 Limitation Act 1980; LRA 2002); showing that the claimant has acknowledged in writing the landlord’s title to the property. Fraud, concealment or mistake The claimant’s period of adverse possession of a property will cease to accrue wherever their action is fraudulent, based upon a mistake, or if any fact relating to the claimant’s occupation of the property has been deliberately concealed. The claimant’s period of adverse possession will not resume until the relevant action has either been discovered or ‘could with reasonable diligence have been discovered’. Case precedent – Beaulane Properties Ltd v Palmer [2005] 3 WLR 554 Facts: The claimant was prevented from making a claim because he had lied to the landowner’s agents about his presence on the land, stating that he had a long-standing arrangement with the former owner of the land when in fact he did not. 126 Optimize Land Law Principle: The claimant’s period of adverse possession of a property will cease to accrue wherever any fact relating to the claimant’s occupation of the property has been deliberately concealed. Application: Compare this case against the facts of your own scenario to discover whether the landowner may be able to prevent a claim in adverse possession being made against him. Acknowledgement of the landowner’s title If the claimant acknowledges the landowner’s title to the property in writing or signs a communication from the landowner giving them permission to be on the land, then the claimant will be unable to pursue his claim. Acknowledgement of the landowner’s title can be either express or implied. Offering to buy the land or to pay rent, as in the case of R v Secretary of State for the Environment, ex p. Davies (the caravan in the quarry case, above), have both been viewed as sufficient to end the squatter’s period of adverse possession. Case precedent – Archangel v Lambeth Borough Council (2001) 33 HLR 44 Facts: The case concerned an appeal against a possession order granted against the tenant of a house owned by the council. The defendant had referred to the house in correspondence between him and the council as ‘Lambeth’s property’. Held: this was clear acceptance of the council’s ownership of the property. The claim was dismissed. Principle: If the claimant acknowledges the landowner’s title to the property in writing they will be unable to pursue their claim. Application: Use this case to support your argument that the landowner’s title has been acknowledged by the adverse possessor of the land. Common Pitfalls The claimant’s acknowledgement of the landowner’s title is not a ‘get out of jail free’ card, however. Once the limitation period had expired and the landowner’s title to property has been extinguished, no subsequent payment of rent or acknowledgement of title by the occupier will restore the former landowner’s title (Sanders v Sanders (1881) 19 Ch D 373). Adverse Possession 127 Prove fraud, concealment or mistake How do I prevent a claim in adverse possession? Commence legal proceedings Show that the claimant has acknowledged my title Adverse possession of leasehold land If a claimant takes possession of leasehold land they can acquire a possessory leasehold title of it. This means that they will take the place of the tenant under the lease. Their right to possess the land will come to an end at the end of the lease. Adverse possession by a leaseholder Where a tenant encroaches onto neighbouring property from their leasehold land, there is a rebuttable presumption that the tenant is claiming that property as the agent of the landlord. This means that if a tenant succeeds in claiming occupied property through adverse possession, unless there is evidence to show that the tenant did so for his own purposes and not simply to form an extension of the land leased, it is the landlord who will receive the benefit of that claim and in whose name the land will be placed. The tenant will benefit in so far as they can remain in possession of the additional property until the expiry of the lease, but once the lease has ended the landlord can enter into occupation of it as possessory owner. Case precedent – Kingsmill v Millard (1855) 11 Exch 313 Facts: a tenant had enclosed a strip of wasteland adjoining the property he rented, later purporting to sell it to a third party who built two cottages on it. Held: the land had been acquired by the tenant independently of his lease and therefore it was his by virtue of his adverse possession of it to deal with as his own. If there had been proof that the tenant had used it as an extension of the garden let to the tenant under the terms of the lease, the outcome would have been reversed. Principle: Where a tenant is the adverse possessor of land, there is a rebuttable presumption that they are claiming as agent of the landlord. Application: Use this case to show a situation in which the presumption that a tenant is possessing land as agent for the landlord will be rebutted. 128 Optimize Land Law The presumption has recently been extended to provide that, in a subsequent purchase by the tenant of the leased property, any land acquired by virtue of the tenant’s adverse possession of it will automatically be included in the purchase. This was the decision in Tower Hamlets London Borough Council v Barrett [2006] 1 P&CR 132, in which the tenants of a public house acquired land next to the pub by adverse possession. On the tenants’ subsequent purchase of the freehold of the pub from their landlord, the land they had acquired next door was deemed to be included. If the land onto which the tenant encroaches belongs to the landlord then the presumption is different in that the additional land is simply viewed as an extension of the land let to the tenant under their lease (Hastings v Saddler (1898) 79 LT 355). Thus the tenant will acquire the right to occupy the additional land until the end of their tenancy, but at the end of the tenancy they must return it into the possession of the landlord (see Smirk v Lyndale Developments Ltd [1975] Ch 317). Adverse possession by a tenant of the landlord’s land of the land of a third party Land is viewed as an extension of the land leased Rebuttable presumption of agency on behalf of the landlord Implied licences In Wallis’s Cayton Bay Holiday Camp Ltd. v Shell-­Mex and BP Ltd [1974] Lord Denning argued that the claimant’s occupation of the property was by virtue of an implied licence from the owner, so there could be no claim of adverse possession. Case precedent – Wallis’s Cayton Bay Holiday Camp Ltd. v Shell-­Mex and BP Ltd [1974] 3 WLR 387 Facts: Land adjacent to a petrol station belonged to the petrol company but was not fenced off from the farmland surrounding it. The farmer used the petrol company’s land for grazing their cattle, incorporating it into their own field. After 11 years the petrol company wrote to the farmer offering to sell the piece of land to him. The farmer did not respond to their letters, but continued to use the land. When the petrol company fenced off the land, the farmer claimed ownership of it by adverse possession. Held: the farmer’s claim failed. His use of the land was under implied licence from the landowner. Adverse Possession 129 Principle: Use of land in a way which does not contradict the landowner’s intended future use of the property will amount to an implied licence on the part of the landowner. Application: Use the facts of this case to illustrate the circumstances under which an implied licence will be found in adverse possession claims. In making his judgment in the case Lord Denning said that where an owner of land has no immediate use for land but intends to use it for a particular purpose in the future, the owner should not lose their rights to that land simply because a third party comes onto it and uses it for ‘some temporary or seasonal purpose’. He also suggested that, in this particular case, the failure of the claimant to respond to the landowner’s correspondence amounted to wrong-­doing sufficient for the claimant to be estopped from claiming possessory title to the property in any event. Is the land used by a third party in a way which does not contradict the landowner’s future plans for the property? Has the claimant failed to respond to correspondence from the occupier of land? Implied licence The issue was later specifically addressed in schedule 1 paragraph 8(4) Limitation Act 1980, which stated that it should not be assumed that a claimant’s occupation of land is by implied permission of the landowner merely by virtue of the fact that his occupation is not inconsistent with the latter’s present or future enjoyment it. The case of Buckinghamshire County Council v Moran [1991] 3 WLR 152 has subsequently confirmed that the doctrine of implied licence is negated by the new legislation. The Limitation Act 1980 is nevertheless clear in stating that this will not prevent a licence from being implied where the facts of the case support this. 130 Optimize Land Law Human rights and adverse possession In Pye (JA) (Oxford) Ltd v Graham [2000] the court considered how the law relating to adverse possession might affect the human rights of the landowner. After an initial finding by the European Court of Human Rights in which it was held that the provisions of the Limitation Act 1980 were in breach of Article 1 of the European Convention on Human Rights, the Grand Chamber of the European Court of Human Rights from found in Pye (JA) (Oxford) Ltd v United Kingdom (application 44302/02) [2007] 46 EHRR that the provisions of the Limitation Act 1980 were not in breach of Article 1. This was on the basis of the length of the limitation period, and relative ease with which an adverse possession claim could be prevented. The Court of Appeal in the subsequent case of Ofulue v Bossert (below) confirmed this view. Case precedent – Ofulue v Bossert [2008] 3 WLR 1253 Facts: The case concerned a claim to adverse possession of residential property made by the Bossert family. Held: following the finding in Pye v Graham, the legislative provisions of the Limitation Act 1980 were not in breach of the Convention. Accordingly, the Bosserts were allowed to retain the property they had acquired through adverse possession. Principle: The law of adverse possession is in not in breach of human rights law. Application: use this case to support your assertion in an essay question that the law of adverse possession is not in breach of human rights. Aim Higher For a more detailed account of the Court of Appeal decision in Ofulue v Bossert and a good explanation of the significance of the Grand Chamber ruling in Pye v UK, read Dixon M, ‘Human rights and adverse possession: the final nail?’ Conv. 2008, 2, 160–165. Adverse Possession 131 Changes in the law affecting adverse possession claims In November 2011 parliament added a new section to the Legal Aid, Sentencing and Punishment of Offenders Bill (HL Bill 109), making squatting in residential buildings an offence. The Bill received Royal Assent on 1 May 2012. Building a claim of adverse possession through squatting in residential buildings is therefore set to become increasingly difficult for those who would wish to acquire property in this way. Chapter summary Adverse possession takes place through the dispossession or discontinuance of the owner’s occupation of the land. The squatter must have both physical possession of the property and the intention to possess, or ‘animus possidendi’. Possession of the property must be adverse; any form of consent by the landowner will negate the squatter’s claim. The Limitation Act 1980 applies to unregistered land and registered land acquired through adverse possession before 13th October 2003. Under the Limitation Act 1980 after 12 years’ adverse possession of property the landowner will be statute-barred from taking action to recover the land and their title to the property will be extinguished. The Land Registration Act 2002 applies to all registered land acquired through adverse possession since 2003. Under the Land Registration Act 2002 after 10 years’ adverse possession the squatter may apply to be registered with possessory title to the property. The landowner then has two years in which to commence possession proceedings against the squatter and/or procure an eviction order against them. If the landowner does not do this, the squatter may reapply for registration of their possessory title at the end of this period and the Land Registry must comply with their request. Leasehold property can be acquired by adverse possession as well as freehold property; however, at the end of the lease the freehold will revert to the landowner and the squatter will be required to vacate the premises. If a tenant acquires property by adverse possession, there is a general presumption that the tenant is acquiring land on behalf of their landlord, unless there is evidence to the contrary. It is settled law that the acquisition of land through the law of adverse possession is not in contravention of Article 1 of the European Convention on Human Rights (Pye v UK [2007]). Section 144 of the Legal Aid, Sentencing and Punishment of Offenders Act now makes squatting in residential buildings an offence. 132 Optimize Land Law Putting it into practice In 2000 Jason buys a small terraced cottage, the garden of which backs onto open fields. The cottage is registered with registered title at the Land Registry. Jason notices that several of the cottages in the row have extended their gardens out past the line of the boundary and into the field, using the additional land for the housing of compost heaps, vegetable plots and in one case to house a garden shed. Jason follows suit, but on his land he erects a home office complete with electricity and a water supply. In 2008 Jason sells his house to Gemma, advertising the home office as additional accommodation to the house. In 2013 the owner of the field adjoining the cottages writes to all the owners in the row inviting them to buy the additional land that they have been using in plots at a price of £10,000 per plot. Gemma is shocked as she had believed the land to be hers. a) Does Gemma have a claim against the landowner on grounds of adverse possession and, if so, on what grounds? b) Assuming she has been adversely possessing the land, how can she go about making a claim? c) How would your answer in (b) differ if Jason had begun to occupy the land in 1990? Feedback on putting it into practice a) In order to establish that there has been in adverse possession of the property Gemma must show either that the landowner has been dispossessed from the land, or that there has been a discontinuance in his possession of it (Rains v Buxton (1880)). Discontinuance is very rare and in most cases dispossession will apply. The erection of a home office on the piece of land occupied by Gemma would certainly be sufficient to constitute a dispossession in this instance. Proof of possession is a matter of fact and degree, but in every case the possessor must be shown to have an ‘appropriate degree of physical control’ (Fowley Marine v Gafford). Again, building on the land would be sufficient to assert possession in this instance. Gemma’s possession of the property must also be adverse: that is, it must be without the consent of the landowner. We are not given any indication that the landowner has given his consent to her possession of it. The fact that he has offered to sell it to her is irrelevant (although see BP Properties v Buckler for a contrasting view). In addition to her actual possession of it, Gemma must also have the intention to adversely possess the property. Clearly Gemma intended to possess the land, believing she owned it. Her mistaken belief in her ownership of the land will not be a bar to a possession claim (Fowley Marine v Gafford). Adverse Possession 133 b) We are told the land is registered and therefore the rules relating to the making of a claim in adverse possession are governed by the Land Registration Act 2002. This applies to all registered land acquired through adverse possession since 2003. The provisions of the LRA 2002 provide that, after 10 years’ adverse possession of property, a claimant may apply to the Land Registry to be registered with possessory title to the property. Jason has been in adverse possession of the property since 2000 and Gemma took over his possession of it in 2008. There has therefore been over 10 years’ adverse possession and so Gemma can make an application for her possessory title to be registered. Following her application, the landowner will be notified, after which time he will have two years in which to commence possession proceedings against Gemma and/or procure an eviction order against her. If he does not do this, Gemma may reapply for registration of her possessory title at the end of the two-year period and the Land Registry must comply with her request. However, given the nature of the landowner’s letter, it is more than likely that he will commence proceedings against her and thus prevent her claim from being established. c) If the land had been occupied since 1990 we would be seeing a different story because the provisions of the Limitation Act 1980 would apply. The Limitation Act applies in any case where the possession has accrued prior to 13th October 2003. As there would have been adverse possession for a continuous period of over 12 years prior to this date the landowner’s title would have been extinguished automatically in 2002 and the landowner would be statute-­ barred from making a claim against Gemma. Table of key cases referred to in this chapter Case name Area of law Tecbild Ltd v Chamberlain (1969) Possession R v Secretary of State for the Environment, ex p. Davies (1990) Intention to possess Fowley Marine (Emsworth) Possession Ltd v Gafford [1968] Hughes v Cork [1994] Intention to possess Principle The claimant must assert an appropriate degree of physical control over the property. The claimant must assert an appropriate degree of physical control over the property. The claimant must have the intention to possess the property adversely. A mistaken belief of ownership will not negate the intention to possess. 134 Optimize Land Law Case name Area of law Trustees of Grantham Christian Fellowship v Scouts Association [2005] The possession must be adverse BP Properties v Buckler [1987] The possession must be adverse Heaney v Kirkby [2015] Limitation on Title to adversely possessed land possession claims can extinguish a title prior to the paper owner’s acquisition of it. Powell v McFarlane (1979) Wallis’s Cayton Bay Holiday Camp Ltd. v ShellMex and BP Ltd [1974] Dispossession of the landowner Implied licences Kingsmill v Millard (1855) Adverse possession by tenants JA Pye (Oxford) Ltd v Graham [2002] Human rights and adverse possession Ofulue v Bossert [2008] Human rights and adverse possession Principle The courts will usually favour a finding of dispossession over discontinuance. The squatter’s possession of the property must be without the permission of the property owner. Where a licence is offered but never refused this may be taken to mean that the licence has been granted. When a landowner intends to use land for a particular purpose in the future, they should not lose their rights through adverse possession. Where a tenant is in adverse possession, the rebuttable presumption is that they are claiming as landlord’s agent. The provisions of the Limitation Act 1980 are not in breach of Article 1. The law of adverse possession is in not in breach of human rights. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 6 Resulting and Constructive Trusts Revision objectives • Can you explain the difference between a resulting and a constructive trust? Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Can you explain the rules relating to implied and express agreement constructive trusts? • Can you discuss the difficulties presented by the rulings relating to quantification of share in constructive trust cases? • Can you see where each of the three equitable concepts might be used in the context of the family home? • Can you answer the questions in the putting it into practice section at the end of the chapter? Resulting trusts are implied where purchase money is supplied by a non-legal owner of the property Express agreement between the parties The share implied will be directly proportionate to the contribution made Only direct contributions towards the purchase price will form the basis of a resulting trust A resulting trust If there is an express agreement, can be proved through direct or indirect means Reliance If the agreement is implied, must be shown by way of direct contributions Detriment Where a constructive trust is implied, the share will be calculated by undertaking ‘a survey of the whole course of dealings between the parties’ A constructive trust Constructive trusts require three elements: Implied agreement Common intention, through: A trust of land can be informally created through: Chapter Map Assurance Reliance Detriment Established when four elements are proved: Proprietary estoppel Unconscionability alone will not suffice, as seen in the cases of estate contracts and testamentary promises Unconscionability Provides by way of remedy whatever is ‘the minimum equity to do justice’ 138 Optimize Land Law Introduction The creation of express trusts falls outside the scope of this text and are considered more fully in the Trusts text in the Optimize series. Informally created trusts of land, however, are often encountered in land law, particularly in the context of the family home. There are two types of informally created trusts of land: resulting trusts constructive trusts Resulting and constructive trusts are different from other interests in land in that they can be created without the need for writing, or indeed any formality (53(2) LPA 1925). Understanding: resulting trusts In the context of land law, resulting trusts are most commonly encountered where property is purchased in the name of one person, but the purchase money is provided either wholly or partially by another. In these circumstances, the legal owner of the property will be viewed as holding the property on trust together for themselves and the person who contributed to the purchase price, in proportion to the shares they put into the property. Only contributions towards the actual purchase of the property, and not any subsequent payments, may form the interest of the contributing party. Paying a percentage of the purchase price Paying removal costs Paying mortgage instalments What is included in the purchase price? Paying agents and legal fees Paying stamp duty Resulting and Constructive Trusts 139 However, payments towards mortgage instalments will be construed as payments towards part of the purchase price of the property, albeit that they are paid over a period of time and not just at the time of purchase. However, it should be noted that contributions to the purchase price must be both specific and contemporary to the purchase. In addition, the courts must be able to attribute to such payments a genuine intention to contribute to the purchase price of the house: general contributions towards rent or household expenses will not be sufficient (Savage v Dunningham [1974] Ch 181). Case precedent – Pettitt v Pettitt [1970] AC 777 Facts: A wife inherited a house which she and her husband lived in for a number of years. The wife then sold the house, using the proceeds to buy a plot of land, again in her sole name, on which to build a bungalow for her and her husband to live in. On the couple’s subsequent divorce the husband claimed a share of the bungalow on the grounds that he had spent money and effort in redecorating and improving it. Held: the improvements bore no relation to the purchase of the house and could therefore not amount to a beneficial interest under a resulting trust. Principle: In order to make an award of a resulting trust the contributions must be directly attributable to the purchase of the property. More general contributions to the running or subsequent improvement of the house will not be sufficient. Application: Use this case as an example of a case in which a resulting trust will not be created. Aim Higher So how can you tell what will be included and what will not? It is the timing of the creation of the interest that is crucial in the resulting trust scenario: resulting trusts are based on the presumed intention of the parties at the time the property is acquired; thus, payment for works or improvements to the property will not be taken into account. On this basis, the beneficial share of property acquired under a resulting trust will be established at the time the property is purchased and will be unaffected by any later payments for improvements to the house or contributions to its upkeep. 140 Optimize Land Law Case precedent – Gissing v Gissing [1971] AC 886 Facts: A husband and wife lived together in a house registered in the husband’s sole name. When the husband later left the wife, she claimed an interest in the house on the basis that she had contributed money from her savings to pay for a new lawn and furniture for the house, as well as contributing from her earnings to the housekeeping and clothes for the family. Held: the wife’s claim was dismissed: her contributions were not sufficient to earn her a beneficial interest in the house. Principle: In order to make an award of a resulting trust, the contributions must be directly attributable to the purchase of the property. More general contributions to the running or subsequent improvement of the house will not be sufficient. Application: Use this case as an example of a case in which a resulting trust will not be created. Up for Debate In the case of Burns v Burns [1984] Ch 317 the court held that a woman who had stayed at home to look after the children and subsequently paid for furniture, fixtures and fittings for the house was not entitled to a beneficial interest under a resulting trust because she had not contributed towards the purchase of the property. However, May LJ’s judgment in the case is nevertheless interesting because of the way in which he approaches the issue of contributions. He suggests that the contributions made to the purchase of a property may be broadly divided into two categories: direct contributions, which include payments made specifically towards the purchase of the property; and indirect contributions, which include payments towards household expenses which the legal owner of the property would otherwise be unable to meet, in addition to making the mortgage payments. This might appear to suggest that contributions that do not relate to the purchase price can be sufficient to create an interest under a resulting trust. However, such contributions will only be taken into account under circumstances where the person paying the mortgage could not have done so if their partner had not paid the other household bills. Resulting and Constructive Trusts 141 Points to remember about resulting trusts When a resulting trust will be created ❖ A resulting trust will most commonly be implied where property is purchased in Requirements for a resulting trust ❖ Only contributions made towards the actual purchase of the property, and not any Type of contributions Indirect contributions the name of one person, but the purchase money is provided either wholly or partially by another. subsequent payments, may form part of the interest of the contributing party. ❖ There must be a genuine intention to contribute to the purchase price of the house: general contributions towards rent or household expenses will not be sufficient. ❖ Contributions that do not relate to the purchase price may be sufficient to create an interest under a resulting trust where the person paying the mortgage could not have done so without the other contributions. Understanding: constructive trusts Constructive trusts are much wider in their application than resulting trusts. A constructive trust will be imposed wherever the conduct of the parties is such that equity requires it, albeit within certain prescribed guidelines. According to Lord Bridge’s judgment in Lloyds Bank v Rosset [1991] 1 AC 107, there are three requirements for the finding of a constructive trust: Common intention Reliance Detriment 142 Optimize Land Law Common intention A common intention will be shown to exist wherever there is some form of agreement or understanding between the parties that the person making the claim will have a beneficial interest in the property. This can be shown either by express agreement, where there have been express discussions between the parties that the claimant is to have a beneficial interest in the property, or by implied agreement, where such an agreement is implied from the parties’ conduct. Common intention Express agreement Implied agreement Express agreement Case precedent – Eves v Eves [1975] 1 WLR 1338 Facts: A man bought a house for him and his girlfriend to live in which he registered in his sole name. He told the girlfriend this was because she was under the age of 21 and therefore unable to go on the title deeds. However, he said that he would rectify this when she reached the age of majority. Held: As there had been an express agreement between the parties regarding beneficial ownership of the property, the girlfriend’s contributions to the property were sufficient to confer a beneficial interest on her. Principle: A common intention between the parties will be shown where there has been an express agreement between them that the claimant is to have a beneficial share. Application: Use this case to illustrate what will constitute an express agreement. Aim Higher Common intention will not always be as easy to establish as in the case of Eves v Eves, because there will rarely have been an explicit agreement made between the parties as to how the property is to be shared and, if there was an agreement, it is likely to have been oral. In the absence of such proof, Viscount Dilhorne in Lloyds v Rosset warned that the courts must be careful not to impute the parties’ intention: making inferences as to what the parties might have done if they had considered it at the time. The common intention must in all cases be genuine. Resulting and Constructive Trusts 143 Implied agreement In the absence of an express agreement, the court may look to the conduct of the parties to see whether such an agreement can be implied from it. Conduct amounting to an implied agreement is usually measured by reference to the financial contribution that has been made by the claimant to the purchase of the property. In this context, only direct contributions to the purchase of the house will be considered sufficient to imply an agreement between the parties. Case precedent – Lloyds Bank plc v Rosset [1991] 1 AC 107 Facts: A husband and wife planned to buy a semi-­derelict house together as a renovation project. The house was to be paid for with money from the husband’s family trust in Switzerland and the trustees insisted on the house being registered in his sole name. The wife made no financial contribution to the purchase but she project-­managed the renovation and carried out much of the decorating. When the couple subsequently split up the wife claimed a beneficial interest in the property. Held: the wife’s contributions were insufficient to create an interest under a constructive trust. Principle: Where common intention is inferred from the parties’ conduct, nothing less than direct contributions to the purchase price will be sufficient evidence of such an intention. Application: Use this case to illustrate the meaning of indirect contributions. Reliance Reliance in the context of constructive trusts can be described as a situation in which the claimant has acted or changed their position in reliance on the parties’ common intention, whether express or implied. Reliance will usually be seen to be proved automatically where a detriment has been established. Case precedent – Grant v Edwards [1986] Ch 638 Facts: The claimant relied upon her boyfriend’s representation to her that the only reason she didn’t appear on the title deeds to the property was because because it would complicate her divorce proceedings against her husband. As a result, she acted severely to her detriment by making significant financial contributions to the running of the house. Held: there was a common intention between the parties that the woman was to have a beneficial interest in the property. 144 Optimize Land Law Principle: Reliance is the situation in which the claimant has acted or changed their position in reliance on the parties’ common intention. Application: Compare the facts of this case against those in your own scenario to gauge whether there has been reliance by the claimant. Detriment In order to prove detriment it must be shown that the claimant will suffer loss if the landowner denies them an interest in the property. Where there is an express agreement between the parties, this detriment may be proved where the claimant has made contributions to the purchase of the property, whether direct or indirect, or it may take some other form. Thus, in Eves v Eves, where there was an express agreement between the parties regarding beneficial ownership of the property, the court held that the girlfriend’s contributions to the renovation of the property and maintenance of the house and garden were sufficient by way of indirect contribution to entitle her to a quarter share in the house. See also Grant v Edwards [1986] Ch 638 (CA), which turned on similar facts. Where the agreement between the parties is implied, rather than express, only direct contributions to the purchase of the property will be sufficient to establish an interest under a constructive trust. Common intention Express agreement Implied agreement Direct or indirect contributions, or some other kind of detriment Direct contributions only Up for Debate In the case of Burns v Burns, mentioned above, the court held that the woman, who had bought furniture, fixtures and fittings for the house and did some painting and redecoration, did not have an interest by virtue of a constructive trust because she had made no contributions referable to the acquisition of an Resulting and Constructive Trusts 145 interest in the property. Echoing the finding in Rosset, Fox LJ said that, even in the case of indirect contributions, nothing short of substantial contributions enabling the legal owner to pay mortgage instalments will suffice. This seems to contradict the findings in Eves v Eves and Grant v Edwards. However, the wife in Burns v Burns had made no contribution of her own money to the property, her ‘contributions’ being out of housekeeping money given to her by her husband, in Eves v Eves the wife had made a substantial contribution of her own time and effort. Where the detriment shown is not of a financial nature, it must be sufficiently serious to warrant the award of an interest in the property. Case precedent – Hammond v Mitchell [1991] 1 WLR 1127 Facts: A couple lived together for 11 years, during which time they had two children. The house in which they lived together was bought and paid for by the man, which he said was to save complications in his divorce proceedings. However, he told her not to worry because they would soon be married and half of everything would be hers anyway. The woman ran the household and helped out with the man’s business on a day to day basis, giving up a lucrative position as a croupier at a casino in order to do this. Held: the woman had acted to her detriment and was therefore entitled to a half share of the house under a constructive trust. Principle: Where there is an express agreement the detriment need not be directly referable to the purchase of the property. Application: Compare this case against the facts in your own scenario to see whether there is sufficient detriment to warrant a claim under a constructive trust. Case precedent – Ungurian v Lesnoff [1990] Ch 206 Facts: A Polish woman set up home with a man in London. Poland was at that time under Communist rule and, in order to achieve this, she had to give up her flat and a promising career and sever all ties with her family in Poland. In addition she had to enter into a marriage of convenience with a third party in order to get out of the country. Held: the woman had a beneficial interest in the property under a constructive trust, based on the couple’s agreement that she would be entitled to live in the property with her children for the rest of her life. 146 Optimize Land Law Principle: Where there has been an express agreement between the parties, the detriment need not directly referable to the purchase of the property. Application: Use this case of an example of a situation in which a non-­ financial detriment will create an interest under a constructive trust. Case precedent – Midland Bank plc v Cooke (1995) 27 HLR 733 Facts: A husband and wife lived in a house registered in the man’s sole name and paid for out of a mixture of his own funds and some money given to the couple as a wedding gift. Held: at first instance that the wife should have a 6.47% share, representing her half of the wedding gift. However, the Court of Appeal overturned this decision, giving the wife a 50% share in the property. The wife had always been treated as an equal partner in the marriage, both in terms of paying household expenses from her wages and generally in keeping house and bringing up the children. As such, the implied intention was that they intended to share everything equally, including the matrimonial home. Principle: The court will look at the ‘whole course of dealing between the parties’ when calculating share. Application: Use this case to support your claim in respect of calculation of share. Calculating the share Once a beneficial interest under a constructive trust has been established, even where that interest has been established by virtue of direct contributions by the claimant, the calculation of their share in the property will not be limited to the value of those contributions alone. Instead, the court will look at the ‘whole course of dealing between the parties’ and make their finding based on what they believe to have been the parties’ intentions at the time of the purchase. Up for Debate In the case of Oxley v Hiscock [2004] 3 All ER 703 following the break-­up of an unmarried couple the court held that the proceeds of sale of a property registered in the man’s sole name should be divided 60/40, in accordance with their respective contributions to the property. This was despite the court’s claim that they were not required to make a finding that the property was held on trust in proportion to the couple’s respective financial contributions; Resulting and Constructive Trusts 147 and that each should be entitled to that share which the court considered fair, having regard to the whole course of dealing between them in relation to the property. The decision in Oxley v Hiscock seems to contradict the earlier decision in Midland Bank v Cooke. Whereas in Midland Bank v Cooke, the financial contributions made to the property were considered only as one piece in the overall picture, in Oxley v Hiscock, they were treated as being of paramount importance. The only fact separating the two cases appears to have been that in Midland Bank v Cooke the couple were married, whereas in Oxley v Hiscox, they were not. In this day and age, this seems altogether arbitrary. The House of Lords again considered the issue in the 2007 case of Stack v Dowden. In making her judgment in Stack, Baroness Hale said that, in order to determine the exact amount of that share, the court would have to undertake ‘a survey of the whole course of dealing between the parties . . . taking account of all conduct which throws light on the question what shares were intended’. As the property had been purchased in joint names without any declaration as to shares, the initial presumption would be that the couple owned the house equally. It would then be for the woman, who wished to establish a greater beneficial interest in the property, to show the court that she was entitled to it. However, the facts of the case were highly unusual. The parties kept separate bank accounts and made separate savings and investments, whereas most couples did not put their accounts on such a separate footing. The complete segregation of the couple’s finances was strongly indicative that the parties had not intended their shares in the property to be equal and, accordingly, Dehra should be entitled to a 65% share of the beneficial interest in the house. Aim Higher Read in isolation, the decision in Stack could be construed as following the more restrictive approach of Oxley v Hiscock, when calculating the share to be awarded in a case of constructive trust. However, this was clearly an unusual case and the suggestion of Baroness Hale in the case is that the outcome would have been different if the couple had handled their finances in a more traditional fashion. 148 Optimize Land Law Case precedent – Stack v Dowden [2007] UKHL 17 Facts: A couple lived together in a house bought in the woman’s sole name. The woman made all the mortgage payments and paid the household bills. The couple made substantial improvements to the property and it was subsequently sold for a considerable profit. The couple then bought another property together in their joint names. Over 65% of the purchase price was paid out of the woman’s own funds, the balance being provided by a mortgage in their joint names and two endowment policies, one in their joint names and one in the woman’s sole name. The man paid the mortgage interest and premiums on the joint endowment policy and the woman paid the premiums due under her own endowment policy. The mortgage was paid off by a series of lump sum payments, of which the woman provided around 60%. The couple subsequently separated and the man left the property, claiming a 50% share in it. Held: the proceeds of the sale of the property should be divided 65/35 in favour of the woman on the basis of a constructive trust. Principle: In order to determine the exact amount of that share, the court would have to undertake ‘a survey of the whole course of dealing between the parties . . . king account of all conduct which throws light on the question what shares were intended’. Application: Use this case to illustrate the approach taken in quantifying share in constructive trust cases. Up for Debate The recent decisions in Abbott v Abbott [2007] UKPC 53 and Hapeshi v Allnatt and another [2010] EWHC 392 have both indicated that the findings in Stack could be used to award a beneficial interest, as well as to quantify it. In both cases, an award was made on the basis of a constructive trust in cases where there was no express agreement between the parties as to the grant of any beneficial interest in the property. On this basis, only direct contributions should have sufficed to create an interest under a constructive trust; however, neither claimant had provided this. To award an interest on the basis of the ‘whole course of dealings’ between the parties alone, without further reference to the requirements set out in Rosset, seems to be setting a dangerous precedent, opening the floodgates for a plethora of claims based on the conscience of equity alone. It remains to be seen what will happen when the matter is brought before a higher court for discussion. Resulting and Constructive Trusts Lloyds Bank v Rosset [1991] Midland Bank v Cooke [1995] Oxley v Hiscock [2004] Stack v Dowden [2007] 149 Hapeshi v Allnatt [2010] Points to remember about constructive trusts Lloyds Bank v Rosset [1991] Common intention Proving detriment Calculation of share ❖ There are three requirements for the finding of a constructive trust: common intention, reliance and detriment. ❖ A common intention will be shown to exist wherever there is some form of agreement or understanding between the parties. This agreement may be express or implied. ❖ Where there is an express agreement between the parties, detriment may be direct or indirect. ❖ Where common intention is implied, only direct contributions will suffice. ❖ The share given to the claimant will not be limited to the value of their financial contribution to the property. ❖ The court will undertake a ‘survey of the whole course of dealing between the parties’ in order to establish how the property should be divided. 150 Optimize Land Law Summary of requirements and remedies in resulting and constructive trusts Resulting Constructive Direct financial contribution to purchase price Common intention + detriment + reliance Share in property proportionate to contribution to purchase price Share in property based on whole course of dealings between parties Chapter summary A resulting trust will most commonly be implied where property is purchased in the name of one person, but the purchase money is provided either wholly or partially by another. Only contributions made towards the actual purchase of the property, and not any subsequent payments, may form part of the interest of the contributing party. There must be a genuine intention to contribute to the purchase price of the house: general contributions towards rent or household expenses will not be sufficient. Contributions that do not relate to the purchase price may be sufficient to create an interest under a resulting trust where the person paying the mortgage could not have done so without the other contributions (Burns v Burns). There are three requirements for the finding of a constructive trust: common intention, reliance and detriment (Lloyds Bank v Rosset). A common intention will be shown to exist wherever there is some form of agreement or understanding between the parties. This agreement may be express or implied. Where there is an express agreement between the parties, detriment may be direct or indirect. Where common intention is implied, only direct contributions will suffice. The share given to the claimant in constructive trust cases will not be limited to the value of their financial contribution to the property. The court will undertake a ‘survey of the whole course of dealing between the parties’ in order to establish how the property should be divided (Stack v Dowden). Resulting and Constructive Trusts 151 In order to establish a claim in proprietary estoppel, the claimant will need to show assurance, reliance, detriment and unconscionability (Taylor Fashions). Proprietary estoppel can only be used to enforce a contract for the sale of land where all four elements of proprietary estoppel are present (Cobbe v Yeomans Row). Equally, promises of inheritance should be substantial and repeated in order for a claim of proprietary estoppel to succeed in reliance on them (Thorner v Major). When making a finding in proprietary estoppel cases the court will decide ‘what is the minimum equity to do justice’. The courts have been happy to treat the two doctrines of proprietary estoppel and constructive trusts as overlapping, if not synonymous in some circumstances. However, they are in reality very different in nature. Putting it into practice Lorna and Mike began a relationship in 1993. In 1994 they decided to buy a house together to live in. The house was purchased and registered in Lorna’s sole name, Lorna said because it would avoid complications with Mike’s recent divorce. At the time Lorna had a good job in marketing so she paid the mortgage payments and most of the household expenses. Mike had just come out of the army and used his severance pay to put a 15% deposit down on the house. Mike has struggled to find permanent work since then, but has made himself handy around the house, carrying out all the repairs and maintenance to the property, and undertaking considerable improvements, including the erection of a kitchen extension and converting the loft space into a bedroom when their first child was born. Lorna and Mike now have 3 children but, due to their financial situation, Lorna has returned to work after each pregnancy, leaving Mike at home to look after the children. Lorna has recently left Mike, following a prolonged affair with Joshy, the regional head of sales and marketing at the company she works for. As Joshy has plenty of money to support her, Lorna plans to give up work and stay at home with the children, and has asked Mike to move out. Mike is demanding the sale of the house and wants half the proceeds of sale, to which he says he is entitled. Lorna says Mike is entitled to nothing, having never put any money into the relationship, and because he ‘couldn’t even find a proper job’. Advise Mike. 152 Optimize Land Law Feedback on putting it into practice Lorna is the sole legal owner of the property. However, Mike has an interest in the property under a resulting trust, by virtue of his contribution to the purchase price, amounting to 15% of the value of the property (Gissing v Gissing; Pettit v Pettit). In spite of this, Mike is demanding a 50% share in the property. We therefore need to establish whether Mike is able to claim an interest under a constructive trust, which may give him a greater claim. In order to claim an interest under a constructive trust Mike needs to prove common intention, reliance and detriment (Lloyds v Rosset). Common intention can be shown either by an express or implied agreement that the claimant is to have a beneficial interest in the property. We are not told about any express discussions between the couple to this effect, so we need to see whether a common intention can be implied. An agreement between the parties will be implied only where there have been direct contributions to the purchase of the property. In this case, Mike has made a direct contribution to the purchase in the form of the 15% deposit, and so an intention as to beneficial interest will be implied (Burns v Burns). Detriment and reliance also need to be proved; however, these will usually be assumed where there has been a financial contribution to the property. The only remaining question will be as to share. When calculating what share the claimant is to have in the property, with a constructive trust the share will not be limited to the amount of the financial contribution; but rather the court will undertake a survey of ‘the whole course of dealings’ between the parties, taking into account the whole of the couple’s living arrangement. In this case, this means that the court should consider the couple’s marital status, Mike’s care of the children to the relationship, and his improvements to the house. According to the case of Oxley v Hiscock, where the couple are unmarried, the court will accord a great deal of emphasis on their financial contributions to the property. This seems to have been compounded by the more recent decision in Stack v Dowden, which awarded a share in the property based on an arithmetical calculation, despite the other factors in the case. However, in Stack, the situation was unusual in that the couple treated segregated their finances almost entirely. We are not told that this is the case with Lorna and Mike; in fact, the situation seems to point to the fact that Mike stayed at home to enable Lorna to go out to work and earn money for the family. It is arguable therefore that Mike should be entitled to a greater share, based on the whole course of dealings between them. Resulting and Constructive Trusts 153 Table of key cases referred to in this chapter Case name Area of law Gissing v Gissing [1971] Resulting trusts – contributions Pettitt v Pettitt [1970] Resulting trusts – contributions Burns v Burns [1984] Resulting trusts – contributions Lloyds Bank v Rosset [1991] Constructive trusts – requirements Hammond v Mitchell [1991] Constructive trusts – meaning of detriment Midland Bank plc v Cooke (1995) Calculation of share in constructive trusts Oxley v Hiscock [2004] Calculation of share in constructive trusts Stack v Dowden [2007] Calculation of share in constructive trusts Principle The contributions must be directly attributable to the purchase of the property. The contributions must be directly attributable to the purchase of the property. Indirect contributions may be taken into account where they allow the landowner to afford the mortgage payments. There are three requirements for a constructive trust: common intention, reliance and detriment. Where there is an express agreement the detriment need not directly referable to the purchase of the property. The court will look at the ‘whole course of dealing between the parties’ when calculating share. The court will look at the financial contriution of the parties when calculating share. The court will undertake ‘a survey of the whole course of dealing between the parties’ when calculating share. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision This page intentionally left blank 7 Leases and Licences Revision objectives Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Do you understand the difference between a lease and a licence? • Do you know what is meant by ‘substance over form’, in respect of an agreement to occupy premises? • Can you name the three requirements for a valid lease, set out in Street v Mountford? • Do you know what the Facchini categories are? • Can you explain why the finding in Bruton v London & Quadrant Housing Trust [2000] would have been so significant if followed? • Do you understand why it is important to appreciate the difference between leases and licences from the perspective of both a landlord and a tenant? • Can you explain how to forfeit a lease for breach of a covenant to repair? Lodgers cannot be tenants because they do not have exclusive possession of the premises The landlord must have the authority to grant possession to a third party (Gray v Taylor) Leases of over seven years’ duration must be registered at the Land Registry Leases of seven years or less are overriding and do not require registration Term Such leases are overriding and do not require registration Legal leases in unregistered land will bind the whole world, irrespective of notice If the equitable leaseholder is in occupation, they may have an overriding interest under Sched 2 para 3 LRA 2002 Equitable leases must comply with s 2 LP(MP)A 1989 Rent is generally not a requirement for a lease of land (s 205 LPA 1925), BUT: Rent Formalities Implied periodic tenancies are usually implied by virtue of the rent paid on the property Equitable leases must be protected by Notice on the Charges Register Short leases under s 52 LPA 1925 do require the payment of rent to be formed The term must be ‘determinate’, i.e. for a definite time period Short legal leases of three years or less at a market rent taking effect in possession do not require any formalities (s 54(2)). The term can be fixed or periodic There is no minimum or maximum term, save that it must not exceed the landlord’s own title Legal leases must be created by deed (s 52 LPA 1925) Exclusive possession is dependent upon the substance and not the form of the agreement to occupy the land Possession must be exclusive (Street v Mountford) Even where there is exclusive possession, no tenancy is created where there is a service occupancy or no intention to create legal relations (Facchini v Bryson) Possession can be immediate (‘in possesssion’) or delayed by up to 21 years (’in reversion’) Possession Essential characteristics: Creation of leases Equitable leases in unregistered land must be protected as a Class C(iv) Land Charge Chapter Map Risk of committing an offence under s 6 Criminal Law Act 1977 By peaceable re-entry Merger Landlord will waive the right to forfeit until the next rental period in respect of a continuing breach Tenant can only seek relief before landlord re-enters the premises Tenant can seek relief from forfeiture within six months if arrears paid Landlord will waive the right to forfeit permanently in respect of a once and for all breach If the breach is capable of remedy, the landlord must give a reasonable time for the breach to be remedied Landlord can then proceed to forfeit immediately Landlord can waive the right to forfeit for the duration of the rental period for which rent has been received Landlord must serve notice under s 146 LPA 1925 Landlord must make a formal demand for the rent, unless the lease excludes this Forfeiture For other breaches By court order Effluxion of time For non-payment of rent Surrender Termination of leases Notice to quit Break clause 158 Optimize Land Law Introduction The leasehold estate or ‘term of years absolute’ is one of the two legal estates in land (s 1(2) LPA 1925). In layman’s terms a lease is where a landlord allows a tenant to possess property belonging to the landlord for a fixed or certain period of time. Leases are also given statutory definition under s 205(1)(xxvii) LPA 1925. There are three main points to note from the statute: 1. 2. 3. A lease can take effect either immediately (‘in possession’) or at some specified point in the future (‘in reversion’), so long as it commences within 21 years of its creation. Thus, it is possible to have a future leasehold interest. There is no maximum or minimum period given for the duration of a lease, as long as it is certain. For this reason, a lease for the duration of somebody’s life cannot exist at law, because the length of such a lease cannot be predetermined. Perhaps surprisingly, the payment of rent is not required for the creation of a leasehold interest in land. A lease can be for any certain duration Rent is not required for the creation of a lease Future leases can exist at law s 205(1)(xxvii) LPA 1925 Types of lease Leases can be either: Fixed Periodic – granted for a fixed term, for example 10 years; or – granted for a shorter term (e.g. weekly, monthly or quarterly) that is renewed automatically until notice is given by either party. Tenancies at will are in fact not a type of lease at all, but a purely informal agreement between the parties to occupy the premises, determinable at any time by either party. Leases and Licences 159 Terminology in leases The topic of leases comes with its own set of terminology that students would do well to familiarise themselves with. Many of the terms are interchangeable. When a landlord grants a lease he becomes the landlord (or lessor) and the person he lets to becomes the tenant (or lessee). The landlord has the reversionary interest; the tenant has the leasehold interest (or tenancy). When the landlord is themselves a tenant, the lease granted out of their own leasehold property is called a sub-­lease (or sub-­tenancy) and their tenant becomes the underlessee (or sub-­tenant). The owner of the freehold then becomes known as the head landlord. When a leasehold estate is sold or transferred to a third party, this is known as an assignment. The original, or outgoing, tenant, is the assignor and the new, or incoming, tenant is the assignee. LANDLORD Head lease/freehold TENANT Lease/tenancy ASSIGNEE (of assigned lease) SUB-TENANT Sub/under lease Leases and licences Licences are also purely personal agreements between two parties to occupy land. As such, they confer upon the licence holder no proprietary interest in the land: a licence cannot be sold or otherwise transferred to a third party; neither can it enjoy any security of tenure. The licensee is on the land effectively at the whim of the landowner. Leases Fixed Land Registration Act 2002 Periodic Tenancies at will Licences 160 Optimize Land Law But if a person is occupying property, how can you tell whether they have a simple licence or a lease? There are three basic components of a lease, set out in Street v Mountford [1985] AC 809. These are: exclusive possession for a determinate term at a rent Exclusive possession Determinate term Rent Lease Aim Higher Although rent is not a prerequisite of a leasehold interest, it is a requirement for the creation of a legal lease of three years or less, which must be for ‘the best rent which can reasonably be obtained without taking a fine’ (s 54(2) LPA 1925). See Feedback on Putting it into Practice at the end of the chapter for an explanation of how this works in practice. Rent As we have seen from the definition of a leasehold interest given in s 205 LPA 1925, technically speaking rent is not a formal requirement of a valid legal lease. The Court of Appeal in Ashburn Anstalt v Arnold [1989] Ch 1 confirmed that the listing of rent in Street v Mountford as a prerequisite for a valid lease does not preclude a lease under which no rent is payable from being valid. Determinate term Case precedent – Lace v Chantler [1944] KB 36 Facts: A lease ‘for the duration of the war’ was held unable to form the basis of a legal lease because no one could say for how long the war (The Second World War, in this case) was going to continue. Principle: In order to create a valid lease there must be a determinate term. Application: Use the facts of this case as an example of what will constitute an indeterminate term. Again, as per the statutory definition this means the lease must start on a specified date and either end on a specified date or a date calculable at the commencement of the term. Leases and Licences 161 Exclusive possession Up for Debate In Berrisford v Mexfield [2011] 1 WLR 1091, the claimant occupied the property on a monthly tenancy which the housing association could not bring to an end unless the claimant breached one of the terms of the agreement. The Supreme Court found that, whilst the term of the agreement was therefore indeterminable, a tenancy had nevertheless been created on the basis that it would be inequitable to find otherwise. The ruling has been subject to a great deal of debate as, if followed, the requirement for a term certain would effectively be nullified; however, the suggestion of academic commentators is that the ruling was intended to apply to social housing cases only and not in a wider context. See ‘Pawlowski, M, ‘Uncertainty of term – orthodoxy side-­stepped in favour of a just result’ L&T Review 2012, 16(1), 16–22 and Hunter, C & Cowan, D, ‘The future of housing co-­operatives: Mexfield and beyond’ JHL 2012, 15(2), 26–32. Exclusive possession is the right to exclude all others from the property, including the landlord. Case precedent – AG Securities v Vaughan [1990] 1 AC 417 Facts: There were four flat sharers, each being granted at different times and on different terms a 6-month licence to occupy the flat in conjunction with three others at the landlord’s discretion, and each paying different amounts for the use of their room within the flat. Held: these were four genuine and separate licences and did not together constitute a jointly shared lease of the property. Principle: In order to have a valid lease the tenants must enjoy exclusive possession of the property. Application: Use this case to illustrate what will constitute exclusive possession under Street v Mountford [1985]. Case precedent – Westminster City Council v Clarke [1992] 2 AC 288 Facts: The council ran a hostel for single homeless men with personality disorders or learning disabilities. The premises contained 31 rooms, each with a bed and limited cooking facilities. Each room was occupied under a licence agreement which specified that the occupant could be required to change 162 Optimize Land Law rooms at any time or to share it with another person. The premises were overseen by a warden and a team of social workers, who were entitled to access the rooms at any time without notice in order to facilitate the occupants. Held: the agreements were licences as they did not grant exclusive possession to the occupiers. Principle: In order to have a valid lease the tenants must enjoy exclusive possession of the property. Application: Compare the facts of this case against those in your own scenario to decide whether or not there is exclusive possession of the property in question. It is the substance of the agreement (i.e. what the parties really agreed), and not the form (i.e. the label given to the agreement), that matters when proving exclusive possession. ‘If the agreement satisfied all the requirements of a tenancy, then the agreement produced a tenancy and the parties cannot alter the effect of the agreement by insisting that they only created a licence. The manufacture of a five-­pronged implement for manual digging results in a fork even if the manufacturer, unfamiliar with the English language, insists that he intended to make and has made a spade.’ Lord Templeman, Street v Mountford [1985] Case precedent – Antoniades v Villliers [1990] 1 AC 417 Facts: A couple rented a one-bedroom flat together under separate but identical ‘licence’ agreements. When the couple was shown around the flat they asked the landlord to provide a double bed, which he did. However, when it came to signing the agreements the documentation stated that the couple did not have exclusive possession of the premises and that the licensor or anyone else of his choosing could use the rooms along with the couple. Held: there was a joint tenancy and not a licence. This was despite the description of the agreements as individual licences. Principle: When proving exclusive possession it is the substance of the agreement and not the form that matters. Leases and Licences 163 Application: Use this case to illustrate your point that a lease will be created wherever there is exclusive possession, regardless of the label that is given to the agreement. Case precedent – Aslan v Murphy [1990] 1 WLR 766 Facts: The case considered three purported licence agreements, each of which contained terms which the court considered to be a pretence and therefore constituted a tenancy. In particular in one case, the occupier was required to vacate the room entirely between 10.30am and 12pm each day; and in another, the landlord retained a key to the premises to provide services to the tenant which were never provided. Principle: When proving exclusive possession it is the substance of the agreement and not the form that matters. Application: Use this case to support your argument that sham agreements will not avoid the creation of a tenancy. The Facchini categories There are three situations in which no tenancy will be created, even where the criteria set out in Street v Mountford are satisfied. These are: 1. 2. 3. where there is no intention to create legal relations service occupancies lodgers Facchini v Bryson [1952] 1TLR 1386 No intention to create legal relations In certain situations (usually where there is a personal relationship between the parties, but also in the case of acts of kindness or charity) there will clearly be no intention to create a legal relationship and thus no tenancy will be created, irrespective of the nature of the letting. Case precedent – Booker v Palmer [1942] 2 All ER 674 Facts: A landowner allowed his cottage to be used to house evacuees during the Second World War. Held: this was a simple act of generosity by the landowner and there had clearly been no intention to create legal relations. The evacuees were therefore occupying the cottage under a licence and not a tenancy. 164 Optimize Land Law Principle: No lease will be created in situations where there is no intention to create legal relations. Application: Compare the facts of this case against your own to discover whether there is an intention to create a relationship of landlord and tenant. Service occupancies Where a person occupying property is required to do so in order to perform their duties as an employee, this will be classed as a service-­occupancy and no tenancy will be created. Case precedent – Norris v Checksfield [1991] 1 WLR 1241 Facts: A coach driver was granted a licence by his employer to live in a bungalow near to where he worked ‘for the better performance of his duties’. The driver paid £5 per week to live there. When the driver was later then dismissed he claimed the benefit of a tenancy over the bungalow. Held: this was a licence and therefore determinable without notice when the employee ceased to work for his employer. Principle: No lease will be created where the occupancy is for the better performance of an employee’s duties. Application: Use this case to illustrate what is mean by a service occupancy. Lodgers A lodger is someone who stays in the home of the landlord as a paying guest. Whilst the lodger will have a room of their own, therefore, the landlord will have unrestricted access to that room in order to clean the room, change the bed and provide the lodger with meals. Because of these attendant services there will be no exclusive possession granted of the room and so the lodger will remain a licensee of premises (Marchant v Charters [1977] 1 WLR 1181). Case precedent – Markou v Da Silvasesa [1986] 18 HLR 265 Facts: An agreement stipulated that services be provided, including a housekeeper, the provision of a telephone, the collection of rubbish and the provision and laundering of bed linen. Held: this was a licence, and not a tenancy. Principle: A lodger cannot have a tenancy because they do not have exclusive possession of the premises. Leases and Licences 165 Application: Use this case to support your argument that services provided amount to a lodging scenario under Facchini v Bryson. Is there a tenancy? Are the criteria in Street v Mountford satisfied? Is there an intention to create legal relations? Does the landlord have authority to grant the lease? Is the occupier a lodger? Is it a service tenancy? Authority to grant the lease The landlord must have the legal authority to let the premises. This is particularly relevant in the case of leasehold property owners, who may be subject to covenants in their own lease not to sublet the premises, or not to sublet without the consent of the landlord. In addition, the landlord must have a sufficient interest in the property to grant the lease in question: so, for example, the holder of a 50-year lease could not grant a 100-year lease of the property. This makes sense, as you cannot give what is not yours to give in the first place. On this basis, if the landlord purports to create a tenancy without sufficient authority, no lease will be created (Gray v Taylor [1998] 1 WLR 1093). Up for Debate The case of Bruton v London & Quadrant Housing Trust [2000] 1 AC 406 contradicts this general premise by confirming the existence of a tenancy in circumstances where the Housing Trust clearly did not have authority to grant leases to its tenants because it held the property on a mere licence from the local authority. However it is suggested that the decision of the House of Lords was a policy decision designed to force the Trust to comply with a statutory obligation to repair the accommodation, which would not have applied to them had the premises been under licence only. For a more in-depth discussion of the issues see Michael Lower’s ‘The Bruton Tenancy’ Conv.2010 1 38–56. 166 Optimize Land Law Formalities of leases Legal leases The general rule is that legal leases must be created by deed (s 52 LPA 1925). This is subject to one exception, under s 54(2), which is that leases of three years or under do not require writing in order to be valid, provided they: take effect in possession (i.e. immediately); and are ‘at the best rent which can reasonably be obtained without taking a fine’ (this means essentially that the lease must be at a market rent, with no payment being made for taking the lease). Common Pitfalls Students often assume that periodic tenancies cannot benefit from the s 54(2) exception, because theoretically they could be renewed beyond the three-year period. However, for the purposes of s 54(2) LPA 1925, a periodic tenancy is considered to be a term of three years or under, regardless of how long it has continued to be renewed for. As such, it can be created without the need for writing (Hammond v Farrow [1904] 2 KB 332). If a landlord fails to create the lease by deed, the lease may still exist in one or two different ways: At law:If the tenant enters into possession of the premises and pays rent on a regular basis, thereby creating a renewable rental period, an implied legal periodic tenancy will be created. In equity:As an equitable lease under the rule in Walsh v Lonsdale (1882) 21 Ch D 9 which states that ‘an agreement for a lease is as good as a lease’. Is there a deed? Is the lease for three years or less? Is the agreement in writing and signed in accordance with s 2 LP(MP)A 1989? Is the tenant in possession and paying rent? Leases and Licences 167 In order for the lease to be recognised in equity under the rule in Walsh v Lonsdale, the lease must still comply with the formalities for a contract for the sale of land under s 2 Law of Property (Miscellaneous Provisions) Act 1989, however. Thus, the document purporting to create the lease must be in writing, contain all the terms as agreed between the parties and be signed by both parties to the agreement. Aim Higher If a failed legal lease can create either an implied periodic tenancy or an equitable lease, which takes precedence over the other? In Walsh v Lonsdale the court confirmed that the equitable lease should take precedence over the common law periodic tenancy. Points to remember about the creation of leases Definition of leases ❖ Leases can be for any duration, provided the term is determinable at the start of the lease. ❖ Leases can take effect in the future, as well as the present. Street v Mountford ❖ In order to have a valid lease, you must have exclusive possession, for a term, at a The Facchini categories ❖ If there is no intention to create legal relations, the occupation is under a service Formalities for creation ❖ A legal lease of land must be created by deed. ❖ If there is no deed but an agreement in writing that complies with rent. occupancy or the occupier is a lodger, no lease will be created. s.2 LP(MP)A 1989, there may still be an equitable lease. 168 Optimize Land Law If it is not a lease: what is it? It may be a licence. As mentioned previously in this chapter, licences are purely personal agreements between two parties to occupy land. They simply make legal that which would otherwise be viewed as a trespass and grant no rights over the land itself. As such, a licence can be created completely informally, without the necessity for a deed, contract or any other form of writing, and can be created expressly or by implication (although if the licence is implied as an adjunct to a contractual obligation or grant, its existence will be dependent upon the proper creation of that other right). There are four different types of licence: Bare Coupled with a grant Contractual Estoppel Bare licence This is the most basic type of licence, and refers to the situation where a person is given permission to enter another’s land without payment. A bare licence may be granted expressly, as when you call a friend to invite them over for coffee, or impliedly, as when the postman comes up the drive to deliver a parcel. A person entering a property under bare licence is only entitled to be there for the specific purpose for which they are invited. As soon as the licensee goes beyond the terms of the licence they become a trespasser on the land. ‘When you invite a person into your house you do not invite him to slide down the banisters.’ Per Srutton LJ, The Calgarth [1927] P 93 Licence coupled with a grant These types of licences usually go hand in hand with the grant of a profit à prendre. Whilst a profit à prendre (the right to take something from the land, such as fish or wood) if granted by deed is by itself a proprietary right in land, the person exercising their right must enter the property in order to do so. That entry onto the owner’s land, for example to fish from their lake or collect wood from their forest, is done by way of licence. Leases and Licences 169 Case precedent – James Jones & Sons Ltd v Earl of Tankerville [1909] 2 Ch 400 Facts: The company had entered into a contract with the Earl to harvest wood growing on the Earl’s land. The Earl ejected the company from the land, damaging machinery in doing so. Principle: A person who contracts to take things from another’s land has an implied right to enter onto the land in order to collect them. Application: Use this case to illustrate an instance of a licence coupled with an interest. Contractual licence This is a licence granted in exchange for consideration, such as with the purchase of a cinema or car parking ticket, or membership to a health club. A contractual licence does not create rights in land, but so long as the person remains within the terms of their contract they will have a licence to remain on the premises to carry out the terms of that contract. The landowner will be in breach of contract if they revoke the licence before the contract has been fulfilled. Case precedent – Winter Garden Theatre (London) Ltd v Millenium Productions Ltd [1948] AC 173 Facts: The production company was given the right to produce plays at the theatre on a rolling six-month licence. It was held that the company had the right to occupy the theatre for the purpose of carrying out the productions for the duration of the licence. Principle: As long the licensee remains within the terms of their contract they will have a licence to remain on the premises to carry out the terms of that contract. Application: Use this case to illustrate the right to remain on property under a contractual licence. Estoppel licence This type of licence is granted by the court on grounds of proprietary estoppel, which is dealt with in Chapter 8. An example of a licence based on estoppel can be seen in the case of Greasley v Cooke [1980], below. 170 Optimize Land Law Case precedent – Greasley v Cooke [1980] 1 WLR 1306 Facts: Cooke lived and worked in Greasley’s house as a maid. When Greasley died, Cooke continued on in her position, caring for Greasley’s mentally ill sister without pay. She was assured by Greasley’s family that she could remain in the house rent-­free for as long as she liked. When the family later tried to evict her the court granted her a licence by estoppel. Principle: The court may grant a licence on the grounds of proprietary estoppel, enabling the licensee to remain in the property. Application: Use this case to illustrate the grant of a licence by virtue of estoppel. Can a licence bind a purchaser of the land? A licence is rarely binding on a third party on account of its personal nature. Remember: a licence in itself confers no rights over the land to which it is subject. However, if a licence is coupled with the grant of an interest in land, it goes hand in hand with the grant and will therefore bind any third party purchaser who buys, subject to the interest granted under it. This is not the case for contractual licences, which convey purely personal rights on the person entering into the contract. The licensee may therefore be able to claim damages for breach of contract if the licence is revoked, but not any form of proprietary right. A licence created by estoppel is the exception to the rule, in that estoppel licences are capable of registration in registered land (s 116 LRA 2002). Consequently, a correctly registered estoppel licence will be binding on a third party purchaser of the land. In unregistered land, an estoppel licence is not registrable as a Land Charge, but subject to the doctrine of notice and will therefore bind any purchaser who has actual or constructive notice of the licence when they purchased the property. Registration of leases Registered land The grant of a new lease of over seven years or the assignment of a lease with more than seven years left to run are registrable dispositions (s 27 LRA 2002), which means it is compulsory to register them. If the tenant does not register their lease, their interest will not be protected against a third party purchaser of the landlord’s interest. Leases of seven years or less are overriding interests (Sched 3, para 1 LRA 2002), and so are enforceable as against a purchaser of the landlord’s interest despite not being registered against the landlord’s title. Leases and Licences 171 New legal leases over seven years Assignments of legal leases with over seven years left to run Equitable leases Leases of seven years or less Equitable leases in actual occupation No need to register... Must register... Equitable leases should be protected as a minor interest by the entry of a notice in the Charges Register of the landlord’s title (s 32 LRA 2002). If the tenant fails to do this, their interest will not be protected against a purchaser of the landlord’s interest (s 29 LRA 2002) unless they are in occupation of the property and have an interest in actual occupation under Sched 3, para 2 LRA 2002. Unregistered land A purchaser of the landlord’s interest will be subject to any legal leases existing over the property, regardless of how long the lease is for, on the basis that ‘legal rights bind the whole world’. Equitable leases must be registered as a Class C(iv) Land Charge in order to be afforded protection. If not registered, they will be void against a purchaser for money or money’s worth of a legal estate in the land. Termination of leases and licences Licences A bare licence can be brought to an end at any time by the licensor simply revoking it, although the licensor is under a duty to give the licensee a reasonable opportunity to vacate their land (Robson v Hallet [1967] 2 QB 939). A licence coupled with a grant, on the other hand, cannot be revoked unless the grant itself comes to an end. Equally, a contractual licence will remain in place until such time as the contract is either itself revoked, or the contract is completed. Licences by estoppel are unique in that the court may hold a licence to be irrevocable by the licensor. Each case will be treated individually and on its own merits by the court. Leases A lease can be brought to an end in various ways: 172 Optimize Land Law Effluxation of time Where the lease is for a fixed term, the lease will end automatically at the end of the term. This is termination by effluxation of time. Notice to quit Where the lease is periodic in nature, either party may serve notice to quit to end the tenancy. Surrender Surrender is where the tenant forms an agreement with the landlord to give up their lease of the property before the end of the term. Merger This is where the tenant buy’s the landlord’s interest in the property, thus becoming their own landlord. In such circumstances the lease will cease to exist. Break clause If there is a break clause in the lease, either party may be allowed to bring the lease to an end before the end of the term by the service of notice on the other at specified times. at the end of the fixed term by forfeiture by notice to quit Bringing an end to the lease under a break clause through surrender by merger Forfeiture Forfeiture is the right of the landlord to re-­enter the premises and reclaim possession of them in the event of the tenant is in breach of one of the covenants in the lease. Forfeiture is important because it enables the landlord to bring an end to the lease early in situations where the tenant has not complied with the provisions of their leasehold interest. Leases and Licences 173 The right of forfeiture is not automatic: the landlord has to reserve the right to forfeit, or re-­enter the premises in the terms of the lease in order to be able to take advantage of it. There are two methods of forfeiture available to a landlord: court order; or peaceable re-­entry. Peaceable re-­entry is where the landlord re-­enters the premises and retakes physical possession of them, usually by changing the locks. Landlords will rarely use this method of forfeiture, however, because if they are found either to have threatened or committed an act of violence whilst in the course of re-­ entering the premises, they can be guilty of a criminal offence under s 6 Criminal Law Act 1977. In order to exercise the right to forfeit by either method the landlord must first make a formal demand for the rent, unless the wording of the lease exempts them from doing so. Most leases will include such wording. Subject to this, in the case of non-­payment of rent the landlord can forfeit immediately. In the case of any other breach of covenant, however, the landlord cannot forfeit without first serving notice under s 146 LPA 1925. In order to be valid the s 146 notice must: 1. 2. 3. specify the breach complained of by the landlord; require the breach to be remedied within a reasonable time, if capable of remedy; and require the tenant to pay compensation for the breach, if the landlord requires this. If the breach is not capable of remedy, the landlord simply has to give the tenant enough time to ‘consider their position’. Fourteen days is usually considered sufficient for this purpose (Scala House and District Property Co Ltd v Forbes [1974] QB 575). What is considered a reasonable time in all other cases will differ according to the circumstances of the breach (Albany Holdings Ltd v Crown Estate Commissioners [2004] EWHC 1480). Is the breach capable of remedy? As a general rule of thumb, breaches by the tenant of positive covenants within the lease, such as to repair the premises, are remediable and breaches of negative covenants, such as not to assign without consent, are irremediable (Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340). 174 Optimize Land Law Case precedent – Rugby School (Governors) v Tannahill [1935] 1 KB 87 Facts: Landlords sought to forfeit the tenancy of a lady who had been running a brothel from the premises. Held: the breach of the covenant in the lease not to use premises for illegal or immoral purposes was irremediable. Even if the tenant ceased to use the premises for prostitution, the value of the house had been irrevocably damaged due to the stigma which now attached to it. Principle: Breaches of negative covenants will usually be considered irremediable. Application: Cite this case as an example of an irremediable breach of covenant when discussing the requirements of an s 146 notice. Up for Debate It was traditionally thought that negative breaches of covenant by the tenant were not remediable. However, in Billson v Residential Apartments Ltd [1992] AC 494, where the landlord had re-­entered the premises following the carrying out of substantial unauthorised alterations to the premises by the tenant, the court suggested that the breach was capable of remedy. Relief from forfeiture The tenant can apply to the court for relief from forfeiture, meaning that the forfeiture does not take effect and the tenant continues under the terms of the existing lease. Where the forfeiture is for non-­payment of rent, the tenant can do this at any time up to six months from the forfeiture taking place. The tenant must pay all arrears due in order to be granted relief and relief is entirely at the discretion of the court. It is more difficult to obtain relief from forfeiture in respect of other breaches of covenant. If the landlord obtains a court order to forfeit the lease, the tenant can only seek relief before the landlord re-­enters the premises: after this point, their right to ask for relief from forfeiture will be lost. When a claim for relief of a breach of covenant other than non-­payment of rent is made, there is no standard right to apply for relief: whether or not the tenant can apply for it will depend upon the circumstances of the case. Case precedent – Ropemaker Properties Ltd v Noonhaven Ltd [1989] 34 EG 40 Facts: The tenant was in breach of a user covenant not to use a restaurant and night club for illegal or immoral purposes. The tenant had been using the premises for the provision of prostitutes. The court nevertheless granted the Leases and Licences 175 tenants relief from forfeiture on the grounds that the lease was of substantial value and forfeiture would cause loss to the tenant disproportionate to the breach. In addition, the immoral use had been brought to an end and was unlikely to be renewed; and any stigma attaching to the premises was likely to be short-­lived. Principle: The grant of relief from forfeiture for other breaches of covenant will depend upon the circumstances of the case. Application: Use this case as an example of a situation in which relief from forfeiture will be granted for a breach other than non-­payment of rent. Aim Higher What happens to sub-tenants when the lease of the tenant is forfeited? If a landlord forfeits his tenant’s lease, then any sub-­leases granted by that tenant are also forfeited. However, the sub-­tenant may apply for relief against forfeiture (s 146(4) LPA 1925) and, if granted, the tenant will then become the immediate tenant of the landlord. Waiver of the right to forfeit The landlord will lose or ‘waive’ their right to forfeit wherever they, being aware of the breach, carry out an act or series of acts that recognise the continuance of the lease. Case precedent – Central Estates (Belgravia) Ltd v Woolgar (No.2) [1972] 1 WLR 1048 Facts: A section 146 notice was served on the tenant but, due to a clerical error, the next quarter’s rent was demanded and subsequently paid by the tenant. Held: the demand for and acceptance of rent had constituted a waiver of the breach. Principle: The landlord’s right to forfeit will be waived if they continue to recognise the existence of the lease. Application: This case is a good illustration of the fact that the right to forfeit can be waived, even where there has been a simple clerical error on the part of the landlord’s employee: a positive act on the part of the landlord is not required. 176 Optimize Land Law Continuing and ‘once and for all’ breaches Once waiver has occurred, the landlord can no longer forfeit the lease on the grounds of the breach that has been waived. This is significant in the case of a ‘once and for all breach’, such as a breach of a covenant not to assign. However, if the breach is one which is ‘continuing’ (such as a covenant to repair the premises), then the landlord only waives their right to forfeit for the rental period for which the rent has been received (Greenwich LBC v Discreet Selling Estates Ltd [1990] 48 EG 113). Forfeiting the lease Is there a right of re-entry contained in the lease? If yes, landlord can proceed to forfeit Is the breach for non-payment of rent or another kind of breach? Rent Other breach Service of notices Landlord must serve a formal demand for the rent, unless the lease exempts this Tenant cannot forfeit without first serving an s 146 notice If yes, landlord must give a reasonable time for the breach to be remedied Is the breach capable of remedy? Can the tenant apply to the court for relief from forfeiture? If the tenant has paid their arrears, they can do this at any time within six months of forfeiture Tenant can only seek relief before landlord re-enters the premises. Relief will be dependent upon the circumstances of the case Has the landlord waived their right to forfeit? Landlord waives their right to forfeit for the rental period for which the rent has been received If the breach is ‘once and for all’, the landlord can no longer forfeit on those grounds; if continuing, they lose the right to forfeit during that rental period Leases and Licences 177 Law reform The Law Commission has recommended the abolition of the law of forfeiture in their 2006 report entitled ‘Termination of Tenancies for Tenant Default’ (Law Com No. 303). The report calls for the replacement of forfeiture with a statutory scheme of tenant default notices. Since publication of the report there have been no further moves to bring about the change, however. Points to remember about forfeiture Nature of forfeiture ❖ The right to forfeit is not automatic – there must be provision in the lease for the landlord to re-enter the premises in order for this remedy to be available to the landlord. ❖ A landlord can forfeit a lease either by peaceable re-entry or by court order. ❖ A landlord can forfeit immediately for non-payment of rent by the tenant; s 146 notices but must serve an s 146 notice in respect of any other breach. ❖ The notice must specify the nature of the breach, give a reasonable timescale for remedy and request compensation if required. Relief from forfeiture Waiver of the breach ❖ A tenant can apply for relief from forfeiture within six months of the landlord re-entering the premises. The tenant will usually get this if the tenant has paid all their rent arrears. ❖ The landlord can waive his right to forfeit by acknowledging the continuation of the breach after it has occurred. ❖ This will last until the next rental period in respect of continuing breaches, but is fatal to a forfeiture action in the case of a ‘once and for all’ breach. Chapter summary Leases can take effect either in possession (immediately) or in reversion (at some point in the future). There is no minimum or maximum duration of a lease, provided the term is certain. Leases create a proprietary interest in the land; licences are simply a personal agreement between the parties. In order for a lease to be created, there must be exclusive possession, for a term, at a rent (Street v Mountford). Rent is not strictly a requirement of a valid lease, but must be present for an informal lease to be created (s 54(2) LPA 1925). 178 Optimize Land Law In deciding whether there is exclusive possession the courts will look to the substance, not the form of the agreement (Antoniades v Villiers). Sham agreements will not be tolerated by the courts (Aslan v Murphy). If there is no intention to create legal relations, or if the occupant lives in the premises by virtue of a service occupancy or is a lodger, then no lease will be created (Facchini v Bryson). In order to be legal, a lease must be created by deed (s 52 LPA 1925), subject to the proviso that leases for three years or less can be created informally provided they are granted in possession, and are ‘at the best rent which can reasonably be obtained without taking a fine’ (s 54(2) LPA 1925). If the lease is not created by deed, it may still take effect as an implied periodic tenancy or an equitable lease under the rule in Walsh v Lonsdale, in which case it must comply with the requirements for a valid contract for land under s 2 LP(MP)A 1989. Where the land is registered, new legal leases of over seven years’ duration and assignments of leases with over seven years left to run are compulsorily registrable (s 27 LRA 2002). Leases for seven years or less are overriding. Equitable leases must also be registered as a Notice against the landlord’s title (s 32 LRA 2002), unless they are in actual occupation of the premises. Where the land is unregistered, legal leases bind the whole world; equitable leases should be registered as a Class C(iv) Land Charge. A lease can be brought to an end by effluxation of time; notice to quit; surrender; merger; through the exercise of a break clause; or by forfeiture. Forfeiture is the right of the landlord to re-­enter the premises and reclaim possession of them in the event of the tenant is in breach of one of the covenants in the lease. In order to use forfeiture, the landlord must reserve the right to re-­enter the premises in the terms of the lease. The landlord can waive the right to forfeit by accepting rent on the lease after the breach has been committed. Putting it into practice Siona buys ‘The Friary’, a four-bedroom house with a one-bedroom basement flat below, accessible via a separate entrance through the garden. She rents out each of the four rooms as follows: Room 1 to Jade for £200 per month. Siona has said Jade can stay at the house ‘until the end of the summer’. Room 2, which is a double room, to Hayley and Adam for £275 per month, on the understanding that if one of them leaves, Siona can replace them with another person of her choosing. Leases and Licences 179 Room 3 to her second cousin Carlton. She does not charge him rent, but asks for a quarter of household bills as and when they become due. Siona keeps Room 4 for herself to live in. Siona has retained keys to all of the rooms, and they are rented on the basis that Siona will provide fresh linen and towels and toiletries in the bathrooms, and that she will take the rubbish out on a Thursday. She has never done so, however. The basement flat Siona lets to Byron. He is a sort of ‘odd job’ man, helping out with general maintenance and gardening in and around The Friary wherever needed, as well as carrying out maintenance at Siona’s two other properties. In exchange, Byron pays Siona a nominal rent of £50 per month. In November Siona met the man of her dreams, Duncan. Duncan is planning to move into The Friary next week and Siona would like the occupants of Rooms 1, 2 and 3 and the basement flat to be gone before then. She is also planning on letting Bryon go, as Duncan is quite handy around the house. Can she do this and, if so, on what basis? Siona has agreed nothing in writing with any of the occupants. Feedback on putting it into practice The question here is whether the occupants of The Friary are tenants, in which case they will have the benefit of a leasehold interest in the land and Siona will have to go through the proper notice procedure to remove them from the house, or whether they are merely licensees, in which case they have a purely personal agreement with Siona, which Siona can bring to an end at any time. The three requirements for a lease are set out in Street v Mountford [1985] and are: exclusive possession, for a term, at a rent. Exclusive possession is where the occupant is able to keep out everyone from the premises, including the landlord. There is no suggestion of Jade, Carlton or Byron sharing their rooms/flat with anyone else, which would point to exclusive possession. However, Hayley and Adam occupy Room 2 on the understanding that if either of them leaves, Siona can replace them with another person of her choosing. This would appear to be unrealistic, however, as it is a double room and neither Adam nor Hayley are likely to want to share the room with a stranger. In deciding whether there is exclusive possession in such cases, the courts will look to the substance, rather than the form of the agreement. Here, the reality of the situation would appear to be that the couple jointly share exclusive possession of the whole of the room (Antoniades v Villiers). One further point is Siona’s promise of the provision of services to all of the rooms. Serviced rooms are considered not to benefit from exclusive possession; however, as the services have never been provided this is likely to be viewed as a sham term in the agreements, and the court will take little interest in it (Aslan v Murphy). 180 Optimize Land Law The requirement for a determinate term is key to the formation of a leasehold interest in land. Under s 205(1)(xvii) LPA 1925 a lease must be for a ‘term certain’, meaning that the agreement must begin on a specified date (usually when the tenant moves in) and must end on a date determinable at the outset of the tenancy. It is not necessary for the exact date to be given: only that the date is calculable at the beginning of the term. We are told that there is nothing in writing in respect of any of the occupancies; nor is there any mention of dates, except in respect of Jade’s occupation of Room 1, which Siona has said Jade can stay in ‘until the end of the summer’. This hints at the existence of a fixed term, but is it sufficiently certain? British Summer Time (BST) is a formal term for the period when daylight saving is in place in the UK, lasting from 31 March until 27 October in 2013. It is therefore calculable and could be argued to be sufficiently certain to create a fixed term. The other rooms and basement flat are not rented for any specific period, although Room 2 and the basement flat both pay a monthly rent, which is suggestive of an implied periodic tenancy in respect of each. Carlton does not pay monthly rent for Room 3, although he makes a payment towards the bills ‘as and when they become due’. If the bills are paid regularly, whether this is monthly or quarterly, again a periodic tenancy could be implied. If payment is more sporadic, a periodic tenancy may be more difficult to establish. The requirement for rent set out in Street v Mountford is not absolute: s 205(1)(xvii) itself specifically states that rent is not a prerequisite for the creation of a leasehold interest. However, it should be remembered that in order to create both a legal and an equitable lease, writing is required: the only exception to this is leases for three years or under. Periodic tenancies fall within this exception; however, the exception is clear in stating that the tenancy must be ‘at the best rent which can reasonably be obtained without taking a fine’. Those occupants paying less than market rent (in essence Room 3 and the basement flat) will not be able to take advantage of the exception, therefore. Byron could argue that the remainder of his rent is made up with the provision of services for Siona. However, there still remains the question of whether his occupancy is a service tenancy, meaning that, under Facchini v Bryson, his tenancy will come to an end automatically on the termination of his employment. The definition of a service tenancy is where the occupant lives on the premises ‘for the better performance of their duties’. Byron does word at The Friary, but also works at two other of Siona’s houses. It could be argued, therefore, that his presence is a perk of the job and perhaps convenient, but not necessary for him to do his work on all three houses. Leases and Licences 181 Table of key cases referred to in this chapter Case name Area of law Principle Street v Mountford [1985] Requirements for a valid lease AG Securities v Vaughan [1990] Exclusive possession In order to create a valid lease there must be exclusive possession, for a term, at a rent. Westminster City Council v Clarke [1992] Exclusive possession Antoniades v Villliers [1990] Requirements for a valid lease Aslan v Murphy [1990] Exclusive possession Booker v Palmer [1942] The Facchini categories No lease will be created in situations where there is no – no intention to intention to create legal create legal relations relations. Lace v Chantler [1944] Requirements for a valid lease Facchini v Bryson [1952] Rugby School (Governors) v Tannahill [1935] In order to create a valid lease there must be a determinate term. In order to have a valid lease the tenants must enjoy exclusive possession of the property. The provision of services will prevent a claim of exclusive possession. When proving exclusive possession it is the substance of the agreement and not the form that matters. The court will not take into account sham agreements. The Facchini categories No tenancy will be created where the occupation is that of a service occupancy or a lodger; or where there is no intention to create legal relations. Forfeiture for breaches Breaches of negative covenants of covenant will generally be considered irremediable. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision This page intentionally left blank 8 Trusts and Proprietary Estoppel Revision objectives • Do you understand what forms the basis of a proprietary estoppel claim? Understand the law Remember the details Reflect critically on areas of debate • Can you name the four requirements that form the basis of a modern proprietary estoppel claim? • Can you understand and comment on the difference between the concepts of proprietary estoppel and constructive trusts? • Can you explain why proprietary estoppel is so important in the context of landholding? Contextualise Apply your skills and knowledge • Can you recognise where there might be a claim in proprietary estoppel and establish that claim using the criteria set out in case law? Chapter Map Proprietary estoppel Established when four elements are proved: Assurance Reliance Provides by way of remedy whatever is ‘the minimum equity to do justice’ Detriment Unconscionability Unconscionability alone will not suffice, as seen in the cases of estate contracts and testamentary promises Trusts and Proprietary Estoppel 185 Introduction Proprietary estoppel is the equitable principle that a man should not be prevented from claiming rights in respect of land where he has acted to his detriment in respect of that land on the basis of assurances or acquiescence on the part of the landowner. Generally speaking, estoppel claims will arise for one of two reasons. Either: 1. 2. to enforce a promise which has been made to a third party by the landowner; or to protect the position of a buyer who has acted to their detriment in the process of negotiations to purchase a property. Understanding: proprietary estoppel Case precedent – Dillwyn v Llewelyn [1862] EWHC Ch J67 Facts: A father gave his son some land on which to build a house. However, the transfer was never formalised. The son spent a considerable amount of money building the house, but when the father later died the son’s elder brother tried to claim back the land. Held: the son had a claim on the basis of proprietary estoppel. He was given a life interest in the land on which the house was built. Principle: A man should not be prevented from claiming rights in respect of land where he has acted to his detriment in respect of that land on the basis of assurances or acquiescence on the part of the landowner. Application: Use this case to illustrate a situation in which a claim in proprietary estoppel will be successfully used. The doctrine of proprietary estoppel follows well after the topics of resulting and constructive trusts because: a) it shares many of the same features as constructive trusts (although to date the two equitable principles remain separate); and b) It frequently (although not always) results in the informal creation of rights in land. Proprietary estoppel is a vital equitable tool in that: it enables the courts to recognise the moral obligations of the landowner where no legal obligation exists. 186 Optimize Land Law How to establish a claim in proprietary estoppel Case precedent – Wilmott v Barber [1880] 15 ChD 96. Facts: Bowyer let land to Willmott that adjoined Wilmott’s timber yard, giving him an option to purchase the land at a later date. Unbeknown to Joseph the land let by bowyer was subject to a covenant not to sub-­let or assign (that is, to transfer) the property. Joseph spent a considerable amount of money improving the land but when he sought to exercise his option Bowyer was unable to go through with the sale because of the covenant. Principle: Proprietary estoppel may be established where the claimant has acted to their detriment in a mistaken belief as to their rights, where the landowner is aware and has encouraged the claimant’s acts. Application: Use this case to show an example of where a possible proprietary estoppel claim might arise. Traditionally there were five separate requirements, set out by Mr Justice Fry in the case of Willmott v Barber [1880] 15 ChD 96. These were that: 1. 2. 3. 4. 5. the claimant must have made a mistake as to their legal rights; the claimant must have expended some money or must have done some act (not necessarily on the land) on the faith of their mistaken belief; the landowner must know that their own right is inconsistent with the right claimed by the claimant; the landowner must know of the claimant’s mistaken belief to their rights; the landowner must have encouraged the claimant in their expenditure of money or in the other acts which they have done, either directly or by abstaining from asserting their legal right. Whilst the original requirements set out in Willmott v Barber still stand, the courts have over the course of time relaxed the rules somewhat so that the requirements have become more of a set of guidelines or indicators, rather than a checklist for establishing a claim. Case precedent – Taylor Fashions Ltd v Liverpool Victoria Trustees Co. Ltd [1982] QB 133 Facts: A landlord refused to honour options to renew two leases of adjoining shops. The tenants had carried out substantial improvements to the shops in reliance on the options. But the options had not been registered at the Land Charges Registry and were therefore invalid, a fact neither landlord nor tenant was aware of at the time of the improvements. Trusts and Proprietary Estoppel 187 Principle: The courts should adopt a broad approach to the five elements set out in Willmott v Barber, and that it was not necessarily essential for each element to be fully present in every instance. Application: Use this case to show that a landowner can be bound by an agreement only where it would be ‘dishonest or unconscionable’ for him to argue otherwise. Aim Higher The outcome in the case is interesting because the court found differently in respect of each tenant. Taylor Fashions were refused specific performance because the landlord had no involvement with the work carried out to the premises. It was therefore not possible to say that the tenant would not have carried out the works if the landlord had told them that their option to renew was invalid. But in the case of Old & Campbell Ltd, the landlord had encouraged the tenant to carry out works, to take another lease of adjoining premises and had fixed the value of the freehold taking into account the option over it. Specific performance was therefore granted and Old & Campbell were allowed to renew their lease. Whilst Taylor Fashions is only a first instance decision, Mr Justice Oliver’s reasoning has been widely followed and the focus in proprietary estoppel cases is now not on the slavish fulfilment of all five criteria in Willmott v Barber, but rather on the unconscionability of the landowner’s actions in the particular case. This does not mean that the criteria in Willmott v Barber have been removed altogether; but it is now commonplace to state them rather more simply in terms of: 1. 2. 3. assurance (by the landowner giving rise to the claimant mistaking their legal rights); reliance (on the landowner’s assurances); and detriment (brought about by that reliance). This is coupled with the fourth more general requirement set out in Taylor Fashions, of: 4. unconscionability which requirement incorporates within it the prerequisites of knowledge, both of the mistake and the inconsistency of rights, and encouragement as cited in the original case. 188 Optimize Land Law So we can now say that, in order to establish a claim in proprietary estoppel, the claimant will need to show: Assurance Reliance Detriment Unconscionability Assurance The requirement of assurance requires the landowner to have encouraged the claimant in their belief, whether directly or indirectly. Direct assurance would be where the landowner has actively encouraged the claimant to act to their detriment; indirect assurance would be where they have simply stood by and allowed the claimant to continue in their mistaken belief as to their rights over the property, albeit knowing that this was not the correct position at law. Reliance Reliance tends to overlap with the other two requirements of assurance and detriment. The idea is that the claimant must have relied upon the assurance or assurances made to them by the landowner, acting to their detriment in doing so. That the claimant has acted in reliance on the assurance tends to be assumed wherever assurance and detriment are proven (Gillett v Holt [2001] Ch 210). Detriment The claimant must have expended some money or must have done some act on the faith of the assurance made to them (Willmott v Barber). This was the case in Pascoe v Turner [1979] 1 WLR 431, where a woman had spent money on redecorations, improvements and repairs to a house in which she lived with her partner for 10 years. The house had been bought for the couple in the man’s sole name, but he had assured her that the house and its contents would be hers and she had spent money on the house in reliance on his declaration. Case precedent – Re Basham [1986] 1 WLR 1498 Facts: The claimant worked in her stepfather’s businesses without payment for many years on the understanding that she would inherit the business on his death. However, the stepfather died without leaving a will and consequently the claimant received nothing. Held: she was entitled to the business on the basis of proprietary estoppel. Principle: The claimant must have expended some money or must have done some act on the faith of the assurance made to them. Application: Use this case to show an example of another form that detriment can take. Trusts and Proprietary Estoppel 189 Whatever form the detriment may take, it must be genuine, however. Case precedent – Powell v Benney [2008] P&CR D31 Facts: A local pastor befriended an elderly man who owned several properties, taking care of him and managing his affairs. The man told the pastor and his wife on several occasions that he was going to leave the properties to them and even signed a document to this effect, although the document was not binding. He also invited them to use the properties. The pastor and his wife spent time tidying and improving the properties for their own use and adapting one of them for to give music and bible lessons. However, when the man died he left no valid will and the properties passed to his cousins. Held: there was no estoppel. Whilst the couple had spent money improving the properties, this was so that they could better enjoy the use of them and could not be construed as a detriment. Principle: There must be genuine detriment on the part of the claimant for a claim under proprietary estoppel to arise. Application: Compare this case against the facts in your own scenario: has there been a genuine detriment on the part of the person making the claim? Unconscionability Case precedent – Sledmore v Dalby (1996) 72 P&CR 196 Facts: A man made a claim against his mother-in-law, who owned the house in which he was living. She had allowed the claimant to live there, along with her daughter and the couple’s children when the man was out of work and the daughter was seriously ill. The agreement was that they should remain in the property rent-free until the children had left home. Consequently, the man had carried out various improvements and repairs. Some years later following the death of her husband the mother-in-law asked the man to move out so that she could take up residence in the property. Whilst the man was now working and the children were grown up (albeit that one still lived at home), her own house was in a state of disrepair and she was behind on the mortgage payments. Held: whilst there had been detrimental reliance there was no unconscionability on the part of the mother-in-law. There had been a legitimate change in circumstances of both parties and the mother-in-law was entitled to assert her right to possession of the house. In addition, the man had already lived in the property rent-­free for 20 years and it was arguable that he had therefore already received the benefit of any proprietary interest to which he might have been entitled. 190 Optimize Land Law Principle: There must be unconscionability on the part of the person making the assurances in order for a claim in proprietary estoppel to arise. Application: This case is a really good example of the rare instance in which there has not been unconscionable behaviour on the part of the defendant. Whilst the case of Sledmore v Dalby shows that unconscionability must be present in order for a claim in proprietary estoppel to be established, unconscionability alone will not suffice: assurance, reliance and detriment are also required. ‘conscious reliance on honour alone will not give rise to an estoppel’. Per Lord Walker, Cobbe v Yeomans’ Row Management Ltd [2008] 1 WLR 1752 Contentious issues There are two particular areas of contention in the context of proprietary estoppel, and these are: Failed estate contracts Testamentary promises Failed estate contracts In order for a contract in respect of land to be valid it must be made in writing (s 2 LP(M)PA 1989). In situations where such an agreement has either not been put into writing, or where the contract falls foul of section 2 in some other way, the parties will often seek a remedy in equity, on the basis of estoppel. On this basis, the courts have historically been happy to step in and enforce the contract where the actions of the defaulting party to the agreement have been sufficiently unconscionable (Crabb v Arun District Council [1976] Ch 179). As we have seen above, however, the court in Cobbe v Yeomans’ Row Management Ltd was keen to point out that unconscionability alone cannot form the basis of an estoppel. Case precedent – Cobbe v Yeomans’ Row Management Ltd [2008] 1 WLR 1752 Facts: A developer said that he had reached an oral agreement with the owners of a block of flats that he would apply for planning permission for their redevelopment in return for a fixed fee plus a percentage of the gross proceeds of sale of the development. The developer said that in reliance on the Trusts and Proprietary Estoppel 191 agreement, he had spent considerable time and money securing the grant of planning permission for the venture; however, the owners had subsequently refused to pay him for his efforts. Held: the developer’s claim failed. The developer was a businessman who had entered the agreement with his eyes open and he knew the risk he was taking by not entering into a written agreement. Principle: The doctrine of proprietary estoppel cannot be used to validate a contract for the sale of land where it falls short of the requirements under s 2. Application: Use this case to show an instance of where a claim for proprietary estoppel will fail despite there being clear unconscionability on the part of the defendants. Up for Debate Following the ruling in Cobbe there was initial concern from legal commentators that the use of proprietary estoppel would be severely limited as a result. However, in reality the ruling is limited to business agreements, and does not relate to situations in which an innocent lay person can be negatively affected. See also the recent findings in Herbert v Doyle [2010] EWCA Civ 1095 and Whittaker v Kinnear [2011] EWHC 1479 (QB), which followed the ruling in Cobbe. Testamentary promises The position in the first instance in the case of claims for proprietary estoppel is that the court will not enforce such a claim on the strength of a promise of a gift or inheritance alone. As well as an assurance, there must be reliance, detriment and unconscionability on the part of the person making the promise. Case precedent – Gillett v Holt [2001] Ch 210 Facts: A man had spent his working life as farm manager for a wealthy farmer. The farmer had made repeated promises and assurances over many years, usually on special family occasions, that the man would be the successor to his farming business, which included the farmhouse in which the man and his family lived. However, after living and working at the farm for some 25 years, the two men had a falling out and the farmer fired the man and cut him out of his will. Held: the farmer’s assurances had been made irrevocable by the man’s reliance on them over a period of years. The man was therefore awarded the farmhouse in which he and his family lived, together with sum of money to compensate him for his exclusion from the rest of the farming business. 192 Optimize Land Law Principle: Promises of inheritance should be substantial and repeated in order for a claim of proprietary estoppel to succeed in reliance on them. Application: Use this case to illustrate the type of situation in which a claim under a testamentary promise will succeed in proprietary estoppel. A simple one-­off statement or hints at an inheritance would not do. In the case of Gillett v Holt, particular emphasis was placed by the Court of Appeal on the fact that Mr Holt was a dour man of few words and that such statements by him, such as they were made from time to time, were therefore not to be taken lightly. Case precedent – Thorner v Major [2009] 1 WLR 776 Facts: The claimant lived at home with his parents, helping his father and later his father’s cousin to farm their neighbouring farmland. The claimant was never paid for his work; however, various remarks were made by the cousin that led the claimant to expect that he would inherit the farm on the cousin’s death. In particular, on one occasion the cousin handed the claimant a life insurance policy bonus notice, saying ‘That’s for my death duties’. The cousin had also made a will in which he left the farm to the claimant, but this had been later destroyed after a falling out between Peter and another beneficiary. Held: although technically ‘revocable’, once the statement made by the cousin had been acted upon by the claimant for a substantial period of time, it would have been inequitable for the cousin to go back on that statement, at least without paying the claimant appropriate compensation for his 14 years’ unpaid work on the farm unless it could be proved that the change of mind was justified by a change in circumstances. Principle: Promises of inheritance should be substantial and repeated in order for a claim of proprietary estoppel to succeed in reliance on them. Application: Compare this case against the facts in your own scenario and consider whether a claim under a testamentary promise might succeed. The effect of proprietary estoppel The result of a finding of proprietary estoppel will not always result in the transfer of the property (or a part of it) to the claimant. In Pascoe v Turner Lord Justice Cumming-­Bruce said: ‘. . . the court must decide what is the minimum equity to do justice.’ Trusts and Proprietary Estoppel 193 The remedy given by the courts will thus be tailored to the facts of the individual case, the court doing whatever they consider necessary to reverse the detriment which has been suffered by the claimant. In any event, the detriment suffered must be proportionate to the award claimed in order to achieve ‘the minimum equity to do justice’. Case precedent – Jennings v Rice [2002] EWCA Civ 159 Facts: The claimant worked for an elderly lady on a part-time basis, doing gardening, running errands and taking the lady shopping. After about 10 years the lady stopped paying the claimant, telling him he need not worry about that since ‘he would be alright’ and that ‘this will all be yours one day’. When the lady died she did not leave a will, however, and the claimant received nothing. Held: The claimant had a claim in proprietary estoppel, but his award was limited to a monetary payment of £200,000 representing the estimated cost of full-­time nursing care for the lady during the period for which the claimant had worked for her (the house was worth the much greater sum of £1.25 million). Principle: The award given under a claim in proprietary estoppel must be in proportion to the level of detriment suffered. Application: This case provides a good example of a situation in which a claim in proprietary estoppel will not result in a transfer of the property. The following are examples of the kinds of remedies that might be awarded in cases of proprietary estoppel: A transfer of the legal estate (Pascoe v Turner) The grant of an easement over land (Crabb v Arun) What remedy might I be awarded if proprietary estoppel is established? The grant of a licence to occupy for life or as long as the claimant wishes (Gillett v Holt; Inwards v Baker) The payment of cash compensation (Gillett v Holt) 194 Optimize Land Law Similarities to constructive trusts The doctrine of proprietary estoppel and the imposition of a constructive trust under the rules of equity both share a number of similar features. In reality, however, they are quite different. In particular: Remedies ❖ The range of remedies available to a claimant of proprietary estoppel is much wider ❖ The court’s discretion is much greater than in cases of constructive trust ❖ With a constructive trust, there must be a common intention proved between Legal ownership the property owner and a third party ❖ With proprietary estoppel, the understanding or agreement need not be with the legal owner of the property Despite this, the courts have been happy to treat the two doctrines as overlapping, if not synonymous in some circumstances. Case precedent – Yaxley v Gotts [2000] Ch 162 Facts: Gotts asked Yaxley to convert a property into three flats for him, at Yaxley’s own expense, in exchange for which he would give Yaxley one of the finished flats. Unbeknown to Yaxley, the property in fact belonged to Gotts’ son, Alan. Yaxley carried out the work and then went on to act as a letting agent in respect of all three properties. Following an argument with Alan, Yaxley was locked out of the property and told not to return. Held: because the property belonged to Alan, and not Gotts with whom the agreement had been reached, it was not possible to infer a constructive trust on Yaxley’s behalf. They therefore made an award in favour of Yaxley on the grounds of proprietary estoppel. However, the award given was a constructive trust over the property. Principle: The courts will often treat the remedies of constructive trusts and proprietary estoppel as overlapping or synonymous. Application: Use this case to illustrate the courts’ more recent approach to cases of proprietary estoppel and constructive trust cases. Trusts and Proprietary Estoppel 195 Up for Debate In the case of Van Laethem v Brooker [2005] EWHC 1478 (Ch) a woman was given an award in respect of a house and land which she had helped to renovate and develop. However, the court seems unclear as to whether the claim was proved on grounds of proprietary estoppel or constructive trust. Collins J said: ‘. . . the modern authorities . . . show that there is no substantial difference in the remedy as between constructive trust and proprietary estoppel. My primary holding is that [the claimant] is entitled to an interest by way of proprietary estoppel in relation to [the house] and by way of constructive trust in relation to the Development Land. My alternative holding is that [the claimant] is entitled to an interest by way of proprietary estoppel in relation to both properties. I do not consider that it makes a difference as regards the remedy.’ The suggestion is, then, that there is no longer any substantial difference between the two. Points to remember about proprietary estoppel Requirements for proprietary estoppel Unconscionability alone will not suffice Remedies in proprietary estoppel Similarities with constructive trusts ❖ In order to establish a claim in proprietary estoppel, the claimant will need to show assurance, reliance, detriment and unconscionability. ❖ Proprietary estoppel can only be used to enforce a contract for the sale of land where all four elements of proprietary estoppel are present (Cobbe v Yeomans Row). ❖ Equally, promises of inheritance should be substantial and repeated in order for a claim of proprietary estoppel to succeed in reliance on them (Thorner v Major). ❖ When making a finding in proprietary estoppel cases the court will decide ‘what is the minimum equity to do justice’. ❖ The courts have been happy to treat the two doctrines as overlapping, if not synonymous in some circumstances. However, they are in reality very different in nature. 196 Optimize Land Law Summary of requirements and remedies in proprietary estoppel Proprietary estoppel Assurance + reliance + detriment + unconscionability Whatever will provide ‘the minimum equity to do justice’ Chapter summary Proprietary estoppel arises where a landowner encourages or acquiesces to a third party’s mistake in respect of their rights to land and act to their detriment as a consequence of this mistake. Proprietary estoppel is a vital equitable tool in that it enables the courts to recognise the moral obligations of the landowner where no legal obligation exists. The key element in proprietary estoppel cases is the unconscionability of the landowner’s actions (Taylor Fashions). However, the elements of assurance, reliance and detriment must also be proved. Assurance has over the years been enlarged to include the expectations of the claimant as to what rights in the land they will have in the future. This has caused some controversy, especially in wills cases. The remedy granted in proprietary estoppel cases will be the ‘minimum equity to do justice’. Thus, it will not necessarily be the acquisition of land, but may be a lesser interest in it, or even the payment of financial compensation. The similarities between proprietary estoppel and common intention constructive trusts are quite striking. This has caused some confusion in the courts and even the suggestion that the two are synonymous. The point is yet to be settled in the courts. Trusts and Proprietary Estoppel 197 Putting it into practice Cindi inherits a large estate in Monmouthshire from her estranged uncle Blinko. Cindi has no interest in living on the property, having made her home elsewhere in the country. However, she sees the development potential of the property straight away and employs architects to draw up plans and apply for planning permission to convert the house and garden into a theme park and leisure grounds. However, no sooner has the planning application been made, but a number of complaints come in from neighbouring properties, objecting to the development. Glenys, Blinko’s former gardener, says that she has been caring for Blinko and cooking meals for him for the last 13 years without payment, because he said he would ‘see her right’ and that ‘all this will be yours one day’. She claims the entire estate for herself. Justin, Blinko’s neighbour, says that the field to the north of the property, which is principal to the development plans, belongs by rights to him. He has been using the land as paddock for his horses, and has spent a considerable amount of money building a block of stables and indoor arena on the land. He says Blinko allowed him to do this, saying that he would leave the land to Justin in his Will. Carmen, Blinko’s former girlfriend, says that the house belongs to her. During the course of their seven-­year relationship, Blinko frequently said to her ‘you’re my lady of the manor’. Property development company, Estates R Us, claim a half share in the development, on the grounds that they have spent two years and half a million pounds developing plans and liaising with the council to turn the property into a luxury flats and a new exclusive housing estate. They did this, they say, because Blinko had promised them half of the proceeds of sale of the development if they did so. Is there any substance to their claims and, if so, on what grounds? Feedback on putting it into practice In proprietary estoppel cases the best way to approach them is by applying the four pre-­requisites set out in Taylor Fashions of assurance, reliance, detriment and unconscionability, and if all four apply there is a good chance of the courts providing an equitable remedy to the situation. You can then go on to look at what kind of equity the courts may apply in the situation given (remember it is not always an estate or interest in the land that will be granted in proprietary estoppel cases). 198 Optimize Land Law Glenys Glenys, Blinko’s former gardener, is claiming the entire estate for herself. Assurance: Glenys has received assurances from Blinko that he would ‘see her right’ and that ‘all this will be yours one day’. Reliance: In reliance on these statements Glenys has acted to her Detriment by caring for Blinko and cooking meals for him for the last 13 years without payment. This is similar to the case of Taylor v Dickens. Unconscionability: It may seem unconscionable that Blinko has made false representations to Glenys about to whom his property will go on his death, but in cases of testamentary promises the court is quite clear about what will be sufficient and what will not. The finding in Taylor v Dickens should be contrasted with the outcome in Gillett v Holt, although the findings in that particular case were based on the particular circumstances of the case and the fact that the assurances had been given repeatedly over a long period of time. Equity: It seems unlikely that Glenys will benefit from a proprietary estoppel claim in this instance. However, if she did, the likelihood is that she would be granted a sum of money to compensate her for her expenditure, rather than any stake in the property. Certainly her claim to the entire estate is disproportionate to the work she has done and therefore to the level of her detriment (see Powell v Benney; Jennings v Rice). Justin Justin, Blinko’s neighbour, is claiming the field to the north of the property. Assurance: Blinko said he would leave the land to Justin in his Will. Reliance: In reliance upon Blinko’s statement, Justin has, to his Detriment, spent a considerable amount of money building a block of stables and indoor arena on the land. This is similar to the facts of Inwards v Baker, where a father allowed his son to build a house on land owned by him. Unconscionability: Blinko has allowed him to expend the money, whilst telling him he would leave the land to Justin in his will. Testamentary promises are difficult, the general feeling of the court being that, because a will can be revoked at any point up until death, they will not be sufficient to give rise to an equity under the rules of proprietary estoppel. Having said this, in Inwards v Baker, a life interest in the land was granted. Trusts and Proprietary Estoppel 199 Equity: It may be that the court sees fit to grant a life interest in the land, as in Inwards v Baker. Alternatively, the courts may feel that the benefit Justin has already had from grazing his horses on the land has gone a long way to satisfying the equity in this situation. We are not told whether Justin is paying rent for the privilege of doing this. In Sledmore v Dalby, the claimant was viewed as having already received a considerable benefit by living in the house rent-free over a number of years. Carmen Carmen, Blinko’s former girlfriend, says that the house belongs to her. Assurance: During the course of their seven-­year relationship, Blinko frequently said to her ‘you’re my lady of the manor’. Reliance: We are not told of any action she has taken in reliance on this statement. Detriment: The case is similar to the facts of Lissimore v Downing, in which there was held to be no real detriment to the girlfriend. Unconscionability: There has been no real assurance here, and from what we are aware, no detrimental reliance either. There is therefore unlikely to be an equity granted. Estates R Us The property development company claim a half share in the development. Assurance: Blinko promised them half of the proceeds of the sale of the development of the site. Reliance: in reliance on this, Estates R Us have, to their Detriment, spent two years and half a million pounds developing plans and liaising with the council to turn the property into a luxury flats and a housing estate. Unconscionability: On the face of it, it does seem unconscionable that Blinko should renege on their business deal. However, following Cobbe v Yeomans Row, the courts might take the view that Estates R Us should have taken precautions as business men to protect their agreement/interest. Equity: Following Cobbe, they are unlikely to get an interest in the land but may be paid agency fees for acting in the development. 200 Optimize Land Law Essay ‘. . . the modern authorities . . . show that there is no substantial difference in the remedy as between constructive trust and proprietary estoppel.’ Mr Justice Collins, Van Laethem v Brooker [2005] EWHC 1478 (Ch) Discuss. Hint: Highlight the technical differences that exist between the two concepts, and the different remedies available to them. Comment on the findings given by the court in Van Laethem: do you think the finding is correct and do you think there should have been a clearer finding in the case? Table of key cases referred to in this chapter Case name Area of law Wilmott v Barber (1880) Establishing a claim Sets out the five requirements in proprietary for proprietary estoppel to be established in the courts. estoppel Dillwyn v Llewelyn [1862] Taylor Fashions Ltd v Liverpool Victoria Trustees [1982] Principle Meaning of A man should not be prevented proprietary estoppel from claiming rights in land where he has acted to his detriment on the basis of assurances or acquiescence by the landowner. Proprietary estoppel The claimant will need to show unconscionability assurance, reliance, detriment and unconscionability. Re Basham [1986] Detriment Powell v Benney [2008] Detriment The claimant must have expended some money or must have done some act on the faith of the assurance made to them. There must be genuine detriment on the part of the claimant for a claim under proprietary estoppel to arise. Trusts and Proprietary Estoppel Sledmore v Dalby (1996) Unconscionability 201 There must be unconscionability on the part of the person making the assurances in order for a claim in proprietary estoppel to arise. Cobbe v Yeomans’ Proprietary estoppel Proprietary estoppel cannot be Row Management Ltd and s 2 agreements used to validate a contract for the [2008] sale of land where it falls short of the requirements under s 2. Gillett v Holt [2001] Thorner v Major [2009] Proprietary estoppel Promises of inheritance should be and testamentary substantial and repeated in order promises for a claim of proprietary estoppel to succeed in reliance on them. Proprietary estoppel Promises of inheritance should be and testamentary substantial and repeated in order promises for a claim of proprietary estoppel to succeed in reliance on them. Jennings v Rice [2002] Effect of proprietary The award given under a claim in estoppel proprietary estoppel must be in proportion to the level of detriment suffered. Yaxley v Gotts [2000] Differences between proprietary estoppel and constructive trusts The courts will often treat the remedies of constructive trusts and proprietary estoppel as overlapping or synonymous. @ Visit the book's companion website to test your knowledge Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary www.routledge.com/cw/optimizelawrevision This page intentionally left blank 9 Co-­ownership Revision objectives Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Do you know the difference between joint tenants and tenants in common? • Do you understand the concept of survivorship? • Can you name the four unities? • Do you know what happens when the equitable estate in the property is severed? • Are you able to discuss the requirements for notice in writing and how this can be used to effect severance of the equitable interest in the property? • Can you see how knowledge of this topic would be vital in a dispute relating to land ownership, in particular where an equitable interest in the property is claimed by a third party? • Can you recognise the form of co-ownership applicable to any particular property using the common law presumptions and any words of severance? Notice in writing Joint tenants benefit from the right of survivorship There can be no more than four legal owners of land ‘such other acts or things as would … have been effectual to sever the tenancy in equity’ A joint tenancy can be severed in equity under s 36 LPA 1925 by: Co-owners must hold as joint tenants at law Legal ownership An express declaration in the conveyance An equitable presumption based on the positions of the co-owners A tenancy in common can be recognised by: Words of severance Tenants in common hold separate, but undivided shares Co-owners in equity can hold as joint tenants or tenants in common Equitable ownership There is no limit to the number of owners in equity Co-ownership of land is split into two Chapter Map Selling the property by an act operating on their own share Merger – where one co-owner acquires the share of another by mutual agreement Death – where in the case of a joint tenancy the other co-owners die Co-ownership can be brought to an end by by mutual course of dealing By court order under s 14 TLATA If the severing tenant is bankrupt, the court must consider the factors listed in s 335A Insolvency Act 1986 Physical division of the property When making an order, the court must consider the factors listed under s 15 206 Optimize Land Law Introduction Land ownership can be separated into two constituent parts: legal ownership and equitable ownership. The legal owners hold the legal title to the property and so have the right to deal with the property at law, including the right to sell it. The equitable owners have the right to the benefit of the property: which they may receive by living in it, receiving rents from it and such like. The way in which the legal and equitable interests in property are held bear some marked differences: Ownership of the legal estate At law, an estate in land can be held by a single person (as sole proprietor), or by two or more people together (as co-­owners). Any person with the requisite mental capacity (as defined by the Mental Capacity Act 2005) can own an estate in land, provided they are over the age of 18 (s 1(6) LPA 1925). If they are under 18, the legal estate in the land must be held on trust for them in equity, until they reach the age of majority. There can be no more than 4 owners of the legal estate (s 34(2) LPA 1925). Age and mental capacity? One or more persons? Are there more than four owners? Criteria for co-ownership of the legal estate If there are more than 4 owners, the first four named on the deed of conveyance or transfer of the property who have the required legal and mental capacity will become the owners of the property at law, holding the property on trust for themselves and the other co-­owners named in the deed. The remaining co-­owners will thus hold the property in equity only. Co-ownership 207 To give an example, if there are 6 persons named on the transfer deed (A, B, C, D, E and F ), the first four named in the deed will become the legal owners, holding on trust for themselves and the fifth and sixth person named in the deed. LAW EQUITY A, B, C and D A, B, C, D, E and F If one of the persons named (say, in this case C) is under 18, then the first four named in order excluding the minor will become the legal owners, with the minor and the sixth remaining owner holding in equity. LAW EQUITY A, B, D and E A, B, D, E, C and F Ownership of the equitable estate The legal owners of the property hold the land on trust for those who have a beneficial interest in the property in equity. In the case of a sole proprietor who owns the whole of the legal and equitable interest, this is simple. However, a sole proprietor may also hold the legal estate on trust either for themselves and another in equity, or simply for a third party, with the legal owner having no equitable interest in the property at all. In the case of co-­owners, an automatic trust is imposed by statute, the legal owners holding the property on trust for themselves in equity by virtue of s 36 LPA 1925. Again, this is not to say that co-­owners may not hold the property on trust for themselves and others, or for a third party with no equitable interest being retained for themselves. 208 Optimize Land Law Understanding: joint tenants and tenants in common Whereas at law there is only one way of holding the legal estate: as ‘joint tenants’, in equity there are two different methods of holding the land: either as ‘joint tenants’, or as ‘tenants in common’. Joint tenants As joint tenants, co-­owners hold the whole of the property together as a joint, or group owner. They do not hold shares in it: they own the whole together. Imagine buying and owning a family dog – the family cannot physically divide it into sections – they simply own the dog as a whole, and share both in the responsibility and enjoyment of owning it as a family. At law, there is no other way of co-­owning property: all property is owned at law as joint tenants (s 1(6) LPA 1925). Common Pitfalls Do not confuse the reference to ‘tenants’ with a tenant of a lease. The word ‘tenant’ in this context is a derivative of the word ‘tenure’, and refers to the way in which the couple holds the legal estate in the land. Because of the nature of joint tenancy as effectively a ‘group ownership’ of the whole, if one of the co-­owners dies there are no divisible shares in the property to be passed on to surviving relatives of the deceased co-­owner. Instead, the property simply remains in ownership of the surviving joint tenants. It is only when the last surviving co-­owner dies that the property will devolve to the survivor’s next of kin or other person specified within their will. Co-ownership 209 Case precedent – Solihull MBC v Hickin [2012] UKSC 39 Facts: Mr and Mrs Hickin rented a property from the Council as joint tenants. Mr Hickin moved out, leaving Mrs Hickin alone in the property with their daughter. On Mrs Hickin’s death, the daughter wished to claim the right to stay at the property, but it was held that the lease should pass to Mr Hickin under the right of survivorship. Principle: A joint tenancy will always devolve to the surviving co-­owner regardless of whether they remain in occupation of the property. Application: Use this case to show how the right of surviorship works in the case of a joint tenancy. Tenants in common Whilst joint tenants are seen as a group entity, owning the whole of the property together, tenants in common are viewed as separate individuals, owning the whole in ‘undivided shares’. This means that, unlike joint tenants, tenants in common are able to own a specified share of the property, the value of which they will recoup on its subsequent sale. So, for example, a couple may own a property in equal shares, but also proportionately in two thirds and one third, or in any other combination of figures. There is no right of survivorship in the case of tenants in common; if one co-­owner dies, their share of the property does not therefore automatically pass to their co-­ owner. Rather it passes either to their next of kin in the case of intestacy, or as specified under the terms of their will. Joint tenants: right of survivorship Tenants in common: undivided shares 210 Optimize Land Law Points to remember about the division of land ownership The nature of land ownership is twofold Qualities of legal and equitable ownership Legal and equitable owners need not be the same Joint tenants and tenants in common ❖ The ownership of land is always divided into two: legal ownership and equitable ownership. ❖ The legal owners are the paper owners; the equitable owners have the right to benefit from the property. ❖ The legal owners of the property may hold on trust for themselves or for themselves and others. ❖ Joint tenants benefit from the right of survivorship; tenants in common do not. ❖ Tenants in common can hold the property in unequal shares. Joint tenants or tenants in common? Look for an express declaration When determining whether co-­owners are joint tenants or tenants in common, the first thing to look for is an express declaration by the parties as to how they intend to hold the property they are buying in equity. In unregistered land, the declaration will be found in the body of the conveyance; in registered land, if the property is to be held as tenants in common, the Land Registry will enter a restriction on the Proprietorship Register preventing the property from being sold by a sole proprietor of the land. There will be no such restriction where the co-­owners are joint tenants. Co-ownership 211 Case precedent – Pankhania v Chandegra [2012] EWCA Civ 1438 Facts: An aunt and her nephew had purchased a property together. There was an express declaration that they held the property in equity as tenants in common in equal shares. The aunt tried to argue that it had been the intention of the parties at the time of purchase that she would own the whole of the equitable interest in the property, but the Court of Appeal held that the express declaration was conclusive evidence of their intentions, unless a fraud could be proved. Principle: An express declaration by the parties will take precedence over any declaration of intention to the contrary. Application: Use this case to show the conclusiveness of a declaration of trust in the conveyance. Land Registry restriction Tenants in common Words of severance If the deed of transfer of the property does not specify how the co-­owners are going to be holding their equitable interest in the property, it may still be possible to determine their position by the existence of ‘words of severance’ in the documentation. These are words that indicate a desire to hold the property in shares (and hence as tenants in common), rather than on the basis of a joint tenancy. Words of severance include: ‘half each’ ‘to be divided between’ ‘equally’ Words of severance ‘in shares’ ‘amongst’ ‘share and share alike’ 212 Optimize Land Law Presumptions If there is neither an express declaration nor words of severance in the transfer deed it may still be possible to determine by looking at the wider context of how the co-­owners intend to hold the property. This is because equity makes certain presumptions: The four unities are: If the four unities are present, then the presumption is that the intention is to create a joint tenancy, rather than a tenancy in common (AG Securities v Vaughan (1988) 3 WLR 1205). If any one of the unities is not present, the co-­owners will be deemed to be holding the property in equity as tenants in common. Possession • all the co-owners must be entitled to possession of the whole Interest • all the co-owners must hold the same estate or interest in the land Title • all the co-owners must have obtained their interest in the property by the same method Time • all the co-owners must have acquired their interest in the property at the same time If co-­owners provide the purchase money to buy the property in unequal shares, equity will presume that they intend to hold the property, not as joint tenants, but as tenants in common in proportion to their respective contributions to the purchase price (Bull v Bull [1955] 1 QB 234). Again, in the case of business partnerships equity will presume that the intention was not to hold the property as tenants in common (Lake v Craddock (1732) 24 ER 1011). Co-ownership 213 Aim Higher It should be noted that these presumptions can be rebutted if there is an express declaration in the transfer deed; the law will uphold the written declaration of the parties above and beyond any natural presumption that may exist to the contrary (Pink v Lawrence (1978) 36 P&CR 98). Is there an express declaration? Is it a business partnership? Joint tenants or tenants in common? Are there unequal shares? Are there words of severance? Are the four unities present? Severing the joint tenancy Sometimes co-­owners who buy property together as joint tenants may later wish to become tenants in common. The process through which they do this is known as ‘severance’. Severance only applies to the equitable estate in the land: it cannot apply at law (s 36(2) LPA 1925). Severance can only take place in equity According to section 36(2), the joint tenancy can be severed in equity in one of two different ways – either: by the giving of written notice to the other co-­owners; or by ‘such other acts or things as would, in the case of personal estate, have been effectual to sever the tenancy in equity’. 214 Optimize Land Law Written notice Written notice under section 36(2) should be given to all of the other co-­owners, if more than one, of the intention to sever, in order for severance to take effect in equity. The notice does not have to take any particular form; nor does it have to be signed, nor agreed by the other co-­owners. As long as the notice is unequivocal and immediate in its effect, this will be enough to sever the tenancy. Case precedent – Harris v Goddard [1983] 1 WLR 1203 Facts: A divorce petition served on a husband requesting ‘such order in relation to the property by way of transfer or settlement as should be just’ was held not to be effective notice of severance by the wife, because the wording of the petition merely asked the court to exercise its discretion in respect of the property at some future date; it did not show an immediate desire to sever. Principle: Written notice to sever must be unequivocal and immediate in its effect. Application: Compare the facts of this case with your own problem question scenario and use it to support your argument that a written notice either is or is not valid under the circumstances. Although severance can be effected by notice in writing in any form, it is not possible to sever a joint tenancy by will. Case precedent – Re Caines (deceased) [1978] 1 WLR 540 Facts: A notice of severance had been prepared but not served on the deceased’s wife. In lieu of this, the solicitors for the deceased sought to claim that the will itself was proof enough of effective severance by notice. Their claim failed. Principle: It is not possible to sever a joint tenancy by will. Application: Use this case to support your statement that severance cannot be achieved by will. Co-ownership 215 Up for Debate Despite this, it may be possible to sever a joint tenancy in equity through the creation of mutual wills. In Re Wilford’s Estate (1879) LR 11 ChD 267 the court held that the creation of mutual wills by two sisters were effective in severing their beneficial interest in the property. The sisters had each made a mutual will purporting to leave their share in the property they jointly owned to the other for life, and then to their nieces after the death of the last surviving sister. The court held that, in making the mirror wills, the sisters showed a course of dealing which acknowledged their belief that they each had separate shares in the property that they could dispose of independently. Section 196 of the Act sets out what will constitute the effective service of written notice. The section requires that the notice should be in writing and either: left at the last-­known place of abode or business in the United Kingdom of the person to be served; or sent by post in a registered letter addressed to the person to be served. Case precedent – Re 88 Berkeley Road, NW9 [1971] 2 WLR 307 Facts: Two ladies owned a house together as joint tenants in equity. Following the marriage of one lady the other instructed her solicitors to sever the joint tenancy. The solicitors sent notice of severance in the post by recorded delivery but it was received and signed for by the severing joint tenant. Held: the delivery of the notice by recorded mail was sufficient to effect severance of the equitable estate as between the two ladies under s 36(2). Principle: Severance will be effective if the notice is sent by recorded delivery, even if the recipient never sees the notice. Application: Compare the facts of this case with your own scenario and use it to support your argument that severance has been effectively served by notice. Provided that notice in writing has been served effectively on all the other joint tenants, then the joint tenancy will be severed and the co-­owner will hold from the date of service their share of the tenancy as a tenant in common; the notice need not have been actually received to have been deemed served, under the terms of the Act. 216 Optimize Land Law Written notice Effective service Severance Case precedent – Kinch v Bullard (1999) 1 WLR 423 Facts: A wife served notice by way of ordinary first class post on her husband of her wish to sever the joint tenancy on the matrimonial home. Before the husband read the notice, however, he was admitted to hospital with a heart attack. Realising that she would receive the house through the right of survivorship if the husband died without the joint tenancy having been severed, the wife destroyed the notice. The husband died a week later. However, the court held that the notice had nevertheless been effectively served because it had been delivered to his last-­known place of residence. Principle: It is unnecessary for the co-­owner to actually have read or received notice under section 36(2), provided it is effectively served. Application: Use this case to show that notice of severance will be effectively served, even where the recipient never sees the notice. ‘Other acts or things’ The statement made under s 36(2) LPA 1925 that severance will be effected by ‘such other acts or things as would . . . have been effectual to sever the tenancy in equity’ is vague and required judicial interpretation. This was given by Page-­Wood VC in the case of Williams v Hensman (1861) 1 John & H 546. In making his judgment in the case, the Vice-­Chancellor stated that severance under this heading could be effected in one of three ways: by the act of a co-owner ‘operating on their own share’ Severance by other acts or things by mutual agreement by a mutual course of dealing Co-ownership 217 ‘Operating upon their own share’ This can be described as any act of a co-­owner that makes clear their intention to sever their interest from the interests of the other joint tenants. Examples of acts of co-­owners operating upon their own share, are: Total alienation Partial alienation • Where a co-owner purports to sell their equitable interest in the property • Where a co-owner purchases another co-owner’s share in the property, or enters into a contract to do so • Where a co-owner mortgages their equitable interest in the property Involuntary alienation • Where a co-owner is made bankrupt. This is because upon bankruptcy the assets of the bankrupt pass automatically to their trustee in bankruptcy to be managed on the bankrupt’s behalf Litigation • Where a co-owner commences litigation against the other co-owners Case precedent – Re Draper’s Conveyance [1969] 1 Ch 486 Facts: A wife commenced divorce proceedings against her husband, in which she requested that the matrimonial home be sold and the proceeds of sale divided between them. The husband died before the sale of the property took place and the wife tried to claim that the property should pass to her under the right of survivorship. Held: the claim made by the wife against the husband was sufficient to show that she considered herself to have a distinct share in the property, and thus to sever the joint tenancy. Principle: Commencement of litigation against the other co-­owners will be sufficient to sever the joint tenancy in equity. Application: Use this case to show that the tenancy has been severed in equity, where litigation has been commenced against the other co-­owners. Aim Higher Why do you think that the outcome in this case is so different from that in Harris v Goddard, mentioned above? It could be argued that, in Harris v Goddard, the divorce petition simply requested whatever order the court might think just, under the circumstances. It made no immediate or clear claim to any specific share in the property. In Re Draper’s Conveyance, however, a specific request had been made in the petition to sell the property and split the proceeds of sale between the parties. 218 Optimize Land Law Mutual agreement Severance by mutual agreement is distinct from severance by notice or through an act operating on a co-­owner’s own share in that the decision to sever is not a unilateral one. Instead, severance is achieved through discussions or action taken by the co-­owners that demonstrates a clear intention that they no longer wish to remain joint tenants. Case precedent – Burgess v Rawnsley [1975] 3 WLR 99 Facts: An elderly couple bought a house together as joint tenants. The man proposed marriage to the woman but she rejected his proposal and never moved into the house. The woman later agreed to sell her share of the property to the man and they agreed a price for her interest, but the sale was never completed. When the man died, the woman claimed ownership of the whole house by right of survivorship. Held: severance had been effected by mutual agreement. Principle: Discussions between the co-­owners that demonstrate a clear intention that they no longer wish to remain joint tenants will be sufficient to sever the tenancy in equity. Application: Use the facts of this case to support your argument that a tenancy has been severed in a problem question scenario. Case precedent – Nielson-­Jones v Fedden [1974] 3 All ER 38 Facts: A husband and wife who owned the matrimonial home together as joint tenants separated and agreed that the house should be sold. Before the sale went through, however, the husband died and the wife claimed the house under the right of survivorship. Held: whilst the couple had agreed to sell the property, there had been no agreement as to shares or that the joint tenancy should be severed. There was therefore no severance of the joint tenancy in equity. Principle: Incomplete negotiations will not be sufficient to achieve severance by mutual agreement. Application: Compare this case with the facts of your problem question scenario so show that there is no clear agreement to sever. Co-ownership 219 Aim Higher Why do you think the outcomes in Neilson-­Jones v Fedden and Hunter v Babbage, below, are so different? In all likelihood this is because the discussion in Hunter v Babbage is altogether more complete. The fact that the couple had approached solicitors to draft an agreement and the fact that they had agreed that the proceeds of sale should be divided, albeit that the actual shares had not yet been agreed, was considered sufficient evidence for the court that the couple no longer wished to remain joint tenants. Case precedent – Hunter v Babbage [1994] EGCS 8 Facts: A couple owned the family home together as joint tenants, but following their separation agreed that the property should be sold and the proceeds of sale divided. The couple’s solicitors drafted an agreement to this effect but the husband died and so the agreement was never finalised. Held: although the exact shares were never agreed, the draft agreement was sufficient to have severed the tenancy in equity. Principle: Severance can be achieved through evidence of an agreement between the co-­owners of a clear intention that they no longer wish to remain joint tenants. Application: Use this case to support your argument that the joint tenancy has been severed. Mutual course of dealing Severance through a mutual course of dealing is closely linked in nature to severance through mutual agreement and consequently the line between them is often blurred. However, whereas mutual agreement relies on some form of agreement between the parties (often in writing), a mutual course of dealings relies on a clear and unambiguous pattern of behaviour that shows the parties viewed themselves as being tenants in common, rather than joint tenants. Mutual agreement: (usually) written agreement between the parties Mutual course of dealing: clear and unambiguous pattern of behaviour 220 Optimize Land Law Aim Higher Consider how the case of the mutual wills in Re Wilford’s Estate (1879), mentioned earlier in the chapter, could be construed as a mutual course of dealing under this heading in Williams v Hensman. Case precedent – Gore and Snell v Carpenter (1990) 60 P&CR 456 Facts: A husband and wife owned two properties together as joint tenants. During the course of divorce proceedings, an agreement was reached in principle that one property should be transferred to the wife and the other to the husband, but the agreement was never formalised and nothing further was done to effect the transfers. Held: the course of dealings between them did not show any intention to sever the joint tenancies. The houses therefore passed to the wife under the right of survivorship. Principle: In order to effect severance, a mutual course of conduct must be clear and unambiguous. Application: Use this case to support your argument that a course of conduct between the parties has not been sufficient to effect severance between them. Unlawful killing One final method situation in which severance of the equitable estate will be effected is where one co-­owner is responsible for the unlawful killing of another. Under the common law rule of public policy known as the ‘forfeiture rule’, a person who has unlawfully killed another is prevented from acquiring any benefit from that killing. This includes the benefit one co-­owner would receive under the right of survivorship, if they should kill the person with whom they own the property. It should be noted, however, that under s 2(2) Forfeiture Act 1982 the court has discretion to grant relief against the forfeiture rule in cases where justice requires it, such as in the case of a manslaughter charge. Case precedent – Re K [1985] 3 WLR 234 Facts: A wife who was the victim of domestic abuse accidentally killed her husband with his own gun following an altercation at their home. Held: whilst the circumstances of the killing were such that the forfeiture rule must apply, the wife was relieved from the forfeiture rule and the joint tenancy was allowed to stand. Co-ownership 221 Principle: The forfeiture rule can be waived if the justice of the circumstances required it. Application: Use this case to illustrate a situation in which the forfeiture rule will be waived. The effect of severance of the joint tenancy In the absence of an agreement to the contrary, the severing party will take an equitable interest in the property in equal shares, proportionate to the number of co-­owners. This is regardless of the parties’ initial contribution to the purchase price of the property (Goodman v Gallant [1986] Fam 106). Where there are only two co-­owners of a property, this means that they will each receive a 50% share. Where there are more than two co-­owners, severance will not result in every party having a defined share of the property. Instead, the severing co-­owner will become a tenant in common as to their proportionate share of the property, as against the other remaining co-­owners, who remain joint tenants as between themselves. This can be illustrated as follows: Imagine there are four co-­owners: A, B, C and D. A severs their joint tenancy in equity. This leaves A with a quarter share of the property, under the rule in Goodman v Gallant, with B, C and D together holding the remaining 75% share as joint tenants in equity. LAW EQUITY A, B, C and D A as to 25% B, C and D as to 75% Illustration showing the effect of severance on the equitable estate pre- and post-severance 222 Optimize Land Law Points to remember about severance of the joint tenancy You cannot sever the joint tenancy at law There are two methods of severance ‘Other acts or things’ under Williams v Hensman The effect of severance ❖ Severance of the joint tenancy can only take place in equity. ❖ Severance can be effected either by notice in writing, or by ‘such other acts or things as may be effective to sever the tenancy in equity’ (s 36(2) LPA 1925). ❖ ‘Other acts or things’ may include an act operating on one’s own share, mutual agreement or a mutual course of conduct. ❖ The severing party will take an equitable interest in the property in equal shares, proportionate to the number of co-owners (Goodman v Gallant). Bringing an end to co-­ownership Co-­ownership can be brought to an end in a number of different ways: Sale Merger Death ❖ If a jointly owned property is sold the co-ownership will come to an end. ❖ If one co-owner acquires the share of another co-owner, the two shares in the property will be deemed to be merged and the co-ownership will come to an end in respect of those two shares. ❖ In the case of a joint tenancy, when all the co-owners have died except for one, the remaining owner will become the sole owner of the property. Co-ownership Separation Court order 223 ❖ The physical partition of the land between the co-owners will end the co-ownership and result in the creation of two separately identifiable pieces of land. ❖ In the event of a dispute between co-owners the court has power either to make an order determining the parties’ respective shares, or making an order for sale under s 14 Trusts of Land and Appointment of Trustees Act 1996 (TLATA). In exercising its power the court must take into consideration various factors (s 15 TLATA). These are: a) b) c) d) e) the intentions of the co-­owners; the purposes for which the co-­owned property is held; the welfare of any minors who occupy the property; the interests of any secured creditors over the property; the circumstances and wishes of all adult co-­owners or of the majority. Case precedent – Jones v Challenger [1961] 1 QB 176 Facts: A man and wife bought a house together as joint tenants. When the wife left the man he made an application to the court for the property to be sold. Held: the application was granted. The purpose for which the house had been bought, as a family home for the couple, had ceased to exist. Principle: In exercising its power under s 14 TLATA the court will take into account the purposes for which the property was held. Application: Use this case to show that if the purpose for which the property was purchased no longer applies to the property, an order for sale will be granted by the court. Case precedent – Re Ever’s Trust [1980] 1 WLR 1327 Facts: An unmarried couple had bought a property together as joint tenants. The husband subsequently moved out, leaving the woman and their children still living in the house. He then applied to the court for an order for sale. Held: the application was refused. The purpose of acquiring the property, which was as a family home, could still be fulfilled. 224 Optimize Land Law Principle: In exercising its power under s 14 TLATA the court will take into account the purposes for which the property was held. Application: Use this case to show that if the purpose for which the property was purchased still applies to the property, an order for sale will not be granted by the court. Aim Higher The obvious disparity between the two cases above can be explained by the fact that one of the additional factors listed under s 15 is the welfare of any minors living at the property. As the property was still home to the applicant’s children, the forced sale of the house would have been detrimental to their welfare. Case precedent – Re Buchanan-­Wollaston’s Conveyance [1939] Ch 217 Facts: A group of four neighbours bought together as joint tenants a plot of land adjacent to all their properties in order to preserve their sea views. When one of the neighbours later sold their house, they wanted the plot of land to be sold so that they could recoup their investment. The other three house owners opposed the sale. Held: no order for sale was granted. The purpose of the trust, which was to preserve the view for all four properties, was still continuing. Principle: In exercising its power under s 14 TLATA the court will take into account the purposes for which the property was held. Application: This case illustrates how s 15 can be used to oppose a sale in the event of a dispute where the purpose for which the property was purchased continues. Up for Debate The outcome in Re Buchanan-­Wollaston’s Conveyance [1939] may seem a little unfair on the co-­owner who wished to sell, given that he would have no further personal interest in owning the amenity land. It is suggested that the decision in Ali v Hussein (1974) is more pragmatic and the more likely approach of the courts today. Co-ownership 225 Case precedent – Ali v Hussein (1974) 231 EG 373 Facts: There were several co-­owners, one of whom wished the land to be sold in order to recoup their investment. The court made an order postponing the sale for several months to allow the other co-­owners to raise sufficient money to buy the seller out of their share in the property. Principle: There is considerable scope for discretion in application of the guidance given in s 15. Ultimately, each case will turn upon its own facts. Application: Use this case to show that the court has a wide discretion to act under s.15. Section 15 does not apply where the co-­owner is bankrupt. In this case the provisions of s 335A Insolvency Act 1986 apply. Like s 15 of TLATA, Section 335A lists a number of matters to be taken into account when a trustee in bankruptcy is selling an estate in land on behalf of a bankrupt, taking into account the needs of the bankrupt’s creditors. These are: a) the interests of the bankrupt’s creditors; b) the conduct of any spouse or civil partner so far as contributing to the bankruptcy and their needs and financial resources; c) the needs of any children; and d) all the circumstances of the case other than the needs of the bankrupt. The consideration of these matters is subject to a caveat, that states that, where an application under s 335A is made over one year from the date of the bankruptcy, the court will assume, except in the most exceptional of circumstances, that the interests of the bankrupt’s creditors outweigh all other considerations. Case precedent – Re Citro (a bankrupt) [1991] Ch 142 Facts: The Court of Appeal did not consider either the fact that the sale of the jointly owned family home would result both in the eviction of the bankrupt’s wife and young children or that it would make the children’s schooling very difficult, to be exceptional circumstances. Principle: The eviction of the bankrupt’s wife and children will not be considered exceptional circumstances under s 335A. Application: Compare the facts of this case with those in your problem question scenario and consider whether s 335A can be applied in your character’s favour. 226 Optimize Land Law Up for Debate It has been questioned whether there may be a separate human rights impact on innocent co-­owners under the section 335A rule, although to date the courts have resisted the suggestion that there may be any conflict between the section and Article 8 of the European Convention for Human Rights, which encompasses the right to respect for the individual’s home and family life. For a full discussion of the issues read: Baker, A, ‘The judicial approach to “exceptional circumstances” in bankruptcy: the impact of the Human Rights Act 1998’. Conv 2010 74(5), 352–368. Case precedent – Re Mott [1987] CLY 212 Facts: A 70-year-old woman was given precedence over the creditors of her bankrupt son, with whom she owned the house. The woman’s doctor had advised that the woman’s health, which was poor, would deteriorate if she was forced to move. Held: the sale should be postponed until after the woman’s death. Principle: What the courts will accept as being ‘exceptional circumstances’ is usually limited to situations in which one of the co-­owners is seriously unwell. Application: Use this case to support your suggestion that an order to sell the property of a bankrupt will be postponed in the event of the ill health of one of the co-­owners. Chapter summary The ownership of land is always divided into two: legal ownership and equitable ownership. The legal owners are the paper owners; the equitable owners have the right to benefit from the property. The legal owners of the property may hold on trust for themselves or for themselves and others. Joint tenants benefit from the right of survivorship; tenants in common do not. Tenants in common can hold the property in unequal shares. In the absence of an express declaration, words of severance in the transfer documentation may suggest that the property is to be held as tenants in common. The presumption of a tenancy in common may also be made where the co-­ owners are business partners or have made unequal contributions to the purchase price. A joint tenancy can be severed by notice in writing or by ‘other acts or things’ (s 36(2) LPA 1925). Co-ownership 227 ‘Other acts or things’ include an act operating on one’s own share, mutual conduct and a mutual course of dealings (Williams v Hensman). Severance will result in the severing party receiving an equitable interest in the property in equal shares proportionate to the number of co-­owners (Goodman v Gallant). Co-­ownership may be brought to an end through the sale, merger or physical division of the property. If there is a dispute as to shares, the court may make an order under section 14 of ToLATA, taking into account the factors listed in section 15 of the same Act, or section 335A of the Insolvency Act 1986 in the case of bankruptcy. Putting it into practice 1. Newlyweds Hattie and Michael buy 4 Metal Street together as joint tenants at law and in equity. They live happily at Metal Street for some years but following an affair by Hattie, Michael ends the relationship. He goes to see his solicitor and tells him that he wishes to file for divorce, and that the house should be sold. Michael’s solicitors enter into correspondence with Hattie’s solicitors, who agree to this course of action. Divorce proceedings are commenced but after some months have passed Hattie and Michael reconcile and the divorce is never finalised. Shortly after the reconciliation, tragedy strikes and Michael is killed in a road accident. It transpires that Michael made a will whilst the couple were separated, leaving ‘his half ’ of the house to his sister, Eva. Eva, who has never liked Hattie, is now demanding her share of the property. Hattie says the house belongs to her by right of survivorship. Is there any substance to Eva’s claim? 2. Consider the case of Hattie and Michael, described in the putting it into practice feature, above. If severance of the joint tenancy had been effected: a) Would Eva be able to demand the sale of the property and, if so, on what grounds? b) Would there be any difference in your answer if Hattie and Michael had a 16-year-old daughter who lived with them at Metal Street? Feedback on putting it into practice 1. Hattie and Michael bought the property together as joint tenants at law and in equity. As joint tenants, the right of survivorship will apply to the couple and, on the death of one of them, the whole of the property will become the sole property of the survivor. How is it possible, then, for Eva to inherit Michael’s half of the property by will? 228 Optimize Land Law The joint tenancy can never be severed at law (s 1(6) LPA 1925), but it may be possible to sever it in equity, allowing Michael to leave his share in the property to his sister by Will. The will itself is not sufficient to effect severance; this is because a will does not take effect until the death of the testator, and severance must be effected during the lifetime of the co-­owner. Severance can be achieved in equity in one of two ways, according to s 34(2) LPA 1925. These are: in writing, and by ‘other acts or things’. There is no mention of severance in writing here – Michael has not written to Hattie telling her he wishes to sever the joint tenancy. But can we establish severance ‘by other acts or things’ evidenced by their agreement during the divorce proceedings? ‘Other acts or things’ are explained in Williams v Hensman to include: an act operating on one’s own share; mutual agreement; and mutual conduct. We are not aware of any unilateral act on the part of Michael severing the joint tenancy, but we may be able to imply mutual agreement or conduct. Whereas mutual agreement relies on some form of agreement between the parties (often in writing), a mutual course of dealings relies on a clear and unambiguous pattern of behaviour that shows the parties viewed themselves as being tenants in common, rather than joint tenants. There is a documented agreement between Michael and Hattie’s solicitors that they are going to sell the house, but no reference to severance of the joint tenancy. According to the case of Neilson-­Jones v Fedden this is unlikely to be sufficient to effect severance, therefore. What about a mutual course of dealing? Whilst Michael’s writing of the will has shown that, at one point, he considered his half of the property to be separate from Hattie’s, there is no evidence of a pattern of behaviour between the parties that they wished to sever the tenancy, particularly in the light of their reconciliation. It looks unlikely, therefore, that Eva has a case on which to base her claim. 2. In the event of a dispute between co-­owners, the court has power either to make an order either determining the parties’ respective shares, or making an order for sale under s 14 TLATA 1996. In exercising its power the court must take into consideration various factors (s 15 TLATA), including the intentions of the co-­owners; the purposes for which the co-­owned property is held; and the welfare of any minors who occupy the property. The court could therefore order the property to be sold and the proceeds divided between Hattie and Eva under s 14, taking into account in particular the fact that the purpose for which the property was purchased has now come to an end (Jones v Challenger). However, if there was a child involved, the court may take a more sympathetic view (Re Ever’s Trust). Having said this, the fact that the child is 16 may cause the court to take a more pragmatic view. The sensible approach might be to make an order for sale, suspended until the child reaches the age of 18. Co-ownership 229 Essay question Severance of the joint tenancy is unnecessarily complicated and should be reformed. Discuss. Hint: Consider the different methods of severance of the joint tenancy in equity and discuss how this might be simplified by the introduction of a single statutory process. Table of key cases referred to in this chapter Case name Area of law Principle Solihull MBC v Hickin [2012] The right of survivorship Harris v Goddard [1983] Severance of the joint tenancy in equity Joint tenancy is not dependent on the tenants’ occupation of the property. AG Securities v Vaughan (1988) Re 88 Berkeley Road, NW9 [1971] Requirements for a joint tenancy Severance by notice in writing Kinch v Bullard (1999) Severance by notice in writing Williams v Hensman (1861) Severance by ‘such other acts or things’ Re Draper’s Conveyance [1969] Acts operating on one’s own share The four unities are: possession, interest, title and time. Written notice to sever must be unequivocal and immediate in its effect. Sending the notice by recorded delivery will effect severance, even if the recipient never sees the notice. The co-owner need not have received or read the notice, provided it is effectively served. ‘Such other acts or things’ include: an act operating on one’s own share, mutual agreement and mutual course of dealing. Commencement of litigation against the other co-owners will be sufficient to sever the joint tenancy. 230 Optimize Land Law Case name Area of law Principle Nielson-Jones v Fedden [1974] Severance by mutual agreement Gore and Snell v Carpenter (1990) Severance by mutual course of conduct Incomplete negotiations will not be sufficient to achieve severance by mutual agreement. Goodman v Gallant [1986] Effect of severance Burgess v Rawnsley [1975] Severance by mutual agreement Clear discussions between the co-owners that they no longer wish to remain joint tenants will be sufficient to sever the tenancy. In order to effect severance, a mutual course of conduct must be clear and unambiguous. The severing party will take an equitable interest in the property in equal shares, proportionate to the number of co-owners. @ Visit the book's companion website to test your knowledge Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary www.routledge.com/cw/optimizelawrevision 10 Easements Revision objectives Understand the law Remember the details Reflect critically on areas of debate • Are you able to define the term ‘easement’? • Do you know the difference between positive and negative easements, and the grant and reservation of an easement? • Can you name the four essential characteristics of an easement? • Do you know what the various methods of implied easement are and when each is used? • Do you understand the issues that make an easement of car parking difficult to establish? • Do you know what the main areas for reform in the law of easements are? • Can you see where knowledge of the law of easements would be valuable when buying and selling land, both in a domestic and a commercial context? Contextualise Apply your skills and knowledge • Can you recognise which type of easement may be pertinent in any particular scenario? • Can you identify whether an easement would be binding, considering creation and registration implications? Necessity Can be legal or equitable Nature Common intention Express (by deed) Can be positive or negative Under s 62 LPA 1925 Separate ownership or occupation Implied Rule in Wheeldon v Burrows Dominant and servient tenement At common law Accommodate the dominant tenement Essential characteristics (Re Ellenborough Park [1955]) Easements Doctrine of lost modern grant Prescriptive Must be capable of lying in grant Prescription Act 1832 Creation of easements Chapter Map Equitable easements should be protected by Notice on the Register used in the last 12 months Implied easements are overriding, provided: obvious upon reasonable inspection Express easements are registrable dispositions the buyer knew about the easement Registered land Legal easements bind the whole world By agreement Protecting easements Unity of seisin Termination of easements Equitable easments before 1 Jan 1926 are bound by the doctrine of notice Abandonment Equitable easements after 1 Jan 1926 are Class D(iii) Land Charges Unregistered land 234 Optimize Land Law Introduction An easement is a right to use someone else’s land. The most common type of easement is a right of way over someone else’s property. However, there are also many other kinds of easement, including: a right of storage a right to park a car a right of drainage a right to support a right to light right of way light storage Easements support parking drainage Understanding: the nature of easements An easement is not a right to take anything from the land; nor does it confer a right of possession Therefore any right which amounts to exclusive possession of the burdened property cannot be an easement. Exclusive possession No easement Consequently rights of storage are thus often difficult to establish. Easements 235 Case precedent – Copeland v Greenhalf [1952] Ch 488 Facts: The defendant had used a strip of land belonging to the claimant for 50 years, for the purpose of storing vehicles which were either being repaired or awaiting repair. Held: his claim to an easement over the land failed. His use of the land was too extensive to constitute an easement as it had, in effect, deprived the landowner from using his own land entirely. Principle: Any right which amounts to exclusive possession of the burdened property cannot be an easement. Application: Use this case to illustrate the difficulty in establishing easements of storage. Case precedent – Grigsby v Melville [1972] 1 WLR 1355 Facts: The case concerned a claim to use a cellar room underneath the floor of an adjoining property. Access to the cellar was via some stairs which led down from the benefiting owner’s house. The burdened landowner had no access to the space. Held: there was no easement. The benefiting landowner’s use of the land was such that it amounted to an exclusive right of user over the whole of the cellar. Principle: Any right which amounts to exclusive possession of the burdened property cannot be an easement. Application: Compare the facts of your scenario with this case to illustrate the difficulty in establishing easements of storage. Aim Higher Why are the easements in some cases granted and not in others? Matter of degree: if the landowner is prevented from using their land altogether, an easement will not be granted. In particular the right to park is problematic as a form of easement. 236 Optimize Land Law Case precedent – London & Blenheim Estates Ltd v Ladbroke Retail Parks Ltd [1992] 1 WLR 1278 Facts: A right to park a car was held to constitute an easement provided that the vehicles were not constantly in the same spaces and that they did not interfere with the burdened landowner’s reasonable use of the land. If the right had extended to the right to park a car exclusively in the same space 24 hours a day, this would not have been an easement because it would have had the effect of depriving the landowner from using their land altogether. Principle: If a right deprives the owner of the burdened property of the use of their property altogether it cannot be an easement. Application: Use this case to illustrate the difficulty in establishing easements of car parking. Case precedent – Batchelor v Marlow (2003) 1 WLR 764 Facts: A claim to an easement of the right to park up to six cars on a plot of land between the hours of 9.30 a.m. and 6.00 p.m., Monday to Friday, failed on the basis that the claim was too intrusive on the burdened landowner. Principle: Any right that deprives the owner of the burdened property of the reasonable use of their property cannot be an easement. Application: Compare this case with the facts in your own problem question scenario to support your argument that an easement cannot be created. Easements can be legal or equitable, positive or negative in nature A positive easement allows the benefited landowner to use the burdened land in some way; a negative easement gives the benefited landowner a right that prevents the burdened landowner from using their own land in a particular way. Because of the restrictive nature of negative easements, examples of them are few and far between. The two main types of negative easement are a right to light and an easement of support. Positive • allows the benefited owner to use the burdened land Negative • restricts the burdened landowner’s use of the land Easements 237 The courts will not allow the creation of any new types of negative easement (Phipps v Pears [1964] 2 WLR 996). No new negative easements The ability of the courts to create new categories of positive easement, however, is not closed. New easements can thus be created so long as they are similar in nature to, or can be said to be a development of, others already established by case law (Dyce v Lady James Hay (1852) 1 Macq 305). Common Pitfalls Negative easements are often confused with freehold covenants; however, the two concepts are quite different. Whereas an easement is a right to do something on someone else’s land, a covenant constitutes either the right to prevent someone else from doing something on their own land, or the right to force someone to do something on their own land (for example, to maintain it). Covenants can also be far wider in their scope and more flexible than easements. Essential characteristics of an easement In order for a right to be capable of being an easement: 1. There must be a dominant and a servient tenement. 2. The dominant and servient properties must be in separate ownership or occupation. 3. The right must accommodate the dominant tenement. 4. The right must be capable of forming the subject matter of a grant. (Re Ellenborough Park [1955] 3 WLR 892) Dominant and servient tenement The dominant tenement is the land with the benefit of the easement, and the burdened tenement is the land which is burdened by it. Thus, with a right of way, the servient tenement would be the land with the path running across it and the dominant tenement would be the land with the right to use the path. 238 Optimize Land Law Dominant tenement Servient tenement House Path Separate ownership or occupation Put simply: you cannot have a right of use over your own land. Thus the dominant and servient owners or occupiers must be different people. Accommodating the dominant tenement The right must be for the genuine use and enjoyment of the land itself, and not simply for the personal benefit of the person using it. Case precedent – Hill v Tupper (1863) 2 H&C 121 Facts: A company leased land adjoining a canal to Hill, giving him the right to use the canal for boat trips. A man who owned a pub nearby then decided to rent out his own boats on the canal for fishing. Hill tried to sue on the basis that the pub owner was interfering with Hill’s property rights. Held: Hill’s rights in the land could not form an easement because they did nothing more than confer a personal advantage on him and his business. Principle: The right must accommodate the dominant tenement. Application: Use this case to show that personal rights conferred upon a property owner will not be sufficient to constitute an easement. Case precedent – Moody v Steggles (1879) 122 ChD 261 Facts: A right to hang a sign on neighbouring land which pointed to a pub was held to be a valid easement. Principle: The right must accommodate the dominant tenement. Application: Use this case in contrast to the finding in Hill v Tupper, to show the difference between situations that will and will not be found to benefit the land, rather than simply its owner. Easements 239 Up for Debate The decision in Moody v Steggles is perhaps surprising. The reasoning given for the judgment was that the business would remain on the land for a long time and therefore the land and business were inextricably linked. However, there is an argument to say that not every possible future owner of the land would consider the right to hang signage advantageous to it. In order for the right to accommodate the dominant tenement, the benefited and burdened land must also be sufficiently close geographically (Bailey v Stephens (1862) 12 CB (NS) 91). If the land benefited is too far away, the suggestion is that the benefit is personal to the landowner, and not to the land. However, this does not necessarily mean that the benefited and burdened land must be immediately adjacent to one another (Pugh v Savage [1970] 2 QB 373). The right must be capable of lying in grant This fourth requirement, which means that the right must be capable of being created by deed, ensures the nature of the easement is sufficiently certain to be reduced to writing and therefore that it can be enforced and transmitted to a third party. It encompasses the following: That the person granting the easement has the legal capacity to do so Aim Higher This would mean that either an individual capable of owning land or a company would be capable of granting or benefiting from an easement, but the inhabitants of a village or locality, for example, which does not have its own separate legal personality and which is constantly changing and evolving would not. That the right relates to the use and benefit of a specific piece of land over a defined area The effect of this is that an easement for the general use of a number of different pieces of land or the use of an undefined area would not be capable of being an easement. 240 Optimize Land Law That the right itself is not too vague Case precedent – William Aldred’s case (1610) 9 Co Rep 57b Facts: An action was brought against a neighbour for building next to the claimant’s house. Whilst the claimant’s right to receive light to the property was recognised, his right to a view was not. Principle: A right to a view is too vague to constitute an easement. Application: Use this case to illustrate the fact that where a right is too vague in nature it cannot constitute an easement. Case precedent – Browne v Flower [1911] 1 Ch 219 Facts: A landlord had erected an external staircase to a block of flats which passed in between the two bedroom windows of the claimant’s flat. The court was clear in stating that there could be no easement of privacy, however. Principle: A right of privacy is too vague to constitute an easement. Application: Use this case to illustrate the fact that where a right is too vague in nature it cannot constitute an easement. That the easement does not require the burdened land in the expenditure of money An easement must not involve a cost to the burdened property. Case precedent – Regis Property Co Ltd v Redman [1956] 2 QB 612 Facts: A tenant tried to claim the benefit of an easement against his landlord to supply hot water to the tenant’s property. Held: this could not be an easement because it would impose a financial burden on the landlord. Principle: An easement must not involve a cost to the burdened property. Application: Use this case to support your argument that an easement cannot involve expenditure by the burdened property. Easements 241 Similarity to existing forms of easement The easement must be analogous to other forms of recognised easement. This does not mean that no new easements can be created, only that the easement must be similar in nature to others already established by case law (Dyce v Lady James Hay). Does the grantor have capacity? Does it require the expenditure of money? Is the right capable of lying in grant? Is the right sufficiently definite? Does it relate to a specific piece of land? Is it similar to other forms of easement? Points to remember about the nature of easements An easement is a right of user ❖ Anything amounting to exclusive possession cannot be an easement. Characteristics of an easement ❖ An easement must: have a dominant and servient tenement which must be in Accommodating the dominant tenement Capable of lying in grant ❖ An easement cannot involve taking anything from the land. separate ownership or occupation; accommodate the dominant tenement and be capable of creation by deed. ❖ A right of user which conveys a purely personal benefit on the landowner cannot amount to an easement. ❖ The easement must benefit land which is sufficiently close geographically to the burdened land. ❖ A right that requires expenditure on the part of the burdened landowner cannot be an easement. ❖ A right that is not capable of accurate description in writing cannot form the subject matter of an easement. 242 Optimize Land Law The creation of easements Easements can be created by way of grant or reservation either expressly or impliedly, or through prescription. Grants and reservations A grant is where someone gives a right over their own land to another person; a reservation is where someone sells part of their land to a third party, reserving rights over the land sold to benefit the land retained. Imagine Josh owns 2 pieces of land, A and B. A has a house on it; B contains a path which runs from the house to the main road beyond Josh’s land. A B If Josh sells A, retaining B, he will need to GRANT a right of access over B so that the new owners can access the house. On the other hand, if Josh sells B, he will want to RESERVE a right of access over B so that he can still access the house, A. Josh’s land Express creation A legal easement can be expressly created by deed (s 52 LPA 1925), provided that it is granted either for a term equivalent to a freehold (i.e. on a permanent basis) or for a specified term (s 1(2) LPA 1925). Deed Freehold or term of years Legal easement If the easement is granted for an unspecified period of time, say, for life, or if the deed is incorrectly constituted, it will exist in equity only. Easements 243 Implied grant or reservation If there is nothing in writing, the easement may be implied by one of four different methods. These are: Necessity Common Intention The rule in Wheeldon v Burrows Under s 62 LPA 1925 Necessity The courts will imply the benefit of an easement into the deed of purchase of a property where it would otherwise be incapable of use and therefore worthless. Usually this would be in the situation where the land is landlocked (meaning it is inaccessible from the public highway without the benefit of a right of way over adjoining land). The courts apply the rule stringently and as such any suggestion of another means of access to the property will defeat the claim. Case precedent – MRA Engineering Ltd v Trimster Co Ltd [1987] 56 P&CR 1 Facts: The existence of an alternative access to the property in the form of a public footpath over neighbouring land was held sufficient to prevent a claim to an easement of necessity, even though the public footpath did not provide the claimants with any vehicular access. Principle: Any suggestion of another means of access to the property will defeat the claim. Application: Use this case to illustrate how stringently the rule relating to easements of necessity will be applied. Case precedent – Manjang v Dammeh [1990] 61 P&CR 194 Facts: Land adjoining a river was held not landlocked and therefore ineligible for a claim to an easement of necessity because the river was a public highway and, although less convenient, was therefore a perfectly legitimate access to the property. Principle: Any access, however inconvenient, will prevent an easement of necessity from being granted. Application: Use this case to illustrate how stringently the rule relating to easements of necessity will be applied. 244 Optimize Land Law Common intention The courts will also imply an easement in situations where they believe it must have been the genuine intention of the parties to grant or reserve an easement over the land when it was sold. Because of the nature of the grant of such easements, easements of common intention will usually be related to mutual support required between two adjoining properties or commonly shared access. Case precedent – Jones v Pritchard [1908] 1 Ch 630 Facts: Shared chimneys to a pair of semi-­detached houses were held to be capable of use by both parties through easements of common intention. Principle: The courts will imply an easement where this was the intention of the parties to grant or reserve an easement over the land when it was sold. Application: Use this case to illustrate your point that an easement of common intention will be granted where there is a common intention as to the use of the land. As can be seen from Stafford v Lee below, it is a requirement of common intention that the property was let or sold with a view to its use for a particular purpose and that this purpose would be impossible to carry out without the benefit of the easement in question. Case precedent – Stafford v Lee (1992) 65 P&CR 172 Facts: A developer obtained planning permission to build houses on his land, claiming right of way over his neighbour’s drive for access to the road. Held: the right of way was granted. The intention of the parties when the land was sold was for residential purposes, and so it should be implied that they intended residents to have access to the road. Principle: The courts will imply an easement where this was the intention of the parties to grant or reserve an easement over the land when it was sold. Application: Compare the facts of this case to your own scenario and use it to support your argument that an easement of common intention has been created. The proposed use of the property is therefore paramount when the courts are seeking to make a decision as to whether an easement of common intention should be implied. Easements 245 Case precedent – Wong v Beaumont Property Trust Ltd [1965] 1 QB 173 Facts: A basement property was let for use as a restaurant. The tenant covenanted in the lease to eliminate cooking smells. In addition, public health regulations required him to install a ventilation system to the premises. The only way the tenant could do this was through ventilation ducts attached to the part of the building retained by the landlord. Held: an easement of common intention could be implied into the lease. It must have been the common intention of the parties that the premises be used as a restaurant when they were let. Principle: Common intention requires that the property was let or sold for a particular purpose that would be impossible to carry out without the benefit of the easement in question. Application: Use this case to illustrate a situation in which the grant of the easement was vital for purpose of the letting or sale. Wheeldon v Burrows The rule in Wheeldon v Burrows (1879) LR 12 Ch D 31 has the effect of turning a quasi-­ easement into an easement. A quasi-­easement is a use of land that would become an easement if it was in separate ownership from the benefited landowner. Looking again at the two pieces of land owned by Josh: A B Josh does not have an easement across the land marked B, because it is his own land and you cannot have an easement over your own land. However, if Josh was to sell plot A, he would need to grant an easement over B in order to give access to and from the land sold. Josh’s land If Josh failed to grant such an easement on the sale of the property, under the rule in Wheeldon v Burrows the courts would imply one in any event, provided that: 246 1. 2. 3. Optimize Land Law the right is ‘continuous and apparent’; the right is necessary for the reasonable enjoyment of the land sold; the right was in use both at the time of the sale and immediately prior to it. Is there a quasi-easement? Is the right apparent upon physical inspection of the land? Was the right in use by the seller both at the time of the sale and prior to it? Has the right been regularly used by the owner prior to sale? Is the right necessary for the reasonable enjoyment of the land sold? The rule in Wheeldon v Burrows also works where the landowner sells off all of their land: that is where Josh sells off A to one person and B to another. The rule in Wheeldon v Burrows is effective only in implying the grant of an easement on the sale of property; it cannot be used to imply a reservation in favour of the seller. Section 62 Law of Property Act 1925 Section 62 has the effect of upgrading a licence granted by the owner of the land to a tenant to an easement, when the land occupied by the tenant is subsequently sold to them or on the renewal of their lease. Common Pitfalls Implied easements under Section 62 are often confused with the rule in Wheeldon v Burrows, but actually the two are quite different: whilst Wheeldon v Burrows requires the sale of land formerly in the same ownership and occupation, Section 62 requires separate occupation of the burdened and benefited land, followed by a sale or renewal of the lease in favour of the benefiting occupier. Case precedent – Wright v Macadam (1949) 2 KB 744 Facts: A landlord allowed his tenant to use a coal shed on the landlord’s premises. The lease was renewed and no mention was made of the use of the coal shed, but the landlord later tried to claim extra rent for the use of it. Held: under s 62 the licence had become an easement of storage. Easements 247 Principle: Section 62 upgrades a licence to an easement when the occupied land is subsequently sold to the tenant or their lease renewed. Application: Compare the facts of this case with those in your problem question scenario to show that an easement has been implied under s 62. The effect of Section 62 can be excluded from a sale of land by specifically excluding its provisions in writing in the contract for sale of the property. As with the rule in Wheeldon v Burrows, you cannot have an implied reservation under Section 62. Necessity • Will only be implied where the land cannot otherwise be used. Common intention • Implied where the intended use of the land would not be possible without the easement. Wheeldon v Burrows • Transforms quasi-easements into easements where the seller retains the burdened land. s 62 LPA 1925 • Upgrades a licence to an easement where tenanted land is sold, or the lease renewed. Prescription An easement may also be established by continued use over a long period of time. This is commonly referred to as ‘prescription’. There are three basic requirements for prescriptive rights to be established. These are: the easement must be over freehold land; there must have been at least 20 years’ uninterrupted use; the use claimed must be ‘as of right’. 248 Optimize Land Law Case precedent – Hollins v Verney (1884) 13 QBD 304 Facts: A purported right of way that was used only three times over a period of 35 years was not considered sufficiently uninterrupted to acquire formal rights over the land. Principle: Use of the burdened land must have been continuous and regular. Application: Use this case to show that sporadic use of the burdened land in a particular way will not be sufficient to claim a prescriptive right over it. User as of right This prerequisite is captured in the Latin maxim: nec clam, nec vi, nec precario, which means ‘without secrecy, without force and without permission’. ‘Without secrecy’ Case precedent – Barney v BP Truckstops Ltd [1995] CLY 1854 Facts: The defendant’s claim to an easement of drainage through prescription failed because his use of it, whilst it had not been hidden from the landowner in a dishonest fashion, was nevertheless unknown to the landowner and unsuspected by him. Principle: The use of the land must not have been hidden from the burdened landowner. Application: Use this case to illustrate a case in which lack of knowledge on the part of the landowner will be a bar to a claim in prescription. ‘Without force’ Case precedent – S Dalton v Angus & Co. [1881–1885] All ER Rep 1 Facts: An easement of support for a building neighbouring the claimant’s property was granted because the building had been supported by the neighbouring property without objection of the neighbouring landowner for a period of over 20 years. Principle: The benefiting landowner must not exert force or threats in order to use the burdened land. Application: Use the case to illustrate that what is required of the burdened landowner is acquiescence to the use claimed. Easements 249 ‘Without permission’ Case precedent – Green v Ashco Horticultural Ltd [1966] 1 WLR 899 Facts: The claimant claimed a right to park but had always moved his vehicle when asked to do so by the burdened landowner. Held: the claimant had only been exercising his right so far as the burdened landowner permitted and therefore that the use could not be as of right. Principle: If the use is with the burdened landowner’s permission, it cannot be use ‘as of right’. Application: Use this case to show that a person using a property as of right would not need to ask the landowner’s permission to do so. There are three different ways in which prescriptive rights can be established. These are: at common law; under the doctrine of lost modern grant; and under the Prescription Act 1832. Common law prescription The common law will presume that an easement has been granted over the land if it has been enjoyed since ‘time immemorial’ which, according to statute, is 1189 (Statute of Westminster 1275). It is not necessary to give proof of the easement having been used for the whole of this period. Rather, if it can be shown that the use has lasted for an uninterrupted period of at least 20 years it will be presumed that that use commenced in 1189. However, the presumption will be defeated if it can be shown that, at any time since 1189, the right could not have existed. So, for example, an easement claimed for the benefit of a building erected after 1189 would automatically fail. Equally, a modern easement such as the right to park a car would be unable to take advantage of common law prescription. Lost modern grant Under the doctrine of ‘lost modern grant’ if the claimant can prove that there has been continuous use of the claimed easement for any single period of 20 years or more during the lifetime of the easement, there will be a judicial presumption that at one stage an easement was validly granted by deed, but that the documentation, and hence the proof of the grant, has since been lost (Tehidy Minerals v Norman [1971] 2 QB 528). The rules of common law prescription must first be tested before the doctrine of lost modern grant will be applied (Hulbert v Dale [1909] 2 Ch 570). 250 Optimize Land Law Prescription Act 1832 Under s 2 of the Act, there are two periods of continuous user set out: An easement will be presumed if 20 years’ continuous use can be established and: 1. 2. 3. the user is of right; the owner of the burdened land is 18 or over and sui iuris (that is, mentally capable of entering into the agreement); and there has been no interruption for a year or more. An easement will be presumed if 40 years’ continuous user can be established and: 1. 2. 3. the user is as of right (but note that only written consent will defeat a claim to a prescriptive easement where 40 years’ continuous use is shown); the burdened land is not held by a tenant for life or tenant for a term exceeding three years; and there has been no interruption for a year or more. Easements of light The Prescription Act 1832 also deals with easements of light, under s 3. There is no 40-year period applicable to the acquisition of rights of light: only a 20-year period of continuous user need be proved. Once 20 years’ continuous use can be shown, the only way it can be defeated is by evidence of express written consent to the right. Can I claim prescriptive rights? Is the land freehold? Have I had 20 years’ uninterrupted use? Is my claim ‘as of right’? Have I been open in my use of the land? Have I used force or threats in order to procure the use? Have I used the land with the landowner's permission? Is there evidence to rebut the presumption that the use commenced in 1189? Can I establish either 20 or 40 years’ uninterrupted use? Easements 251 Points to remember about the creation of easements Three methods of creating an easement Our methods of implied easement Claiming easements through prescription ❖ Easements can be created expressly (by deed), implied by the courts or acquired through prescription. ❖ The grant of an easement can be implied through necessity, common intention, the rule in Wheeldon v Burrows or under s 6 LPA 1925. ❖ The reservation of an easement can be implied only through necessity or common intention. ❖ An easement can be created through 20 years' uninterrupted use, provided that the use has been without secrecy, without force and without permission. ❖ Prescriptive rights can be established at common law; under the doctrine of lost modern grant or under the Prescription Act 1832. Protecting easements in registered and unregistered land Registered land An express grants or reservation of a legal easement is a registrable disposition. It must therefore be registered against the benefited and burdened properties at the Land Registry (ss 27 and 38 LRA 2002). If this is not done then the easement will be equitable. An equitable easement should be protected by a notice on the Charges Register of the burdened land (s 32 LRA 2002). The easement will then be binding on any purchaser of the burdened land. An implied grant or reservation of an easement will be overriding under schedule 3, paragraph 3 of the Land Registration Act 2002, provided that: the person buying the land knew about the easement; or the easement would have been obvious from a reasonably careful inspection; or the easement had been used in the last year before the land was sold. 252 Optimize Land Law Unregistered land Legal interests in land, including legal easements, ‘bind the whole world’. Equitable easements created after 1st January 1926 are registrable as a Class D(iii) land charge at the Central Land Charges Registry. If registered in this way they will bind any buyer of the burdened land. If they are not registered, they will be void against a purchaser for money or money’s worth of a legal estate in the land (but not against someone receiving the legal estate as a gift). Equitable easements created before 1st January 1926 are bound by the doctrine of notice and as such will be binding on anyone except a bone fide purchaser for value without notice of the legal estate in the land. How do I protect my easement? Registered or unregistered? Registered Legal or equitable? Express = registrable disposition Implied = overriding interest Easement will not be binding when … … the landowner fails to register it, in which case it will be an equitable easement … the buyer did not know about easement, not obvious on reasonable inspection or unused in the last year Unregistered Legal easements bind the whole world Equitable interests created after 1925 are Class D(iii) land charges Equitable interests created before 1926 are bound by the doctrine of notice … not registered, where it will be void against a purchaser for money or money’s worth or legal estate … the burdened land is purchased by a bona fide purchaser for value without notice of the legal estate Extinguishment of easements An easement can be brought to an end in a number of different ways: By agreement The benefited and burdened parties to the easement are free to vary or bring an end to the easement should they choose to do so. Such an amendment must be formalised by deed. Easements 253 Unity of seisin If the land is either occupied or owned by the same person, the easement will cease to exist, either temporarily in the case of joint occupation, or permanently in the case of a purchase of the freehold. Abandonment This must comprise a deliberate abandonment of the easement and not simple non-­user of the right. Once an easement has been declared abandoned by the courts it is deemed to be permanently extinguished. Case precedent – Swan v Sinclair [1924] 1 Ch 254 Facts: A right of way that had not been used for over 50 years, and which had been blocked by fences and uneven ground, was held to have been abandoned. Principle: Once an easement has been declared abandoned by the courts it is deemed to be permanently extinguished. Application: Use this case to illustrate situations in which abandonment will be successful in extinguishing an unused easement. Case precedent – Benn v Hardinge (1992) 66 P&CR 246 Facts: A right of way that had not been not used for 175 years was not held to have been abandoned: just because there were alternative access routes to the property which the landowners had favoured until a flood made use of the unused accessway necessary once more, this did not mean that the alternative access had been abandoned, nor that it could not be resurrected. Principle: Lack of use will not necessarily equate to abandonment. Application: Contrast this case with the outcome in Swan v Sinclair to show different judicial approaches to the issue of abandonment of easements. Aim Higher Think about the difference between the two cases. It would appear that the different outcomes stem from the physical obstruction of the right of way in Swan v Sinclair, which the courts deemed to signal a deliberate abandonment. 254 Optimize Land Law Up for Debate The recent case of Jones v Cleanthi [2006] EWCA Civ 1712, which concerned an alleged abandonment of the right to use an area in a block of flats for rubbish disposal, provides an interesting interpretation of abandonment in this context. The landlord had been required to build a wall blocking the tenant’s access to that area of the building in order to comply with fire regulations, thus preventing the easement from being used. However, the Court of Appeal held that the easement had not been abandoned. Instead, they said that it had only been suspended until such time as fire safety regulations or a different use of the building allowed the easement to be used again. Reform The Law Commission has recommended reforms to the law relating to easements in their 2011 report no. 327, ‘Making Land Work: Easements, Covenants and Profits à Prendre’. The main proposals are as follows: Car parking Land in the same ownership Implied easements Prescription Abandonment Powers of the Lands Chamber An exclusive right to park on the land of a third party will be capable of being an easement, provided the landowner can still access the land, even when that access is severely limited. In respect of registered land it will be possible to create easements between two pieces of land in common ownership and the unity of seisin will cease to exist. Implied easements of necessity, common intention and the rule in Wheeldon v Burrows, will be replaced with a single statutory test, focusing on what is necessary for the reasonable use of the land. Implied easements under s 62 LPA 1925 will be abolished. The three existing methods of prescription will be replaced with a single, statutory scheme, based on 20 years’ continuous qualifying use. Where an easement has not been used for a continuous period of 20 years, there will be a rebuttable presumption that it has been abandoned. The jurisdiction of the Lands Chamber will be extended to enable it to modify or discharge easements as well as freehold covenants over land. Easements 255 At the time of writing there has been no move to implement the changes suggested in the report. However, the government has confirmed in its executive summary to the Queen’s Speech on 18 May 2016 that it will bring forward proposals to respond to the recommendations of the 2011 report. We should therefore expect to see the proposals becoming law over the next few years. Aim Higher For a more in-­depth understanding of the issues discussed and the recommendations of the Law Commission relating to the law of easements read the final report of the Law Commission at: http://lawcommission.justice.gov.uk/ docs/lc327_easements_report.pdf. Chapter summary An easement is a right to do something on someone else’s land. Any right which amounts to exclusive possession of the burdened property or which allows the benefiting owner to take anything from the land cannot be an easement. An easement must have a dominant and servient tenement which must be in separate ownership or occupation; accommodate the dominant tenement; and be capable of creation by deed. Easements can be created expressly (by deed), implied by the courts or acquired through prescription. Easements can be implied through necessity, common intention, the rule in Wheeldon v Burrows or under s 6 LPA 1925. An easement of necessity will be implied where the land would be incapable of use without it. The courts will also imply an easement in situations where they think this was the common intention of the parties when the land was sold. The rule in Wheeldon v Burrows transforms quasi-­easements into easements on a sale of part, where the right is ‘continuous and apparent’, necessary for the reasonable enjoyment of the land sold and in use both previously and at the time of the sale. Section 62 LPA 1925 has the effect of upgrading a licence granted by the owner of the land to a tenant to an easement, when the land occupied by the tenant is subsequently sold to them or on the renewal of their lease. An easement can be created through 20 years’ uninterrupted use, provided that the use has been without secrecy, without force and without permission. Prescriptive rights can be established at common law; under the doctrine of lost modern grant or under the Prescription Act 1832. 256 Optimize Land Law Easements may be brought to an end through agreement, the unity of seisin or abandonment. The Law Commission has recommended the reform of the law relating to implied easements, replacing the current law with a single statutory test. Putting it into practice Which of the following are capable of being easements? If not, why not? a) b) c) d) 2. A right of way over next door’s garden The right to the use of the tennis court in next door’s garden A right to take apples from the orchard of a landowner in the next village The right to a sea view Margot owns a house with a large front garden. She obtains planning permission to build a cottage in the garden and then sells it to a builder, Jerry, who intends to build the cottage and sell it on for a profit. Margot retains the house. There is a driveway running from the house to the main road through the front garden of the property, which passes immediately next to the proposed site for the cottage. There is nothing in the conveyance of sale reserving rights for Margot to use the driveway. There is a public footpath that runs to the side of Margot’s property and which adjoins the main road, but this is not suitable for vehicular access. Margot’s house Public footpath 1. Garden Jerry has now put a fence across the path of the driveway along the boundary of the two properties and is refusing to let Margot use it. Jerry says there was no agreement that Margot should continue to use the driveway when he bought the land, and that if this had been the case he would not have bought it. He says that the continued use by Margot of the driveway would significantly de-­value the cottage, as it runs immediately next to it. Easements 257 Assuming the right of way claimed by Margot is capable of being an easement in accordance with the requirements in Re Ellenborough Park [1955], on what grounds can the easement be established? Feedback on putting it into practice 1. In order for a right to be capable of forming an easement, there must be a dominant and servient tenement in separate ownership or occupation, the right must accommodate the dominant tenement and the right must be capable of lying in grant (Re Ellenborough Park [1955]): a) Assuming the neighbouring land is in separate ownership or occupation, a right of way is capable of being an easement. It clearly accommodates the dominant land, and a right of way is a commonly recognised form of easement. b) The right to use the tennis court is not capable of being an easement, because it does not accommodate the dominant tenement. The right to use a tennis court is a purely personal benefit to the owner of the land and not a benefit to the right itself (a subsequent owner of the land may not be interested in tennis). c) The right to take apples is again a personal benefit. In addition, the fact that the burdened land is in the next village from the benefiting land suggests that there is not sufficient geographical proximity between the two properties for there to be a genuine benefit to the dominant tenement. d) The right to a sea view is too vague to constitute an easement. A claim to an easement of a view will therefore fail as it does not ‘lie in grant’. In order to determine how Margot’s easement may have been created, we must first look to see if there is anything in writing. We are told that the conveyance of the front garden to Jerry made no reference to easements and can therefore conclude that there has been no express reservation of the right of way to Margot. We therefore need to consider whether a right of way can be implied in her favour. 2. Easements can be implied in one of four ways: necessity; common intention; under the rule in Wheeldon v Burrows; and by virtue of s 62 LPA 1925. Easements of necessity only apply where the land would be useless without the right claimed, usually when the land is landlocked. We are told that there is an alternative route to the property via the public footpath, albeit on foot only. Margot will therefore be unable to use necessity as the basis for her claim. Equally, s 62 LPA 1925 cannot apply here because Margot has sold off part of her garden that was previously in her ownership and possession, and s 62 only applies where the burdened and benefited land have previously been in separate possession. 258 Optimize Land Law The rule in Wheeldon v Burrows cannot apply because the rule applies only to the grant of an easement, and not the reservation of one. Therefore the only way the easement could have been implied is through common intention. Common intention requires that it was the intention of the parties to use the property for a particular purpose when the property is sold, and without the easement the property cannot be used for that purpose (Wong v Beaumont Property Trust Ltd [1965]). When Margot sold her front garden to the developer with planning permission to build the cottage, it is arguably clear that she intended to continue living in the house, using it as a residential dwelling, and that she would need vehicular access in order to do so. On this basis, it could arguably be assumed that the driveway which crossed the property was intended to be shared between the house and the cottage, as in the case of Stafford v Lee (1992). Table of key cases referred to in this chapter Case name Phipps v Pears [1964] Area of law Negative easements Copeland v Greenhalf Nature of easements [1952] Re Ellenborough Park [1955] Essential characteristics of an easement Hill v Tupper (1863) Essential characteristics of an easement Moody v Steggles (1879) William Aldred’s case (1610) MRA Engineering Ltd v Trimster Co Ltd [1987] Principle The courts will not allow the creation of any new types of negative easement. Any right which amounts to exclusive possession of the burdened property cannot be an easement. There must be a dominant and servient tenement, separate ownership or occupation, accommodation of the dominant tenement and the right must be capable of lying in grant. The right must accommodate the dominant tenement. Essential characteristics of an easement The right must accommodate the dominant tenement. Easements of necessity Any suggestion of another means of access to the property will defeat the claim. Essential characteristics of an easement A right to a view is too vague to constitute an easement. Easements Jones v Pritchard [1908] Implied easements of common intention Wong v Beaumont Property Trust Ltd [1965] Implied easements of common intention Wright v Macadam (1949) Implied easements under s 62 LPA 1925 The courts will imply an easement where this was the intention of the parties to grant or reserve an easement over the land when it was sold. The proposed use of the property is paramount when implying an easement of common intention. S 62 upgrades a licence to an easement when the occupied land is subsequently sold to the tenant or their lease renewed. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 259 This page intentionally left blank 11 Freehold Covenants Revision objectives Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Do you know what a freehold covenant is and how it differs from an easement? • Do you know the difference between positive and negative covenants? • Can you explain how the benefit and burden of a covenant passes at law and in equity? • Do you know how to register and protect freehold covenants? • Can you explain and comment on why the area of statutory annexation is contentious? • Are you aware of the proposed changes to the law in respect of freehold covenants and can you comment on these changes? • Can you think of practical reasons why the inability to pass the burden of a covenant at common law would be problematic, and explain how this may be circumvented? • Can you establish whether a covenant is binding upon subsequent owners to land using the common law and equitable principles? Chapter Map Enforceability of freehold covenants As between successors in title As between original parties Privity of contract applies At law By express assignment Contracts (Rights of Third Parties) Act 1999 At common law The benefit of the covenant will pass, provided: The covenant touches and concerns the land The parties intended that the benefit should pass The grant of a long lease The burden does not pass at common law The claimant derives title from or under the covenantee The covenantee held a legal estate in the land A commonhold development scheme The covenant is negative Estate rentcharges Protection of freehold covenants In registered land By Notice on the Charges Register In unregistered land Pre 1 January 1926 Post 1 January 1926 By registration of a Class D(iii) Land Charge Under the doctrine of notice The covenant accommodates the dominant tenement If the covenant is positive, it can be dealt with by: A chain of indemnity covenants The doctrine in Halsall v Brizell In equity The burden of the covenant will pass, provided: The parties intended that the burden should pass The benefit of the covenant may pass through: The person against whom the covenant is being enforced has notice Express assignment Annexation, which may be: A building scheme Express Implied Statutory Remedies for breach of freehold covenant Damages Specific performance Injunction Removal of freehold covenants By express discharge By implied agreement By declaration of the court By the Lands Chamber 264 Optimize Land Law Introduction A covenant is a promise made by deed. Freehold covenants are extremely wide in nature and, as such, they can encompass almost any topic. Examples of the different kind of freehold covenant you might more commonly come across are: Not to build on the land Not to use the property for business purposes Not to keep any animal other than domestic pets on the land Not to use the property for the sale of alcoholic liquor Not to park a caravan in the driveway To keep boundary fences in good repair and condition Common Pitfalls The concept of leasehold covenants should not be confused with freehold covenants, however. Whereas freehold covenants are promises to do (or not to do) something on your own land, leasehold covenants are promises as to how a landlord and tenant will conduct themselves for the duration of a lease. The two concepts are distinct entities with entirely different sets of rules relating to their existence and transmission, and as such they should be viewed separately. Positive and negative covenants Covenants can be positive or negative in nature. Whilst negative covenants will usually bind successors in title to the burdened land, positive covenants do not. Negative, or ‘restrictive’, covenants prevent or limit the landowner’s use of the land in some way, as in the case of a covenant not to build on the land. Positive covenants require the landowner to do something in relation to their land, such as to maintain the boundary fences to the property. Positive: Requires the landowner to do something in relation to their own land Negative: Prevents or limits the landowner's use of the land Freehold Covenants 265 Common Pitfalls Consider the wording of the covenant carefully and do not be caught out by it. Some covenants may appear to be positive but are actually negative in practice, and vice versa. For example, a covenant to build only a single dwelling house on the land in effect is in reality a restriction preventing the landowner from building multiple dwelling houses. It therefore appears to be positive in nature, but it is negative in its effect. In Co-­operative Retail Services Limited v Tesco Stores Limited (1998) 76 P&CR 328, Millet LJ said: ‘A restrictive covenant is a burden, not on the owner’s pocket, but on his land; he can comply with it completely by complete inaction.’ This is often referred to as the ‘hand in pocket’ rule. It means that, whilst a landowner can comply with a negative covenant simply by refraining from doing the restricted act, in order to comply with a positive covenant the landowner will have to undertake some form of action, often at his own expense. Expenditure Positive covenant Understanding: enforceability of freehold covenants As between the original parties The original parties to the covenant are bound by the ordinary rules of privity of contract. The rules of privity of contract apply regardless of whether the covenant is positive or negative in nature. 266 Optimize Land Law Dean (covenantee) PRIVITY Sam (covenantor) Sam and Dean can sue each other in the event of a breach under ordinary contractual rules Transmission of the benefit at law There are three ways in which the benefit of a covenant can be passed at law: Express assignment Benefit at law Contracts (Rights of Third Parties) Act 1999 At common law under P&A Swift Investments Express assignment The original covenantee can expressly assign the benefit of the covenant to their successor in title in writing, under s 136 LPA 1925. Contract (Rights of Third Parties) Act 1999 It is also possible that the benefit of the covenant might be transferred under s 1 Contract (Rights of Third Parties) Act 1999. However, the provisions only apply to covenants created after 11 May 2000 and require the covenant to be specifically worded so as to include successors in title of the covenantee. At common law At common law the benefit of any freehold covenant is allowed to pass to a successor in title of the original covenantee (the person with the benefit of the covenant), provided the four conditions set out in the House of Lords case of P&A Swift Investments v Combined English Stores Group plc [1988] 3 WLR 313 are met. This is regardless of whether the covenant is positive or negative in nature. Freehold Covenants 267 The conditions are: 1. The covenant must ‘touch and concern’ the land of the covenantee. The benefit of the covenant will only pass to a third party if it confers a benefit on the land itself, and it was not purely of personal benefit to the original covenantee. 2. The parties should have intended that the benefit should pass. It must have been the intention of the parties at the time of making the covenant that the covenant should run with the land. Since 1925 this intention will be automatically implied into the deed under s 78(1) LPA 1925. 3. The covenantee must have held the legal estate in the land. 4. The claimant must The covenantee must derive title. have held the legal estate It used to be the case that in the land to be a successor in title benefited at the time of claiming the benefit of a entering into the covenant at common law covenant. Therefore a had to ‘derive their title person with only an from or under the original equitable interest in the land cannot benefit from covenantee’. This means covenants on the land at that they must have acquired the same estate common law. in the land as had been held by the original covenantee. However, this has now been extended to include tenants as well as freehold owners of the land (Smith and Snipes Hall Farm Limited v River Douglas Catchment Board [1949] 2 KB 500). Transmission of the burden at law If the original covenantor sells their land, the burden of the covenant will NOT pass to their successors in title. This is regardless of whether the covenant is positive or negative in nature (Austerberry v Corporation of Oldham (1885) 29 Ch D 750; Rhone v Stevens [1994] 2 AC 310). The burden does not pass at Common Law Instead, the original covenantor will remain liable for all breaches of the covenant, regardless of whether they are committed by them or by their successors in title. This is unless a contrary intention is expressed in the original covenant (s 79 LPA 1925). Case precedent – Earl of Sefton v Tophams Ltd [1966] 2 WLR 814 Facts: The owners of Aintree Racecourse questioned the validity of a freehold covenant that stated that the land should only be used for the purpose of horseracing. They wanted to sell the land to a developer. Held: the original covenantors would remain liable for breaches of covenant, even after they had sold their interest in the land. 268 Optimize Land Law Principle: At common law the burden of a covenant will not pass to successors in title. Application: Use this case to support your argument that the sellers of land burdened by a covenant will remain liable at law for breaches of that covenant after the sale of the property. Transmission of the burden in equity Whilst the burden of a covenant cannot pass at common law, equity will allow the burden of a freehold covenant to be transmitted to successors in title provided that the conditions in Tulk v Moxhay 2 Ph 744 are met: 1. The covenant is negative. 2. The covenant accommodates the dominant tenement. 3. The original parties intended that the burden should bind successors in title. 4. The person against whom the covenant is being enforced has notice of it. Case precedent – Tulk v Moxhay (1848) 2 PH 744 Facts: Tulk owned open ground in Leicester Square. In 1808 he sold the freehold of that land to a Mr Elms. The conveyance to Mr Elms required that Mr Elms, his heirs and assigns would: ‘keep and maintain the said piece of ground and square garden and iron railing round the same in its then form and in sufficient and proper repair as a square garden and pleasure ground, in an open state uncovered with any buildings in neat and ornamental order.’ By various conveyances the land passed to Mr Moxhay. The conveyance to Moxhay did not contain any restriction, although Moxhay was aware of the terms of the 1808 conveyance. Moxhay wanted to build on the land. Tulk applied successfully for an injunction against Moxhay. Freehold Covenants 269 Principle: Equity will allow the burden of a freehold covenant to be transmitted to successors in title provided that the conditions in Tulk v Moxhay are met. Application: Use this case to illustrate the transmission of the burden of a freehold covenant in equity. Accommodating the dominant tenement: Case precedent – LCC v Allen [1914] 3 KB 642 Facts: A developer entered into a covenant with London County Council, in return for being given permission to build a new street, that he would leave the land at the end of the street undeveloped. The developer then sold the land to a third party, who wished to build on it. Held: the covenant could not be enforced against the third party as the Council did not own any land that benefited from the terms of the covenant. Principle: In order for the burden of a covenant to run in equity the covenant must benefit the land of the covenantee. Application: Use this case to illustrate a situation in which the covenant will not be held to accommodate the dominant tenement. It should be noted that the intention of the original parties to bind successors in title to the property can either be expressly evidenced or implied under Section 79 of the Law of Property Act 1925, as we saw earlier in the chapter. Aim Higher Notice, in this context, means that, in the case of registered land, the restrictive covenant must be entered on the Charges Register of the burdened property at the Land Registry as a Notice, and in the case of unregistered land must be registered as a Class D(ii) Land Charge under the Land Charges Act 1972. This is unless the covenant was created before 1st January 1926, in which case the traditional doctrine of notice will apply. 270 Optimize Land Law Transmission of the benefit in equity In order for the burden of the covenant to pass in equity, the benefit of the covenant must also be shown to pass in equity. This can be done in one of three ways: by express assignment of the benefit of the covenant; or by annexation; or under the rules relating to building schemes. Express assignment of the benefit The benefit of a covenant can be expressly assigned on the sale of the land provided: 1. 2. the assignment is made at the time of the transfer; and the benefited land is identifiable in that transfer. (Re Union of London and Smith’s Bank Ltd’s Conveyance [1933] Ch 611) Aim Higher Can you think of a problem with this method of passing the benefit of a covenant in equity? Express assignment is not automatic and must be repeated every time the land transfers ownership. If this is not done, the benefit of the covenant is lost. Annexation Annexation means that when the covenant was made it must have been annexed, or permanently attached to, the land itself, and not just to the person with the benefit of the covenant. There are three types of annexation: express, implied or statutory. Express annexation Express annexation takes place when the express wording of the covenant shows that it was the intention of the original parties to the agreement that the benefit of the covenant should run with the land. Case precedent – Renals v Cowlishaw (1878) 9 Ch D 125 Facts: In this case the court found that the word ‘assigns’ was not enough to link any successors in title with the benefited land. Principle: Express wording in the covenant will amount to express annexation where the wording shows that it was the intention of the original parties that the covenant should run with the land. Application: Use this case to show that, if the benefit of the covenant is to be shown to run with the land through express annexation, the wording of the covenant must be both clear and precise. Freehold Covenants 271 Case precedent – Rogers v Hosegood [1900] 2 Ch 288 Facts: A covenant that stated expressly that it was made ‘for the benefit of ’ particular land was held to be annexed to the land because it demonstrated a clear intention that the benefit should run with the land itself. Principle: Express wording in the covenant will amount to express annexation where the wording shows that it was the intention of the original parties that the covenant should run with the land. Application: Use this case to illustrate the kind of wording in the deed of covenant that will constitute express annexation. Case precedent – Marquess of Zetland v Driver [1939] Ch 1 Facts: A covenant was expressed to be for the benefit of the covenantee’s retained land ‘and each and every part thereof ’. This was considered sufficient to ensure that the parts of the land retained that were actually affected by the breach could sue under the terms of the covenant. Principle: Express wording in the covenant will amount to express annexation where the wording shows that it was the intention of the original parties that the covenant should run with the land. Application: Use this case to show that, where the wording of the covenant is clear and precise the benefit of the covenant will run with the land through express annexation. In addition to clear wording in the covenant itself, in order for express annexation to take place the whole of the land retained by the covenantee must be capable of benefiting from the covenant. It is not sufficient that only part of the land which has the benefit of the covenant will gain from it. Case precedent – Re Ballard’s Conveyance [1927] Ch 473 Facts: A 17,000-acre estate sold off 16 acres of land at one edge of the estate, entering into a covenant with the buyer that the land should not be built upon. Held: the benefit of the covenant could not run on the sale of the estate because it was not realistic to say that the whole of the estate benefited from the covenant. Only the part of the estate nearest to the boundary with the land that had been sold could benefit. 272 Optimize Land Law Principle: In order for express annexation to take place the whole of the land retained by the covenantee must be capable of benefiting from the covenant. Application: Compare this case with the facts of your own scenario to show that a covenant will or will not pass with the land in question. The application of the rule set out in Re Ballard’s Conveyance will turn upon the facts of each individual case. However, the rule has been relaxed in recent years. Case precedent – Marten v Flight Refuelling Ltd [1962] Ch 115 Facts: The court made a finding that a covenant to use land sold for agricultural purposes only was annexed for the benefit of the whole of a 7,500 acre estate. Principle: In order for express annexation to take place the whole of the land retained by the covenantee must be capable of benefiting from the covenant. Application: Use this case to illustrate the recent relaxation in the rule set out in Re Ballard’s Conveyance. Implied annexation Implied annexation is very rare, and something which can only be done by the courts. The courts will imply annexation if they find that the circumstances indicate an intention to benefit the land. Case precedent – Newton Abbot Co-­operative Society Ltd v Williamson & Treadgold Ltd [1952] Ch 286 Facts: A company bought business premises subject to a covenant that they would not carry out the business of ironmongers there, in competition with the seller’s neighbouring business. When a successor in title to the burdened land later let the premises to an ironmonger, the covenantee sought to restrain the breach. Held: the proximity of the two businesses and the defendant’s knowledge at all times of the existence of the covenant were sufficient to imply that the covenant was annexed to the land in question. Principle: The courts will imply annexation if they find that the circumstances indicate an intention to benefit the land. Application: Use this case to illustrate a situation in which the courts will imply annexation. Freehold Covenants 273 Statutory annexation In the case of Federated Homes Ltd v Mill Lodge Properties Ltd [1980] 1 WLR 594 it was held that the wording of s 78(1) LPA 1925 was sufficient to annex the benefit of a freehold covenant to each and every part of the covenantee’s land, provided that the covenant touched and concerned the land in question. What this meant was that every freehold covenant which touched and concerned the land would now be automatically annexed to the land by virtue of statute, and the benefit of that covenant would automatically pass in equity. Express annexation had therefore been rendered obsolete. Up for Debate In contrast to the decision in Federated Homes, the House of Lords in Beswick v Beswick [1968] AC 58 stated that the provisions of the Law of Property Act 1925 should not be interpreted in a way which effectively brought about a change in the law. Their suggestion in saying this was that Federated Homes was wrongly decided and, as such, the automatic annexation of the benefit of a freehold covenant to the land should never be assumed. In 1984 the case of Roake v Chadha [1984] 1 WLR 40 qualified the finding in Federated Homes by stating that s 78 would only annex the benefit of a covenant that was not expressed to be personal to the original parties. The construction of the covenant should therefore be considered carefully and it should never be assumed that statutory annexation will apply without first checking the wording of the individual covenant. Case precedent – Sugarman v Porter [2006] EWHC 331 Facts: A covenant not to build more than one private dwelling house on the burdened land was expressed to be: ‘for the benefit and protection of the Vendor’s said adjoining property or any part therefore remaining unsold and any part of such property hereafter expressly sold with the benefit of this present covenant’. Held: the covenant was personal in nature and the benefit of it would not therefore run with the land. Principle: Where the covenant is expressed to be personal it will not run with the land unless it is expressly assigned to a purchaser of that land by the seller. Application: Use this case to illustrate the point that the benefit of a freehold covenant will not automatically run with the land under s 78 LPA 1925. 274 Optimize Land Law Annexation Express Through wording in the deed Implied By the courts Statutory Under s 78 LPA 1925 Building schemes The rules relating to building schemes were set out in the 1908 Court of Appeal case of Elliston v Reacher [1908] 2 Ch 382, as amended by the case of Reid v Bickerstaff [1909] 2 Ch 305. Equity will allow the owners of the various plots on an estate to enforce covenants against one another, provided: 1. 2. 3. 4. 5. all the buyers acquire their property from the same seller; the seller has divided the estate into plots prior to selling the properties; the covenants were intended by the seller to continue for the benefit of all the plots in the scheme; and every buyer acquires their plot on the understanding that the covenants are for the benefit all the other plots in the scheme; and the area of the building scheme must be clearly identified. Are all properties from the same seller? Has the seller divided the estate into plots prior to sale? Is there a building scheme? Did every buyer know the covenants benefited all plots? Did the seller intend the covenants to continue for the benefit of all plots? Is the area clearly identified? So long as it has clearly been the intention of the builder and the understanding of his buyers that the benefit of the covenants will continue for the benefit of all the Freehold Covenants 275 plots in the scheme, the tendency of the courts now is to relax some of the conditions, viewing them more as a number of useful guidelines in deciding whether or not a building scheme exists, as opposed to a set of strict pre-­requisites. Points to remember about passing the benefit and burden of freehold covenants The benefit may run at common law The burden will not run at common law The burden may run in equity If the burden runs in equity the benefit must run in equity ❖ At common law the benefit of a freehold covenant will pass to successors in title, provided the four requirements in P&A Swift Investments v Combined English Stores are met. ❖ The burden of a freehold covenant will not bind successors in title at common law (Austerberry v Oldham; Rhone v Stevens). ❖ The burden of a freehold covenant will run in equity, provided the criteria in Tulk v Moxhay are met. ❖ The benefit can be shown to run in equity either by express assignment, annexation or through a building scheme. Passing the burden of positive covenants Whilst it is possible to make the burden of a negative, or restrictive, covenant run in equity, there is no mechanism in equity which allows for the burden of a positive covenant to run with the land. There are various ways to circumvent this problem, none of which are without problems. These are: Through the grant of a long lease Through the creation of commonhold developments and estate rentcharges By creating a chain of indemnity covenants Under the doctrine of Halsall v Brizell (see below) 276 Optimize Land Law Long leases Rather than selling the property outright, the benefiting landowner could grant a long lease of the land to be burdened. The landlord and his successors in title could enforce any covenants in the lease which touched and concerned the land, regardless of whether they were positive or negative in nature (either under the doctrine of privity of estate, or, if the lease was granted after 1 January 1996, under the Landlord and Tenant (Covenants) Act 1995). The benefited landlowner would retain responsibility over the property as a landlord; thus there would be no ‘clean break’ from the land. The transmission of leasehold covenants is discussed in more detail in Chapter 8. Commonhold developments and estate rentcharges The benefiting landowner could create a commonhold development or create an estate rentcharge under s 2(3) Rentcharges Act 1977. With a commonhold development, both positive and negative covenants are enforceable by and against successors in title to the separate properties within the development. With a rentcharge, the landowner can charge for the performance of positive covenants such as those for the provision of services or maintenance of the property, enforced by a right of re-entry as against the current owner of the land in the event of non-compliance. Chain of indemnity The creation of a commonhold development envisages the development of multiple properties, not a single property, which may not fit in with the seller’s plans. The landowner will be required to carry out the services paid for. The original covenantor can try to minimise their responsibility at common law by obtaining an indemnity covenant from the person buying their land, indemnifying the seller should the buyer be held liable for any breach of covenant on it. This could be applied in respect of either a positive or a negative covenant. Freehold Covenants An indemnity covenant enables the original covenantor to claim back from the buyer any damages they have had to pay the covenantee for the buyer’s breaches of covenant. 277 If one person in the chain disappears or becomes insolvent the chain will break down and the original covenantor will be unable to claim reimbursement of their damages. Equally, for the covenantee the disappearance of the original covenantor leaves them with no-one against whom they can enforce future breaches. Halsall v Brizell The doctrine of mutual benefit and burden, as set out in the case of Halsall v Brizell [1957] Ch 169, states that a person who wishes to claim the benefit of a deed must also submit to any corresponding burden imposed by it. An example of this might be where a landowner was required to pay towards the maintenance of a right of way of which he had the benefit. Under the doctrine of mutual benefit and burden, a landowner may be able to enforce the burden of a positive covenant as against an owner of land who has a corresponding benefit. This is not a stand-alone method of enforcement: the burden and benefit must be inextricably linked in order for the doctrine to work. Protection of freehold covenants A freehold covenant is an equitable interest in land (s 1(2) LPA 1925). The way in which a freehold covenant should be protected will depend upon whether the land is registered or unregistered: Case precedent – Thamesmead Town v Allotey (1998) 37 EG 161 Facts: A requirement to pay towards the maintenance of landscaped and communal areas on a housing estate in which the purchaser’s property stood, but which the purchaser had not been granted any right to use, was held not to fall within the doctrine of Halsall v Brizell. 278 Optimize Land Law Principle: The benefit and corresponding burden under Halsall v Brizell must be inextricably linked. Application: Use this case to illustrate a situation in which the doctrine of mutual benefit and burden will not be applied. In registered land a freehold covenant must be registered as a Notice on the charges register at the Land Registry (s 32 LRA 2002). If this is done the covenant will bind any third party purchaser of the freehold. If the benefited landowner fails to enter their Notice, however, any buyer of the burdened land will take free of the covenant and will not be bound by it (s 52 LRA 1925). If the title to the land is unregistered, any covenant created after 1 January 1926 must be registered at the Central Land Charges Register as a Class D(ii) land charge under the Land Charges Act 1972. If this is done the covenant will bind subsequent buyers of the land; if not, a purchaser of the legal estate for value will not be bound by the covenant and they will take free of it (s 4(6) Land Charges Act 1972). Freehold covenants created before 1 January 1926 are subject to the doctrine of notice, meaning that they will bind everyone except a bone fide purchaser of the legal estate for value without notice, who will take free of the covenant. How do I protect my freehold covenant? Registered or unregistered? Registered Unregistered (pre-1926) Unregistered (post-1926) Method of protection By entry of a Notice in the Charges Register at the Land Registry By entry of a Notice in the Charges Register at the Land Registry in Plymouth The doctrine of notice applies Effect of failure to protect the covenant Any purchaser of the burdened land takes free of the covenant Any purchaser for value of the legal estate takes free of the covenant A bona fide purchaser for value without notice takes free of the covenant Freehold Covenants 279 Remedies for breach of covenant At common law if the burdened landowner breaches the covenant the benefiting landowner can sue them for damages under the ordinary rules of contract. However, the problem with this is that in most cases damages will not give the benefiting landowner the remedy they actually want, which is to prevent the breach of covenant from happening. Case precedent – Thamesmead Town v Allotey (1998) 37 EG 161 Facts: A requirement to pay towards the maintenance of landscaped and communal areas on a housing estate in which the purchaser’s property stood, but which the purchaser had not been granted any right to use, was held not to fall within the doctrine of Halsall v Brizell. Principle: The benefit and corresponding burden under Halsall v Brizell must be inextricably linked. Application: Use this case to illustrate a situation in which the doctrine of mutual benefit and burden will not be applied. The preferred course of action by most landowners in the event of a breach of freehold covenant will therefore usually be to apply for an equitable remedy, usually by way of injunction against a breach or threatened breach of the burdened landowner, or by way of specific performance forcing the burdened landowner to comply with the covenant. The only difficulty, of course, with equitable remedies is that they are discretionary and therefore by no means a guaranteed remedy in favour of the benefiting landowner. Case precedent – Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798 Facts: Land was sold off from the Estate, subject to a covenant that building work on the site should not be undertaken without the estate’s prior approval. A developer bought the land, building a housing estate on it without approval. The Estate applied for an injunction requiring the demolition of the houses. However, the court instead ordered the developer to pay damages for the breach. To order the houses to be demolished would cause a detriment to the house builder disproportionate to the damage incurred by the breach of covenant. 280 Optimize Land Law Principle: Equitable remedies are discretionary and do not provide a guaranteed remedy in favour of the benefiting landowner. Application: Use this case to illustrate your statement that equitable remedies do not provide a guarantee on the part of the benefited land, even where the breach is obvious and clear. Removal of freehold covenants Unwanted covenants can be modified or discharged through one of several ways: Express discharge or variation The purchaser may be able to agree with the benefited landowner that the covenant in question be varied or discharged. Express discharge Implied agreement Declaration of the court How can I dispose of my freehold covenant? By the Lands Chamber Implied agreement The benefit of the covenant may be lost if the covenantee has submitted to a long use of the property that is entirely inconsistent with the continuation of the covenant. This would be, for example, by acquiescence to open breaches of the covenant. Such cases are rare, however. Declaration by the court A declaration of the court may be sought to confirm the implied waiver of a covenant or that a covenant is void for lack of registration (s 84(2) LRA 1925). By the Lands Chamber Also under s 84 LRA 1925 the Lands Chamber has power to modify or extinguish a restrictive covenant if the applicant can show that: Freehold Covenants 1. 2. 3. 4. 281 The restriction is obsolete due to changes in the character of the property or neighbourhood; The covenant impedes reasonable user of the land and is either of no real value to the benefiting landowner or is contrary to the public interest; The benefiting landowners have already agreed, expressly or impliedly, by their acts or omissions to the discharge or modification of the covenant’; and The proposed discharge or modification will not be injurious to the benefiting landowners. The requirement that all four of these prerequisites are met is exceptionally stringent and gives the Lands Chamber little movement to agree to changes. The Law Commission has proposed that the powers should be widened to give the Lands Chamber a greater discretion to act. Reform of freehold covenants The Law Commission has recommended in its 2011 report entitled ‘Making Land Work: Easements, Covenants and Profits à Prendre’ proposals for the creation of a new statutory legal interest in land called the ‘land obligation’, the purpose of which is to replace freehold covenants in the future. Freehold covenants already in existence will remain unaffected by the changes and therefore the current law will continue to apply to them. Can be positive or negative in nature. The benefit and burden of land obligations will pass to successors in title under statute. Will be either an obligation to do or not to do something on the burdened land or an obligation to make a payment in return for the performance of such an obligation. Land obligations Land obligations will not be able to be created by implication or long user. They must be created by deed and registered at the Land Registry or as a new Class G Land Charge. Land obligations must ‘touch and concern’ the land. At the time of writing there has been no move to implement the changes suggested in the report. However, the government has confirmed in its executive summary to the Queen’s Speech on 18 May 2016 that it will bring forward proposals to respond to the recommendations of the 2011 report. We should therefore expect to see the proposals becoming law over the next few years. 282 Optimize Land Law Aim Higher For a more in-depth understanding of the proposed reforms take a closer look at the Law Commission Report no.327, ‘Making Land Work: Easements, Covenants and Profits à Prendre‘, through the following weblink: www.official-­ documents.gov.uk/document/hc1012/hc10/1067/1067.pdf. Chapter summary A covenant is a promise made by deed. Freehold covenants are promises either to do or not to do something on your own land. Covenants can be positive or negative in nature. The original parties to the covenant are bound by the ordinary rules of privity of contract. The benefit of the covenant can be transmitted at law either expressly (under s 136 LPA 1925), or by virtue of the common law, provided the covenant touches and concerns the land; the parties have intended it to run; the covenantee had a legal estate in the benefited land; and the claimant derives their title from or under the original covenantee (P&A Swift Investments). It is not possible to pass the burden of a covenant at common law (Austerberry v Oldham Corporation). The burden of a negative covenant can be passed to a third party in equity, provided that it accommodates the dominant tenement, that it was intended by the original parties to run with the land and provided that the buyer of the burdened land has notice of it (Tulk v Moxhay). If the burden of the covenant is made to run in equity, then the benefit must also run in equity. This can be done through express assignment, annexation or by way of a building scheme. The burden of a positive covenant can be passed on at common law by the creation of a long lease, commonhold development or rentcharge; by the creation of a chain of indemnity covenants or under the doctrine of mutual benefit and burden in Halsall v Brizell. A person with the benefit of a covenant should protect it by registering it as a Notice at the Land Registry or, if the land is unregistered, as a Class D(ii) Land Charge at the Land Charges Registry in Plymouth. Failure to do so will render the covenant unenforceable as against a third party purchaser of the land. Once established, covenants can be varied or discharged by express agreement, implied agreement (rarely), declaration by the court or by the Lands Chamber. There are proposals to reform the law of freehold covenants to replace them with a new type of statutory legal interest in land called ‘land obligations’. Freehold Covenants 283 Putting it into practice 1. Carmel was the freehold owner of a large country estate in Hertfordshire. In 2010 she sold a two-acre orchard on the edge of the estate to a developer, on the following provisos: a. b. c. The developer should not build more than one single-storey dwelling on the orchard. Carmel should be provided with plans of the building work for approval before any development is commenced on the site. The four ancient pear trees growing on the site should not be removed. In 2011 Carmel died, leaving the whole of her estate to her daughter, Carmelina. In 2012 the developer sold the orchard, together with planning permission for eight three-storey townhouses, to a local builder, Nazir. Nazir has now cut down all the trees in the orchard and commenced building works. The developer has disappeared. Neither Carmel nor Carmelina has ever been shown any plans for the proposed development. Can Carmelina enforce the breaches of covenant and, if so, against whom? What remedies does Carmelina have against Nazir? Feedback on putting it into practice 1. Both the burdened and the benefited land have now passed to successors in title of the original parties to the covenants. We therefore need to look at whether the burden and benefit of the covenants have passed to Nazir and Carmelina respectively. Assuming that Carmel did not expressly assign the benefit of the covenants to her daughter, the benefit of the covenants will pass to Carmelina at common law, provided that: a) the covenants ‘touch and concern’ the land of the covenantee. Arguably all three covenants have been entered into with the genuine benefit of the estate in mind; b) it was the intention of the parties at the time of making the covenant that the benefit should pass to successors in title. This intention is now implied under s 78(1) LPA 1925, unless stated otherwise (and we are not told that it has been); c) the covenantee held the legal estate in the land to be benefited at the time of entering into the covenant. We are told that Carmel was the freehold of the estate; d) The claimant must derive their title from or under the original covenantee. We are told that Carmelina inherited the whole of the estate from her mother. This is therefore complied with. 284 Optimize Land Law In respect of Nazir, at common law the burden of the covenants will not pass to third parties (Austerberry v Oldham; Rhone v Stevens). The burden will therefore stay with the developer under s 79 LPA 1925, although this is of little use to Carmelina as we are told that the developer has now disappeared. The burden of negative covenants only may pass in equity, provided that they comply with the conditions set out in Tulk v Moxhay (1848). Whilst covenants 1 and 3 are negative in nature; covenant 2 (to provide plans for approval) is not, and so the burden of it will not pass in equity. For the burden of covenants 1 and 3 to run with the land: They must accommodate the dominant tenement. We have already established that the covenants in question are likely to be viewed as being for the benefit of the land. The original parties must have intended that the burden should bind successors in title to the property. This can either be expressly evidenced, or implied under Section 79 of the Law of Property Act 1925. There is no suggestion that it should not be implied. The person against whom the covenant is being enforced must have notice of the covenant. Assuming the land is registered (registration has been compulsory on all sales of land since 1998), the covenants must have been registered as a Notice at the Land Registry. If this has been done, Nazir will be deemed to have notice of them. If the burden of the covenant has passed in equity, the benefit must also be shown to pass in equity. This can be done through express assignment, through a building scheme or through annexation, which can be express, implied or statutory. We are not told that there has been any express assignment of the benefit, and the sale of the orchard by Carmel was clearly not part of a building scheme. The benefit must therefore be shown to have been annexed to the land. We are not given details of the wording of the original covenant. However, it has been suggested that s 78(1) LPA 1925 serves to automatically annex the benefit of covenants to the land in any event (Federated Homes). It would appear that Carmelina cannot enforce the covenant requiring that she is shown plans of the development for approval before work commences, because this covenant is positive in nature. However, she can enforce the breach of covenant against Nazir for building more than one single-storey dwelling on the land and for cutting down the pear trees. Carmelina’s remedies will be in equity, as neither she nor Nazir are original parties to the covenants. The courts may give Carmelina an injunction in respect of the building works, to prevent the development of townhouses from being completed. However, it should be borne in mind that equitable remedies are at Freehold Covenants 285 the discretion of the court and if Nazir has already spent a lot of time and money on the development Carmelina may instead be given damages in lieu of an injunctive remedy. As regards the pear trees, an injunction is useless as the trees have already been cut down; thus the damage is already done. The only likely remedy Carmelina would receive therefore would be damages. However, it must be questioned what the actual loss to Carmelina is. Equitable damages do not incorporate a punitive element so if no actual loss can be quantified, she is likely to get nothing. Table of key cases referred to in this chapter Case name P&A Swift Investments v Combined English Stores Group plc [1988] Area of law Principle Passing of the At common law the benefit of benefit of a covenant any freehold covenant is at common law allowed to pass to a successor in title of the original covenantee provided the four conditions set out in the case are met. Austerberry v Passing of the The burden of a freehold Corporation of Oldham burden of a covenant covenant will not pass to their (1885) at common law successors in title at common law. Tulk v Moxhay (1848) The rule in Tulk v Moxhay Rogers v Hosegood [1900] Express annexation of the benefit of a covenant in equity Re Ballard’s Conveyance [1927] Express annexation of the benefit of a covenant in equity Federated Homes Ltd v Mill Lodge Properties Ltd [1980] Statutory annexation of the benefit of a covenant in equity Equity will allow the burden of a freehold covenant will be transmitted to successors in title provided the conditions in Tulk v Moxhay are met. Express annexation takes place when the express wording of the covenant shows it was the intention of the original parties that the benefit runs with the land. For express annexation to take place the whole of the benefited land must be capable of benefiting from the covenant. s 78(1) LPA 1925 will annex the benefit of a freehold covenant provided it touches and concerns the land of the covenantee. 286 Optimize Land Law Case name Area of law Principle Halsall v Brizell [1957] The doctrine of mutual benefit and burden A person who wishes to claim the benefit of a deed must also submit to any corresponding burden imposed by it. Elliston v Reacher [1908] Building schemes Plots on an estate may enforce covenants against one another if there is a building scheme in place. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision 12 Leasehold Covenants Revision objectives Understand the law Remember the details Reflect critically on areas of debate Contextualise Apply your skills and knowledge • Do you know what the terms ‘quiet enjoyment’ and ‘non-derogation from grant’ mean? Can you give examples of each? • Do you know the difference between privity of contract and privity of estate? • Can you name each of the repairing obligations implied into a lease by statute and in what circumstances they will apply? • Can you see why the ancient remedy of distress might cause a human rights issue under Art 8 of the European Convention on Human Rights, the respect for private life? • Can you see how a landlord might in certain circumstances wish to sue a former tenant for breach of covenant, rather than the current tenant, and how he might achieve this in practice? • Can you recognise covenants which are absolute, qualified and fully qualified, and say what this means in relation to any particular covenant? • Can you answer the putting it into practice question at the end of the chapter? Quiet enjoyment Fitness for human habitation (Sarson v Roberts [1895]) Non-derogation from grant By landlord Defective Premises Act 1972 Repair s 11 Landlord and Tenant Act 1985 To pay rates and taxes Implied Assignment or subletting Qualified Absolute Not to commit waste Repair To behave in a tenant-like manner By tenant Leasehold covenants Fully qualified Alterations To allow the landlord to enter and view Express Chapter Map Specific performance Injunction Appointment of a receiver If landlord serves default notice, the former tenant can ask for an overriding lease to be granted (s 19 LTCA 1995) Assignees remain liable for breaches committed during their ownership of the lease (Spencer’s Case) Original parties remain liable for whole duration of the term, even after assignment Damages If the landlord wants to sue a former tenant, they must serve notice within six months (s 17 LTCA 1995) As between the current landlord and tenant, there is privity of estate Regardless of when lease was created As between the original parties, there is privity of contract Pre-1996 Against landlord breach Action for debt/damages Remedies Injunction Specific performance Tenant will be automatically released from their covenants, provided the assignment is not excluded Post-1 January 1996 Landlord may ask to be released from his covenants (s 6) Responsibility Breach of covenant Distress Against tenant breach Forfeiture 290 Optimize Land Law Introduction All leases contain covenants: promises contained within the lease that the landlord or tenant will carry out, or refrain from carrying out, certain acts in respect of the leasehold property. These covenants could cover anything from a covenant by the tenant to pay rent, or to keep the premises in repair, to a covenant by the landlord to insure the property. Leasehold covenants can either be expressly contained within the lease, or they can be implied into the lease under common law or by statute. Implied covenants By the tenant To pay rates and taxes The common law there is an implied covenant on the part of the tenant to pay all rates and taxes payable on the property. To use the property in a tenant-­like manner This is a very basic common law obligation to look after the property in a general fashion, but one which does not extend to the repair of the property. It might include things such as turning off the water if the tenant is going away, cleaning the chimneys and the windows, mending the electric light when it fuses and unblocking the sink when it is blocked by his waste (Warren v Keen [1954] 1 QB 15). Not to commit waste This is where the tenant has carried out an unauthorised act or an omission which physically alters the state of the land. Waste can be: Permissive – where the tenant fails to do some act which ought to be done, and as a result damage is caused Voluntary – where the tenant does some positive act that changes the property (e.g. allowing the wall to fall down through disrepair) (e.g. knocking down a wall without consent) If there is nothing in the lease to the contrary, all tenants are liable for voluntary waste (Yellowly v Gower (1855) 11 ExD 274). However, the extent of liability for permissive waste depends on the type of lease. A tenant of a fixed term lease will Leasehold Covenants 291 always be responsible for permissive waste, unless the lease states otherwise; but the liability of a periodic tenant will depend on the length of the periodic term. Generally speaking, the shorter the term is, the less onerous the tenant’s responsibility. To allow the landlord to enter and view Where the landlord has either an implied or express obligation to repair, there is an implied obligation on the tenant to allow the landlord access to the premises to inspect them and carry out necessary repairs (Mint v Good [1951] 1 KB 517). By the landlord Quiet enjoyment At common law every tenant has the benefit of a covenant implied into their lease that the landlord will not breach the tenant’s quiet enjoyment of the premises; in other words, that the tenant will be allowed by the landlord to occupy the premises undisturbed. A breach of quiet enjoyment must amount to an actual disturbance of the tenancy: actions by the landlord that cause a mere inconvenience to the tenant will not be sufficient to amount to a breach in this context. Case precedent – Browne v Flower [1911] 1 Ch 219 Facts: The landlord built an external staircase outside the tenant’s premises which affected the tenant’s privacy. Held: there was no breach the tenant’s quiet enjoyment as the landlord had done nothing to prevent or hinder the tenant in her ordinary use of the property. Principle: A mere inconvenience to the tenant will not amount to a breach of quiet enjoyment. Application: Use the facts of this case to support your argument that a breach of quiet enjoyment must amount to an actual disturbance of the tenancy. Common Pitfalls A covenant of quiet enjoyment does not usually relate to noise made by the landlord, although it may do if the noise is continuous and excessive to the point where the tenant is prevented from enjoying their use of the property (Southwark LBC v Mills [1999] 4 All ER 449). 292 Optimize Land Law Removing the doors and windows Lavender v Betts [1942] 2 All ER 72 Persistently intimidating the tenant Kenny v Preen [1963] 1 QB 499 What constitutes breach of quiet enjoyment? Hindering the tenant's access Owen v Gadd [1956] 2 QB 99 Disconnecting the gas and electricity Perera v Vandiyar [1953] 1 WLR 672 Not to derogate from grant The landlord, having let the premises for a particular purpose, cannot then do anything which would prevent them from being used for that same purpose (Southwark LBC v Mills). Case precedent – Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] 1 Ch 200 Facts: A landlord let a warehouse to a tenant to store explosives, for which he required a licence. One of the terms of the licence was that there were to be no other buildings within a certain radius of the storage unit. The effect of this was that the landlord was prevented, under the implied covenant of non-­ derogation from grant, from building within that radius. Principle: The landlord, having let the premises for a particular purpose, cannot then do anything to frustrate that purpose. Application: Use this case as an example of derogation from grant by the landlord. Leasehold Covenants 293 Repair At common law there is no implied covenant on the landlord to keep the premises in repair; however, there are a number of limited circumstances in which covenants relating to repair will be implied on the landlord, either at common law or by statute. These are: Fitness for human habitation There is an implied covenant at common law In respect of furnished lettings of residential property that the premises will be fit for human habitation when they are let (but not subsequently. See: Sarson v Roberts [1895] 2 QB 395). Case precedent – Smith v Marrable (1843) 11 M&W 5 Facts: A landlord had let a property to a tenant which turned out to be infested with bugs. The property was found not to be fit for human habitation and the tenant was held by the court to be entitled to quit the premises immediately without giving notice under the lease. Principle: A furnished letting of residential property must be fit for human habitation when let. Application: Compare this case with the facts in your own scenario to determine whether or not the property is fit for human habitation. Wherever a landlord is responsible for the repair of a building, or if they have a right to enter leased premises to carry out repairs or maintenance, then a statutory duty will be implied for the landlord to keep ‘all persons who might reasonably be expected to be affected by defects in the premises’ reasonably safe from injury or damage on account of defects in the property (s 4 Defective Premises Act 1972). The obligation applies in respect of any person either visiting or occupying the premises. The duty applies wherever the landlord either knows about the defect or ought to have known about it. It is therefore up to the landlord to regularly check the condition of the building and keep up with repairs. There will be no liability if the damage or lack of repair was outside the scope of the landlord’s duties, however (McNerny v Lambeth LBC [1989] 1 EGLR 81). 294 Optimize Land Law Case precedent – Clarke v Taff Ely Borough Council [1980] 10 HLR 44 Facts: A woman fell from a table whilst redecorating because the table leg went through a rotten floorboard. Held: the landlord was liable. The age and construction of the house was such that it had been reasonably foreseeable that the floors in the building might rot due to dampness. He therefore should have carried out regular inspections of the property and undertaken a structured programme of maintenance in respect of it Principle: Where the landlord is responsible for repair, the landlord is also responsible to keep tenants and their visitors reasonably safe from injury or damage. Application: Use this case to illustrate the type of injury for which a landlord will be responsible under the Defective Premises Act 1972. Landlord and Tenant Act 1985 The landlord of any dwelling house let for a period of less than seven years shall be responsible for keeping in repair the structure and exterior (including drains and gutters) of the property; and to keep in repair and proper working order the installations in the house for the supply of water, gas and electricity and for sanitation and heating (s 11). Contrary to the position under the Defective Premises Act 1972, the landlord’s obligation under the Landlord and Tenant Act 1985 does not arise until the landlord is notified of the disrepair. Once notice has been received, the landlord must carry any necessary repairs out within a reasonable time (O’Brien v Robinson [1973] 2 WLR 393). structure and exterior sanitation water, gas and electricity What is the landlord responsible for under the LTA 1985? drains and gutters heating Leasehold Covenants 295 The structure of the dwelling house is not confined to the load bearing structure, but rather it ‘consists of those elements of the overall dwelling-­house which give it its essential appearance’. This means that the landlord’s liability will extend to the repair or replacement of windows and doors, but will not include the redecoration of the exterior, unless this is necessary in order to keep the property wind and water tight (Irvine’s Estate v Moran [1992] 24 HLR 1). Keeping the premises in repair does not extend to the rectification of an inherent defect in the property’s design: Case precedent – Quick v Taff-­Ely BC [1986] QB 809 Facts: The original house meant that the house suffered from condensation Held: the council was not liable under the 1985 Act. There was no actual dis­ repair to the building; rather, the damage was the product of a simple design defect in the house. Principle: Keeping the premises in repair does not extend to the rectification of an inherent defect in the property’s design. Application: Use this case to show the difference between a design defect and a lack of repair, under the Landlord and Tenant Act 1985. As for the term ‘proper working order’, this means that the water and other installations in the house are in good mechanical order; in other words that they are in proper working condition. Case precedent – Wycombe HA v Barnett (1982) 47 P&CR 394 Facts: A failure on the part of the landlord to lag the water pipes was not considered by the court to be a breach of their statutory duty to repair under the Act. If the water pipe had burst due to being rusted away, this would fall within the remit of the landlord’s repairing obligations, but for it to burst through freezing could not in all reasonableness be said to constitute a lack of repair. Principle: ‘Proper working order’ means in proper working condition and does not extend to a fuse blowing or pipes freezing. Application: Compare this case to the facts in your own scenario to show the extent of the repairing obligation under the LTA 1985. 296 Optimize Land Law Points to remember about covenants to repair The common law position ❖ At common law there is no implied covenant on the landlord to keep the premises in repair. Smith v Marrable ❖ There is an implied covenant that furnished lettings of residential property are fit Defective Premises Act 1972 ❖ Wherever a landlord is responsible for repair or has a right to enter to carry out Landlord and Tenant Act 1985 ❖ The landlord of any dwelling house let for under seven years is responsible for for human habitation when let. repairs or maintenance, the landlord has a statutory duty to keep all persons who might reasonably be affected safe from injury or damage on account of defects. keeping in repair the structure and exterior, water, gas and electricity supply and sanitation and heating. Summary of implied covenants Landlord Tenant Quiet enjoyment To pay rates and taxes Not to derogate from grant To use the property in a tenant-like manner Fit for human habitation Not to commit waste Defective Premises Act 1972 repair To permit landlord entry to view and repair s 11 Landlord and Tenant Act 1985; repair Leasehold Covenants 297 Express covenants Those you are most likely to come across are express covenants to repair, covenants not to assign or sublet, covenants to use for a particular purpose or covenants not to make alterations the premises. Not to assign or sublet The landlord will usually make specific provision in the lease to deal restricting assignment or subletting. The landlord may make the tenant’s covenant against assignment or subletting ‘absolute’, ‘qualified’ or ‘fully qualified’. It should be noted that a qualified covenant against assignment or subletting in the lease will be automatically converted into a fully qualified covenant under the provisions of section 19(1) of the Landlord and Tenant Act 1927. Covenants against assignment Absolute There is an absolute bar on assignment or subletting, so the tenant is not allowed to assign or sublet at all Qualified The tenant must obtain the landlord’s consent to any proposed assignment or subletting Fully qualified The tenant must obtain the landlord’s consent, but that consent must not be unreasonably withheld On receiving a request to assign or sublet, the landlord must respond in writing to any request to assign or sublet within a ‘reasonable time’, giving reasons for their refusal if applicable (s 1(3) Landlord and Tenant Act 1988). Following NCR Ltd v Riverland Portfolio No. 1 Ltd (No. 2) [2005] 2 EGLR 42 a common sense approach will be taken by the courts when determining what is a reasonable time: essentially, the landlord should act as quickly as is reasonable for them to do so under the circumstances. The reasons for refusal to a proposed assignment or subletting must also be reasonable. What is and is not will not be limited to a set of particular circumstances, but should be judged on the facts of each individual case (Bickel v Duke of Westminster [1977] QB 517). Consent will automatically be deemed to have been unreasonably withheld if the landlord withholds their consent on grounds of colour, race, ethnic or national origins or sex. This is in accordance with sections 24 of the Race Relations Act 1976 and section 31 Sex Discrimination Act 1975, respectively. 298 Optimize Land Law Reasonable response time Reasonableness Race, colour or sex Reasons for refusal Preconditions for assignment Under section 22 Landlord and Tenant (Covenants) Act 1995, the landlord is able, in respect of any business lease created on or after 1st January 1996, to specify in the lease circumstances under which their consent to assignment (but not subletting) can be withheld and also conditions subject to which any consent may be given. On this basis, as long as the landlord’s refusal to grant consent is for a reason specified in the lease, it will not be deemed unreasonable. Alterations Landlords will usually seek to restrict or prevent the tenant from making structural alterations to the property. As with qualified covenants against assignment or underletting, if the landlord allows a qualified covenant against alterations, Section 19(2) of the Landlord and Tenant Act 1927 will automatically convert this into a fully qualified covenant in the case of improvements to the premises. Who is responsible for breaches of covenant As between the original parties to the lease, these covenants are contractually binding; there is said to be ‘privity of contract’ between the parties. The defaulting party will therefore be liable to the other for damages in the event of a breach. Original parties Privity of contract When the leasehold interest has been transferred to a third party, it is necessary to apply legal rules to establish whether the burden and benefit of the covenants Leasehold Covenants 299 have passed to the new owners. The position will depend upon whether the breach is in respect of a lease created before or after the coming into force of the Landlord and Tenant (Covenants) Act 1995. Pre-Landlord and Tenant (Covenants) Act 1995 Before the Act came into force on 1 January 1996, the original landlord and tenant would remain liable for the covenants in the lease for the duration of the whole term of the lease, even after the transfer of their interest to a third party. This was by virtue of privity of contract, as seen above. Technically speaking, s 79 LPA 1925 made provision for the original parties to divest themselves of their responsibility on assignment of the lease, by stating that covenants within the lease would be deemed to be made by the covenantor on behalf of himself, his successors in title unless a contrary intention was expressed (thus allowing for an exclusion of liability to be incorporated into any assignment of the lease). However, it was not common practice to do this. More commonly, the outgoing tenant would require their assignee to enter into express indemnity covenants with them in the deed of assignment, the assignee promising the tenant that if they ever defaulted and the tenant was sued, the assignee would make good the loss. If not expressly included in the lease, such an indemnity covenant is implied by statute in any event, except where an unregistered lease is transferred by way of gift (s 77 LPA 1925; Sched 12, para 20 LRA 2002). In addition, the common law rule in Moule v Garrett (1872) LR 7 Exch 101 states that where a person is forced to pay damages because of somebody else’s legal default, they are entitled to recover the sum that has been paid from the defaulting party. Aim Higher Why not simply keep things as they were? The problem with all of these safeguards was of course that usually the reason why the landlord has decided to sue the tenant in the first place is because the assignee has no money and so they are unlikely to be able to reimburse the original tenant for their outlay. Landlords or tenants on an assignment of the lease, on the other hand, were bound by the doctrine of privity of estate. Privity of estate is the relationship that exists between the current landlord and current tenant of a lease. Current landlord and tenant Privity of estate 300 Optimize Land Law By virtue of this the current tenant of a lease would remain liable for any breaches of covenant committed by them during their ownership of the leasehold interest: in other words, until they assigned the lease to a third party, provided that: 1. 2. 3. the assignment of the lease was legal (if they had not, the previous tenant would remain liable); the outgoing tenant remained liable for breaches of covenant committed whilst they were a tenant of the property; the covenants in question ‘touched and concerned the land’. Spencer’s Case (1583) 5 Co Rep 16a Touching and concerning the land In order to touch and concern the land a covenant must affect the landlord and tenant in their relationship as such: in other words, It must be connected directly to the lease of the property, as opposed to being any kind of personal arrangement made between the original parties to the agreement (Breams Property Investment Co Ltd v Stroulger [1948] 2 KB 1). Touching and Concerning: ASK YOURSELF – is it personal? Equally, if the landlord sold the freehold of the property, the new landlord would obtain the benefit and burden of all non-­personal covenants in the lease, and the original landlord would at the same time be released from them (ss 141 and 142 LPA 1925). Aim Higher As there is no relationship between a head landlord and sub-­tenant, either in privity of contract or privity of estate, how can a landlord remedy a breach of covenant by a sub-­tenant? The obvious answer is for them to sue their direct tenant for breaches of covenant in the lease. They can do this by virtue of s 79 LPA 1925, which states that a tenant is responsible for covenants under a lease on behalf of themselves, their assignees and their sub-­tenants. In addition, equity will permit direct enforcement of negative covenants of a non-­personal nature by the head landlord against a sub-­tenant under the rule in Tulk v Moxhay. For more details on how the rule works see Chapter 10 on Freehold Covenants. Leasehold Covenants 301 Post Landlord and Tenant (Covenants) Act 1995 The LT(C)A 1995 abolished the effects of privity of contract for all leases created on or after 1 January 1996. After this date a tenant will be liable for the covenants in the lease only for so long as he remains a tenant (s 5). Once the lease is assigned to a third party, the tenant will be automatically released from his responsibilities under the terms of the lease unless the assignment is ‘excluded’ (that is, an assignment made without the landlord’s consent). In this case the outgoing tenant’s liability will continue until the assignee’s interest is subsequently assigned (s 11). Landlords under the 1995 Act are not automatically released, but instead must apply to the tenant to be released after the assignment has taken place (s 6). The tenant is unlikely to refuse consent except in the most exceptional of circumstances, however, as there will be a new landlord to replace them. In respect of assignees of the original landlord’s or tenant’s interest, the benefit and burden of the covenants in the lease pass automatically to them on assignment, provided that the covenants are not expressed to be personal (s 3(5)). As an extra measure of protection for the landlord, the Act enables the landlord to require an outgoing tenant to formally guarantee the performance of the covenants by their assignee, by signing an ‘authorised guarantee agreement’. The agreement will last only for as long as the outgoing tenant’s direct assignee remains a tenant under the lease, however (s 16). Head landlords and sub-­tenants Under section 3(5), a head landlord can enforce all restrictive covenants in the head lease against the sub-­tenant, regardless of notice. Summary of the running of leasehold covenants pre- and post-1995 Pre- Under privity of contract the original landlord and tenant remain liable for the whole duration of the lease, even after the transfer of their interest to a third party. Post- The original tenant is automatically released from their covenants on assignment of the tenancy (s 5), unless the tenancy is excluded. However, the landlord may require the tenant to enter into an authorised guarantee agreement (s 16). 302 Optimize Land Law Pre- Under privity of estate, subsequent tenants remain liable for breaches of covenant committed by them during their ownership of the lease, provided that the assignment is legal and the covenants in question ‘touched and concerned the land’ (Spencer’s Case). Post- The benefit and burden of covenants in the lease are passed to the assignee on assignment (s 3). The landlord may apply to be released Under ss 141 and 142 LPA 1925 any subsequent landlord will obtain the from their covenants after assignment benefit and burden of all non-personal of the reversion (s 6). covenants in the lease, and the original landlord will be released from them. Retrospective provisions Whilst the majority of the provisions of the 1995 Act are not retrospective, the following relate to all leases, regardless of the date of their creation: Section 17 default notices The service of default notices applies to any ‘fixed charge’ due under the lease, which would include rent, rates and service charges. S 17 provides that if the landlord wants to sue a former tenant for the arrears of a current tenant, they must serve notice within six months of the arrears being accrued, notifying the tenant of the arrears and of their intention to claim. Overriding leases Section 19 allows a former tenant who has been served notice under s 17 to regain control of the premises by calling for the landlord to grant them an ‘overriding lease’. This effectively reinstates the former tenant and demotes their assignee to the position of sub-­tenant, thus making the former tenant the immediate landlord of the assignee. Effect of an overriding lease Landlord Former tenant Tenant Assignee Leasehold Covenants 303 Remedies for breach of covenant Breach by the landlord Damages At common law the court can award damages to the tenant amounting to the difference between the value of the tenant’s interest in the property if the covenant was complied with, and the value with the covenant breached. The tenant can also claim damages for consequential loss, which would cover the cost of personal property damaged as a result of the disrepair or the cost of temporary accommodation if the tenant has to move out whilst the repairs are undertaken. Specific performance The equitable remedy of specific performance may be appropriate where the landlord is in breach of their repairing covenant under the lease and the tenant wants to force them to carry out the works. However, this will only be granted if damages are not an adequate remedy. Injunction Injunction may be a suitable remedy for restraining a breach of implied covenant on the part of the landlord, such as a breach of quiet enjoyment or derogation from grant. Appointment of a receiver If the landlord has abandoned the property entirely or has failed to carry out urgent repairs, the tenant can apply to the court for a receiver to be appointed to manage the property, collecting the rent and performing the landlord’s covenants (s 37 Senior Courts Act 1981). Breach by the tenant Action for the debt/damages If the tenant has not paid their rent the landlord can sue the tenant for the outstanding amount. If a tenant is in breach of any of their covenants in the lease the landlord can bring an action for damages at any time during the term of the lease or even after it expires. Injunction The landlord may seek an injunction to prevent an unauthorised assignment or alteration to the premises by the tenant. Injunction is an equitable remedy and therefore entirely at the discretion of the court. 304 Optimize Land Law Specific performance Specific performance is very rarely ordered in respect of a breach of tenant covenants but may be considered appropriate in specific cases (see Rainbow Properties Ltd v Tokenhold [1998] 1 WLR 980). Distress Distress is an ancient common law remedy which entitles the landlord to seize the tenant’s goods in lieu of rent arrears. Up for Debate Distress is a much criticised remedy, particularly as it relates to residential tenancies. Of particular concern is that the use of the remedy may result in a violation of human rights under Article 8 of European Convention on Human Rights, the respect for private life. The Tribunals, Courts and Enforcement Act 2007 contains (at s 71) provisions for the abolition of the remedy of distress and introduces a new regime for rent arrears recovery available only to landlords of commercial premises. However, the provisions have not yet been put into force. Forfeiture As we have seen in the previous chapter, forfeiture is where the landlord can enter the premises in the event of tenant default and retake possession, thereby terminating the tenant’s lease. The landlord can do this either where the rent has not been paid or where other covenants within the lease have been breached by the tenant. Sue them for the money Obtain a court order to restrain or enforce their behaviour My tenant is in breach: what can I do? Take goods to the value of unpaid rent Bring an end to the lease Chapter summary Leasehold covenants are promises contained within the lease that the landlord or tenant will carry out, or refrain from carrying out, certain acts in respect of the leasehold property. Leasehold Covenants 305 Leasehold covenants can be express or implied. Implied covenants on the part of the landlord are quiet enjoyment, not to derogate from grant and limited statutory obligations of repair. On the part of the tenant, they are: to pay rent, to use the property in a tenant-­like manner, not to commit waste and to allow the landlord to enter and view. The most common express covenants to be found in a lease are covenants to repair, covenants not to assign or sublet, covenants to use for a particular purpose and covenants not to make alterations to the premises. The landlord may make the tenant’s covenant against assignment or subletting ‘absolute’, ‘qualified’ or ‘fully qualified’. Section 19(1) LTA 1927 automatically converts a qualified covenant against assignment or subletting into a fully qualified one. On receiving a request to assign or sublet, under s 1(3) LTA 1988, the landlord must respond in writing within a ‘reasonable time’, giving reasons for their refusal if applicable. Reasonable. What is and is not will not be limited to a set of particular circumstances, but should be judged on the facts of each individual case Bickel v Duke of Westminster [1977] QB 517. The landlord is able in respect of any business lease created on or after 1st January 1996 to specify in the lease circumstances under which their consent to assignment (but not subletting) can be withheld and also conditions subject to which any consent may be given (s 22 LTCA 1995). Prior to 1 January 1996 the doctrine of privity of contract meant that the original landlord and tenant remained liable for the obligations in the lease for the full duration of the term, regardless of assignment to a third party. Under privity of estate, subsequent tenants remained liable for breaches committed by them during their ownership of the lease, provided that the assignment is legal and the covenants in question ‘touched and concerned the land’ (Spencer’s Case). Under ss 141 and 142 LPA 1925 any subsequent landlord obtained the benefit and burden of all non-­personal covenants in the lease. From 1 January 1996 the original tenant is automatically released from their covenants on assignment of the tenancy (s 5), unless the tenancy is excluded. The benefit and burden of covenants in the lease are passed to the assignee on assignment (s 3); the landlord may apply to be released from their covenants after assignment of the reversion (s 6). If the landlord wants to sue a former tenant for the arrears of a current tenant, they must serve notice within six months of the arrears being accrued. On receipt of such notice, the former tenant may claim an ‘overriding lease’ (ss 17 and 19 LTCA 1995). 306 Optimize Land Law Putting it into practice In 2011 a farmer, James Abel, let a ten-acre plot and farm buildings on his farm for a period of 12 years to Swallow Leisure, from which to run their outdoor leisure business. The lease was registered at the Land Registry in the proper fashion. Six months ago Swallow Leisure assigned their lease to the ‘Sea of tranquility’ – an outdoor yoga and tai chi centre. Swallow Leisure did request consent to the assignment from James, but he never responded to their letters and so they assigned anyway. The new tenant has continued to make rental payments by standing order into James’ bank account. In the meantime, a little over three months ago James started running quad biking adventure experiences, for which he set up a rocky terrain adventure course in the field adjoining his tenant’s property. The Sea of Tranquility has complained to the landlord that the noise is unbearable. Their outdoor space, which is central to their business, is far from tranquil, to the point that guests are complaining and they are losing business. The Sea of Tranquility is now refusing to pay any further rent to James, because they say they cannot use the premises for the purpose for which it was let. They are also claiming compensation for the loss to their business and are threatening to take injunctive action against James if he does not cease the quad biking activities next door. James wants to expand his business and would be happy to see the Sea of Tranquility go. He has told them that they shouldn’t even be there anyway as he never consented to the assignment (apparently he did not notice the change of payee details on his bank statement). James wants to know whether he can get rid of the Sea of Tranquility and whether there is any basis to their claim. He also wants his rent paid. However, the Sea of Tranquility say they have no money due to the loss of bookings. Advise James. Feedback on putting it into practice The first thing we need to establish is who are the responsible parties under the terms of the lease. James is the original landlord and thus liable for breaches of covenant as landlord. He also has the benefit of tenant covenants under the lease. The original tenant, Swallow Leisure, however, has assigned its leasehold interest to a third party, the Sea of Tranquility. Leasehold Covenants 307 The lease was created in 2011 and so the provisions of the Landlord and Tenant (Covenants) Act 1995 apply. Thus, Swallow Leisure will be released from their obligations under the lease on assignment (s 3), unless the assignment is an ‘excluded assignment’ (s 11). In this instance, the assignment will have been excluded because it was made without the landlord’s consent. In addition, the new tenants will be liable under the terms of the lease from the date of the assignment (s 5). The suggestion in the scenario is that James is in breach of his implied landlord covenant not to derogate from grant (Harmer v Jumbil [1921]). However, the implied covenant relies upon the landlord having let the premises to the tenant for a particular use, which he then prevents through his subsequent actions. As the original letting was to an outward bound business, it could be argued that the quad biking business was complementary to the original tenant’s business, rather than preventing it. As the assignment to the Sea of Tranquility was without consent, it will be difficult for them to argue a letting for a particular purpose which was then thwarted by the landlord. However, as assignment was requested in writing, the landlord will have had notice of the proposed assignee’s business. Nevertheless, to give with one hand and take with the other is quite different from the acquiescence we appear to have on the landlord’s part in this instance. James might also be accused of a breach of the implied covenant of quiet enjoyment. This does not usually relate to the making of noise by the landlord, but if it is sufficient to disrupt the tenant’s use of the premises, then it can be interpreted as a breach of quiet enjoyment (Southwark LBC v Mills [1999]). This would appear to be a better argument than non-­derogation from grant under the circumstances. If James is found to have breached his implied covenants under the lease, the Sea of Tranquility will be able to sue James under the terms of the lease and/or take injunctive action against him to prevent further damage to their business. From James’ point of view, he would like to get rid of the Sea of Tranquility. He can do this by forfeiting the lease. There are two breaches he could forfeit for: breach of the covenant against assignment and non-­payment of rent. Unfortunately for James he would appear to have waived his right to forfeit for the breach of covenant against assignment because he has accepted payment of rent from the Sea of Tranquility, subsequent to the illegal assignment. As this is a once and for all breach, he has waived his right to forfeit for this breach altogether. In respect of the non-­payment of rent, provided there is a right of re-­entry in the lease and the clause dispenses with the need to serve notice on the tenant, the landlord can proceed straight to forfeiture without further need for notice. He can do this either by court order or peaceable re-­entry. 308 Optimize Land Law The outstanding rent may be difficult to reclaim from the Sea of Tranquility as they have no money. As Swallow Leisure is still liable under the excluded assignment, however, James could approach them for the rent. If he does, however, he must first serve notice of his intention to do so under s 17 of the LT(C)A 1995. Essay What were the difficulties inherent in the provisions relating to the running of leasehold covenant prior to 1 January 1996 and how, and to what extent, have these been resolved? Hint: The question is asking you to discuss difficulties with the issue in privity of contract and what the provisions of the Landlord and Tenant (Covenants) Act 1995 have done to rectify the situation. Table of key cases referred to in this chapter Case name Area of law Harmer v Jumbil (Nigeria) Tin Areas Ltd [1921] Non-derogation from The landlord cannot let for a grant particular use and then prevent that use. Smith v Marrable (1843) Fitness for human habitation Clarke v Taff Ely Borough Council (1980) Repair under the Defective Premises Act 1972 Quick v Taff-Ely BC [1986] Repair under the Defective Premises Act 1972 Browne v Flower [1911] Warren v Keen [1954] Wycombe Health Authority v Barnett (1982) Quiet enjoyment Implied covenants Repair under the Defective Premises Act 1972 Principle A mere inconvenience to the tenant will not amount to a breach of quiet enjoyment. The tenant is under an obligation to use the property in a ‘tenantlike’ manner. A furnished letting of residential property must be fit for human habitation when let. A landlord with a repairing obligation has the responsibility to keep tenants and their visitors reasonably safe from injury or damage. Keeping the premises in repair does not extend to inherent defects in design. ‘Proper working order’ means in proper working condition and does not extend to a fuse blowing or pipes freezing. Leasehold Covenants Moule v Garrett Spencer’s Case (1583) Responsibility for Where a person is forced to pay breaches of covenant damages because of another’s legal default, they are entitled to recover the sum paid from the defaulting party. Privity of estate The current tenant of a lease will remain liable for any breaches of covenant committed by them during their ownership of the leasehold interest. @ Visit the book's companion website to test your knowledge .:. 309 Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision This page intentionally left blank 13 Mortgages Revision objectives Understand the law Remember the details Reflect critically on areas of debate • Do you know what the equity of redemption is? • Do you understand what the lender's rights are under the terms of the mortgage? • Can you state what the various equitable rights of the borrower are and when each will apply? • Can you name the requirements set out for lenders suspecting undue influence in the case of Etridge? • Are you able to discuss the provisions of s 36 AJA 1970 as amended and comment on the suggestions for reform? • Can you see, from a practical viewpoint, why the law relating to undue influence is so important to both lenders and borrowers in the context of mortgages? Contextualise Apply your skills and knowledge • Can you prioritise a list of mortgages, both legal and equitable? • Can you answer the questions in the putting it into practice sections of the chapter? Capable of being legal interests in land Right to sue Are created by way of ‘legal charge’ over the property Prevention or postponement of redemption Legal mortgages must be created by deed Right to possession Nature of mortgages Right to sale Rights of the lender Collateral advantages Unconscionable terms Undue influence Right to appoint a receiver Equitable right to redeem Right to foreclose Contractual right to redeem Rights of the borrower Chapter Map An equitable mortgage may be created under the doctrine in Walsh v Lonsdale Must be made in writing (s 53(1)(c) LPA 1925) Mortgages of equitable interests Prioritised in accordance with the date they are registered Legal mortgages are prioritised in accordance with the date registered If not so protected, must be registered as a Land Charge Equitable mortgages must be registered as a Class C Land Charge In unregistered land Legal mortgages If protected by deposit of title, deeds rank over all other mortgages Priority of mortgages Equitable mortgages must be registered as a Class C Land Charge Unregistered land Legal mortgages ‘bind the whole world’ Protection of mortgages Equitable mortgages must be protected as a Notice unless they are overriding Registered land Legal mortgages are registered dispositions Interests in actual occupation rank in order of creation Equitable mortgages In registered land The mortgage must comply with s 2 LP(MP)A 1989 in order to create an equitable interest Informal mortgages of legal interests Equitable mortgages 314 Optimize Land Law Introduction The common definition of a mortgage is that it is a loan of money secured against property; but in legal terms it is also one of the five classes of legal interest in land listed in Section 1(2) of the Law of Property Act 1925. A legal mortgage is created by ‘legal charge’, under s 85 LPA 1925, effected by the execution of a mortgage deed. (s 52 LPA 1925). Mortages are: Capable of being legal interests (s 1(2) LPA 1925) Created by way of ‘legal charge’ over the property (s 85 LPA 1925) Effected by execution of a mortgage deed (s 52 LPA 1925) Understanding: the rights of the borrower The borrower’s rights under the terms of the mortgage are divided into rights which are legal in nature and those which take effect in equity. The contractual right to redeem The borrower under a mortgage has one contractual right, which is the right to redeem, or pay off, the mortgage. The contractual right to redeem the mortgage is commonly set out in the mortgage deed as being six months from the start of the mortgage, even though the repayment schedule of the mortgage commonly allows for it to be repaid over a significantly longer period (usually 25 years). Aim Higher You may wonder what the significance is of the contractual right to redeem. Under the strict rules of contract law, if the borrower misses the date of redemption set out in the mortgage deed they are technically in breach of contract. As such they forfeit their security under the terms of the loan, which means the lender can take their house. The equitable right to redeem In equity as long as the borrower pays back the loan together with interest due on the mortgage at the contractually specified rate, then they will have a continued right to redeem the mortgage right up until the end of the mortgage term. As such, any terms in the mortgage which have the effect of preventing the loan from being repaid will be struck out by the courts. Mortgages 315 The prevention or postponement of redemption In spite of this, equity will allow the repayment of a commercial mortgage to be postponed or limited, provided: the mortgage is not in any other way unconscionable; and the right to redeem is not rendered an illusion. Case precedent – Knightsbridge Estates Trust Ltd v Byrne [1940] AC 613 Facts: A company took out a mortgage over freehold property. The mortgage deed contained a term that the mortgage was to be repaid over a period of 40 years; however, the borrower wanted to repay the loan early. Held: the court found in favour of the lender. Whilst the 40-year loan period was relatively long, it was not unconscionable because this a commercial transaction and the parties knew what they were doing. It was not the place of equity to intervene simply because the borrower felt that they had made a bad bargain. Principle: Equity will allow the repayment of a commercial mortgage to be postponed or limited provided it is not in any other way rendered unconscionable or rendered an illusion. Application: Use this case to show how early redemption of a commercial mortgage can be prevented. Case precedent – Fairclough v Swan Brewery Co Ltd [1912] AC 565 Facts: A pub landlord held the lease of a pub which had only 20 years left to run. He took out a mortgage over the pub that contained a provision preventing the landlord from redeeming the mortgage until six weeks before the end of the term of the lease. Held: the landlord should be allowed to redeem the mortgage early. The term in the mortgage deed had rendered the right to redeem an illusion. Principle: Equity will allow the repayment of a commercial mortgage to be postponed or limited provided it is not rendered an illusion. Application: Use this case to illustrate a situation in which a term in a commercial mortgage will be struck down. Aim Higher Think about why the two cases had such contrasting outcomes. In Knightsbridge Estates v Byrne [1940] the property was freehold land and so at the end of the 40-year period the borrower would get back no less than what they had 316 Optimize Land Law mortgaged in the first place. In contrast, in Fairclough v Swan Brewery [1912], because the borrower was prevented from redeeming the mortgage until the lease was about to come to an end, the borrower would have nothing to recover: no sooner would he have paid off his mortgage than he would have to return the property to the freeholder. Collateral advantages A collateral advantage is a benefit over and above simple security for the loan. Again, in commercial transactions, equity will allow limited collateral advantages to exist, provided that the collateral advantage should: 1. 2. stop when the mortgage is redeemed; and not be unconscionable. Case precedent – Noakes & Co Ltd v Rice [1902] AC 24 Facts: A pub landlord had entered into a mortgage that required that he supply only the brewery’s products for the duration of the leasehold term, regardless of when the mortgage was repaid. Held: the term created an unfair collateral advantage because it did not end upon repayment of the loan. Principle: Equity will allow collateral advantages to exist in commercial transactions provided they stop when the mortgage is redeemed. Application: Use this case to illustrate a commercial situation in which a collateral advantage will not be upheld. Case precedent – Biggs v Hoddinott [1898] 2 Ch 307 Facts: A mortgage of a hotel contained a provision that the loan should not be repaid within the first five years, and that within this time the borrower should sell only the lender’s own brand of beer. Held: the agreement did not unfairly compromise the borrower’s right to redeem because it only applied during the period of the mortgage. Principle: Equity will allow limited collateral advantages to exist in commercial transactions. Application: Compare the facts of this case against your own scenario to support your argument that a collateral advantage will be upheld by the courts. Mortgages 317 Case precedent – G&C Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 Facts: The Meat Company mortgaged its property to a wool broker. One of the terms of the mortgage agreement was that the Meat Company would give the wool brokers a right of first refusal on their sheep skins for a period of five years. After only two years the Meat Company redeemed the mortgage, paying back all the monies owing under it. It then argued that the agreement to sell the sheep skins to the lender should cease. Held: the collateral advantage was valid. Principle: Equity will allow limited collateral advantages to exist, provided that they are not unconscionable. Application: Use this case to support your argument that a collateral term in a mortgage will be upheld. In Kreglinger v New Patagonia Meat Co [1914] the collateral advantage was held to be valid by the court because: 1. 2. 3. five years was not particularly long time to be tied into the agreement; the price to be paid for the skins was a reasonable market price; and it was an arms’ length business transaction. However, as an equitable remedy the striking down of collateral advantages is discretionary and each case will turn upon its own facts. Unconscionable terms On a more general basis, equity has the power to strike down any unconscionable or oppressive terms in the mortgage agreement. Case precedent – Cityland & Property (Holdings) Ltd v Dabrah [1967] 3 WLR 605 Facts: A company bought land with the help of a mortgage. There was no interest payable on the mortgage, but instead the lender required a premium of 57% of the amount of the loan, repayable over six years. Held: the term was unreasonably oppressive not only because of its size, but also because of the relative bargaining positions of the borrower and lender. It was obvious that the borrower had been desperate for the loan and that the lender had taken advantage of this. 318 Optimize Land Law Principle: Equity will strike down any unconscionable or oppressive term in a mortgage agreement. Application: Give this case as an example of an unconscionable term in a mortgage. Case precedent – Bookbinding Ltd v Marden [1978] 2 WLR 535 Facts: A mortgage of a business contained an unusual clause which imposed an ‘uplift’ payment calculable on the loan and index-­linked to the Swiss franc. The effect of the uplift clause in conjunction with the other clauses in the contract was that the interest rate payable by the company was actually around 33%. Held: the uplift clause was not an unconscionable term. The uplift clause could only be viewed as unconscionable if it was imposed in a morally reprehensible manner. The parties were in equal bargaining positions and so this kind of blame could not be apportioned to the lender. The borrower had simply made a bad bargain. Principle: Equity will strike down any unconscionable or oppressive term in a mortgage agreement. Application: Use this case to illustrate a situation in which an onerous term in a mortgage will not be held unconscionable by the courts. What the court was saying, in effect, was that the lender has to have taken clear advantage of its position in order for the term to be unconscionable. This is quite a high bar that the courts impose in relation to business mortgages. Undue influence The most common situation in which equity steps in on behalf of homeowners is where there has been undue influence exerted upon one borrower by another. Case precedent – Barclays Bank v O’Brien [1993] 3 WLR 786 Facts: A wife signed a deed giving the bank a second legal mortgage over the family home. When the bank sought to enforce payment of the loan, the wife claimed undue influence. Held: there had been undue influence and the bank had constructive notice of this. Whilst the bank had written to the wife advising her to take independent legal advice, they did not check that this had happened; nor had they explained to her the implications of the second mortgage. Unless the bank could prove that it had taken reasonable steps to satisfy itself that the wife had entered into the agreement freely, the bank would be unable to enforce the loan. Mortgages 319 Principle: In cases of undue influence the courts place a positive duty on lenders to ensure that all parties to the mortgage agreement are fully advised of the nature of the transaction into which they are entering. Application: Use this case to illustrate the basic position of the courts in cases of undue influence. Following the finding in Barclays v O’Brien the House of Lords in Royal Bank of Scotland plc v Etridge (No. 2) [2001] 3 WLR 1021 set out definitive guidance on what a lender should do in order to discharge this duty where there was a possibility of undue influence. The Lords stated that: 1. 2. the burden of proof when claiming undue influence is on the person claiming to have been influenced; but the bank will nevertheless be put on inquiry of the possibility of undue influence wherever a wife offers to stand surety for her husband’s debts. Thus there is a clear responsibility on the lender to take action to ensure proper advice has been given to all parties to the mortgage. Case precedent – Hewitt v First Plus Financial Group plc [2010] EWCA Civ 312 Facts: A husband asked his wife to sign a mortgage deed granting a mortgage over the family home but did not disclose that he was having an affair. The court held that the husband was in breach of his duty of fairness and candour to her and made a finding of undue influence. Principle: The bank will be put on inquiry of the possibility of undue influence wherever a wife offers to stand surety for her husband’s debts. Application: Use this case to show how the guidelines laid down in Etridge are being applied. Aim Higher It is important to remember that the guidelines are designed to prevent the lender from losing their security for the mortgage loan. It is therefore vital that banks follow these if they are to steer clear of legal difficulties if the issue of undue influence arises. There is a lot more detail given in Lord Nicholls’ judgment in Etridge and it is worth reading through it to get a full picture of the requirements. 320 Optimize Land Law The diagrams below details the kind of advice which should be given to any party who may be at risk from undue influence: The party at risk should be offered independent legal advice. The advice should be given in the absence of the other parties to the mortgage. Both the nature of the transaction and the risks associated with using the house as security should be explained in clear, plain English. If the party at risk declines independent legal advice, the lender should not continue with the loan. The lender should obtain confirmation that the party at risk is happy for their solicitor to write to the lender, detailing what has been explained. The party at risk should be advised that they have a choice whether or not to sign the mortgage deed. Preventing or postponing redemption Collateral advantages Striking down inequitable mortgage terms Unconscionable terms Undue influence Points to remember about the rights of the borrower The contractual right to redeem ❖ Every borrower has a contractual right to redeem, which is usually set at six months from the start of the mortgage. Mortgages The equity of redemption 321 ❖ Terms in mortgages which postpone or limit that borrower’s right to redeem the mortgage will be allowed in commercial loans provided there remains a realistic chance of redemption. Collateral advantages ❖ Collateral advantages are allowed in commercial lending cases, as long as the Unconscionable terms ❖ Equity has the power to strike down any unconscionable or oppressive terms in Undue influence advantage is not unconscionable and does not extend beyond the life of the mortgage (Kreglinger v New Patagonia Meat Co). the mortgage agreement (Cityland v Dabrah; Multiservice Bookbinding). ❖ In cases of undue influence, the person influenced may not be bound by the terms of the mortgage. The emphasis is on the lender to ensure all parties to the mortgage are adequately advised (Etridge). Rights of the lender The right to sue Any legal mortgage carries with it the contractual right to sue on the debt. Suing in contract for the debt is often pointless, however, because the reason the borrower is behind on payments is usually because they are in financial difficulty. The right to possession Unless the mortgage agreement provides to the contrary, in equity the lender has the right to possess the mortgaged property immediately the mortgage agreement has been finalised. The lender does not have to have fallen into mortgage arrears for this right to exist. ‘the mortgagee may go into possession before the ink is dry on the mortgage’. Per Harman J Four Maids v Dudley Marshall (Properties) Ltd [1957] 2 WLR 531 322 Optimize Land Law A lender can take possession of mortgaged property either by peaceable re-­entry or by court order. The lender will usually apply for a court order, however, because they risk being guilty of a criminal offence if they are found to have used or threatened violence for the purpose of securing entry to the mortgaged property (s 6(1) Criminal Law Act 1977). In the event of a court order being applied for, s 36 Administration of Justice Act 1970 gives the court power to adjourn, stay or suspend the possession proceedings or postpone the date for possession of residential property if the borrower will be able within a reasonable period of time either to pay any sums due under the mortgage or otherwise remedy the breach of mortgage. A ‘reasonable period of time’ has traditionally been set by the court at between two and four years; however, the Court of Appeal case of Cheltenham and Gloucester Building Society v Norgan [1995] 1 WLR 343, stated that, whilst discretionary, the starting point for what should be considered by the courts to be a reasonable time period was actually the outstanding term of the mortgage. In order for the court to suspend or stay possession under s 36, the borrower must have a realistic prospect of repaying the debt. Case precedent – First National Bank plc v Syed [1991] 2 All E.R. 250 Facts: A borrower had fallen behind with their mortgage payments following their redundancy. A first order for possession was stayed by the court, but the borrower failed to keep up the arrears payments and the lender once again applied for possession of the property. The possession order was granted. The judge said: ‘On past form I do not feel justified in assuming there is a reasonable prospect for any real change.’ Principle: In order for the court to suspend or stay possession under s 36 the borrower must have a realistic prospect of repaying the debt. Application: Use this case to illustrate a situation in which an order suspending possession will not be granted. In its original form the wording of s 36 was problematic because the interpre­ tation of the phrase ‘any sums due’. In residential mortgage agreements at the time it was standard practice to provide that, if one instalment went unpaid, the whole sum borrowed would become due. Under s 36, therefore, ‘any sums due’ could effectively be deemed to include the whole of the mortgage advance. Mortgages 323 Section 8 of the Administration of Justice Act 1973 was therefore passed providing that, in the case of instalment mortgages, the phrase ‘sums due’ applies only to payments in arrears on the mortgage. Section 36 can only be relied upon where the lender has applied for a court order for possession. It cannot apply in cases where the property has been repossessed by peaceable re-­entry. Case precedent – Ropaigealach v BarclaysBank plc [2000] QB 263 Facts: A couple bought a house that required renovation. They got into arrears on the mortgage and the lender was able to take possession of the property by way of peaceable re-­entry, because the couple were not living at the property at the time. The borrowers tried to make a claim under s 36 for the repossession to be reversed. Held: s 36 only operates where the lender has obtained or is seeking a court order for possession. In this case the lender had taken possession by peaceable re-­entry of the property. There was therefore no court application to suspend. Principle: s 36 can only be relied upon where the lender has applied for a court order for possession. Application: Compare this case against the facts in your own scenario to determine whether s 36 can be relied upon. Up for Debate Ropaigealach v Barclays caused a certain amount of concern about the possible human rights implications of the inability of the borrower to claim relief from possession in cases of peaceable re-­entry. In Horsham Properties Group v Clark [2008] EWHC 2327 the court held that as it stood s 36 was not incompatible with the Human Rights Act 1988. Nevertheless parliament made suggestions for reform in the wake of the case. The Secured Lending Reform Bill 2010 called for the abolition of the lender’s right to repossess a property using peaceable re-­entry and for the imposition of new regulations that would prevent the court from making an order for possession. The Bill has not been taken any further at this time, however. 324 Optimize Land Law The diagram below shows how the benefits of a court order outweigh the simplicity of peaceable re-­entry: Peaceable re-entry risk o crim f sanc inal tion s s 36 d not oes appl y Court order no r isk crim of i sanc nal tion s 36 appl BUT ies ther e reali must b stic ea of re prospe ct paym ent The right to sale The power of sale will be implied into any mortgage made by deed, provided that the monies owing on the mortgage have ‘become due’: in other words as soon as the date of redemption set in the mortgage has passed (s 101 LPA 1925). Before the lender can sell the mortgaged property, their power of sale must become exercisable. This will happen when: 1. 2. 3. Notice requiring payment of the mortgage money has been served on the borrower and that money has remained unpaid for three months following the notice; or Interest due under the mortgage is in arrears and remains unpaid for two months after becoming due; or The borrower is in breach of some other provision of the mortgage. (s 103 LPA 1925) Can the lender sell? Have the mortgage monies become due? Do they have a power of sale? Has the redemption date passed on the mortgage? Has the power of sale become exercisable? Have the arrears remained unpaid... Has notice been served on the borrower? ...for three months following the notice? Is interest under the mortgage in arrears? ... for two months after becoming due? Is the borrower in breach of some other provision? Mortgages 325 Managing the sale When the lender sells mortgaged property they have a duty to obtain a proper price for it. Case precedent – Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949 Facts: The mortgaged property had the benefit of two sets of planning permission attached to it. The land was sold by the lender at auction but only one of the permissions was referred to in the auction guide. The result was that the property sold at a far lower price than it might otherwise have done. The lender was held liable for the difference in price. Principle: A ‘proper price’ equates to the lender taking reasonable steps to ensure that they achieve the best price they can for the property. Application: Compare this case with the facts in your scenario and consider whether the lenders have obtained a proper price for the mortgaged property. This duty does not extend to the lender having to expend time or money seeking to increase the purchase price the property will achieve, however. Case precedent – Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997 Facts: The Court held in this case that the lender was not under any duty either to pursue applications for planning permission or to complete the grant of leases in order to increase the price they could achieve on the sale of the mortgaged property. Principle: The lender’s duty on sale does not extend to the lender having to expend time or money seeking to increase the purchase price the property will achieve. Application: Use this case to support your argument that the lender is not required to incur time or money increasing the value of the property to be sold. 326 Optimize Land Law Case precedent – Palk v Mortgage Services Funding plc [1993] Ch 330 Facts: A mortgaged house was in negative equity, there being more owing on it than the house was worth. The lender had taken possession of the property and intended to let it whilst they waited for property prices to rise. However, the amount of rent they would achieve for the property was far less than the arrears payable and thus would inevitably lead to spiralling mortgage debts on the part of the borrower. Held: an order for sale was granted to a borrower. Principle: The lender need not delay the sale of a property in order to achieve a better price for it. Application: Contrast this case with the facts in Silven Properties to show a situation in which the lender should not delay a sale on repossession. Once the property has been sold, the proceeds of sale have to be used in a certain order, prescribed by statute (s 105 LPA 1925). Any monies left over after payment of the mortgage debts can then go back to the borrower. Pay off prior mortgages Pay costs of the sale Pay repossessing lender's own mortgage Pay lesser secured charges The right to foreclose This is where the lender becomes the registered owner of the property in exchange for the extinguishment of the mortgage debt. The act of foreclosure is in full and final settlement of the mortgage debt and so the lender loses any right to a further claim if the value of the house is not equal to the amount owing. Equally, if the house is worth more than the debt, the lender will have no claim to the balance. For these reasons it is rarely used today. Power to appoint a receiver There are some situations in which it will benefit the lender to repossess the mortgaged property not to sell it, but instead to use it to provide an income. This is particularly the case with commercial properties. The power to appoint a receiver is implied by statute under Section 101 and 109 of the Law of Property Act 1925. Mortgages 327 Points to remember about the rights of the borrower The right to possession The power of sale Duties on sale ❖ The lender has the right to possession of the property ‘before the ink is dry on the mortgage’. ❖ If the lender applies for a court order the borrower can apply for a stay or suspension where there is a realistic prospect of repayment of the mortgage debt. ❖ The power of sale will arise wherever the mortgage monies have become due and will become exercisable wherever there are three months’ mortgage arrears following notice; two months’ outstanding interest payments; or another of the terms of the mortgage has been breached (ss 101 and 103 LPA 1925). ❖ When selling the mortgaged property, the lender has a duty to obtain a ‘proper price’ for it (Cuckmere Brick Co v Mutual Finance). ❖ There is no need for the lender to expend time or money seeking to increase the purchase price the property will achieve, however. Equitable mortgages Equitable mortgages can be divided into two distinct categories: Equitable mortgages Informal mortgages of legal interests Mortgages of equitable interests Informal mortgages of legal interests If the formalities required for a legal mortgage have not been complied with, it may nevertheless be recognised as an equitable mortgage under the doctrine of Walsh v Lonsdale (1882) 21 Ch D 9, provided it complies with Section 2 of the law of Property (Miscellaneous Provisions) Act 1989 i.e. if it is in writing, contains all the terms as agreed between the parties and is signed by both parties to the agreement (United Bank of Kuwait plc v Sahib [1996] 3 WLR 372). Mortgages of equitable interests Mortgages of equitable interests are much more common in practice than informal mortgages of the legal interest. The only formality required for their creation is that they must be made in writing (s 53(1)(c) LPA 1925). 328 Optimize Land Law Rights of lenders and borrowers under equitable mortgages The only rights and remedies available to the lender and borrower on an equitable mortgage are those which are equitable in nature. For the borrower this is not a problem as the equity of redemption will apply in the usual way. However, for the lender, the position is less straightforward. The main difficulty lies with the lender’s ability to take possession of the land: as the mere holder of an equitable interest in the land, they have no right to possession of the legal interest. In addition, the power of sale implied under Section 101 of the Law of Property Act 1925 only applies when the mortgage is made by deed and so informal mortgages will not benefit from the provision. In Re White Rose Cottage [1965] Ch 940 Lord Denning suggested that there must be a right equivalent in equity to the provisions of s 101, allowing property under an equitable mortgage to be sold. He said: ‘I see no reason why an equitable mortgagee, exercising his power of sale, should not be able to convey the legal estate.’ Up for Debate The finding in the case has been widely criticised. Nevertheless, as it does not address the lender’s inability to take possession of the mortgaged property, the lender will be unable to obtain possession of the mortgaged premises without first applying to the court for an order to this effect in any event. Protection of the mortgage interest The way in which a lender can protect their mortgage interest depends on whether the title to the mortgaged land is legal or equitable, registered or unregistered. Registered land Legal mortgages are registrable dispositions and it is therefore compulsory to register them (s 27(2)(f ) LRA 2002). Failure to do so will mean that: 1. 2. a buyer of the land will take free of the charge over the property; and the mortgage can only exist in equity. An equitable mortgage may be protected by entering a Notice on the Charges Register at the Land Registry. If the lender does this, the equitable mortgage will then bind any purchaser of the land. Failure to register an equitable mortgage will, in the first instance, render it unenforceable against third party purchasers. However, if the borrower is living at the mortgaged property, they may still be able to claim the benefit of an overriding interest in the land on the basis of an interest in actual occupation (sched 3, para 2 LRA 2002). Mortgages 329 Unregistered land If the land to be mortgaged is unregistered, first legal mortgages secured with the deposit of title deeds are protected by the common law maxim that ‘legal rights bind the whole world’. Second or subsequent mortgages (also known as puisne mortgages) must be registered as land charges under the Land Charges Act 1972, either as a Class C(i) (legal) or C(iii) (equitable) land charge respectively. If a mortgage not protected by deposit of title deeds is not registered, it will be void as against any purchaser of the land (s 4(5) Land Charges Act 1972). Leases Legal Equitable Registered Unregistered Registered Unregistered Registered disposition (s 27(2) LRA 2002) ‘Legal rights bind the whole world’ Notice or overriding interest Class C Land Charge Priority of mortgages When there is more than one mortgage over a property, in the event of the loans being recalled which loan should be repaid first? Registered land Both legal and equitable mortgages in registered land are prioritised in accordance with the date on which they are registered at the Land Registry (ss 48 and 34–36 LRA 2002). This is regardless of the order of their creation. This is with the exception of equitable mortgage protected as an interest in actual occupation. These will rank in order of their creation, overriding any subsequent legal mortgages, despite not appearing as an entry on the Register. Common Pitfalls Students often assume that equitable mortgages rank lower than legal ones. However, in registered land, an equitable mortgage protected by Notice in the Charges Register can take priority over a later legal mortgage if it was registered earlier than its legal counterpart. 330 Optimize Land Law Unregistered land In unregistered land legal mortgages protected by the deposit of title deeds take precedence over all other mortgages, on the basis that ‘legal rights bind the whole world’, save in the event of: 1. 2. 3. Fraud on the part of the lender. Misrepresentation on the part of the lender leading to an estoppel. Negligence by the lender in relation to the title deeds. All other mortgages in unregistered land are ordered by the date on which they are registered (s 97 LPA 1925). This is irrespective of whether the mortgages are legal or equitable. Up for Debate A strange anomaly of unregistered land law is that, where a mortgage of unregistered land is created but has not been registered by the time a further subsequent mortgage is created, the earlier mortgage is void for failure to register it before the creation of a further legal charge (s 4(5) LCA 1972). There is an argument that the earlier mortgage should prevail as the first in time to be registered, regardless of the respective dates of creation of the mortgages. This theory has not been tested by the courts. Points to remember about the priority of mortgages Registered legal mortgages ❖ Prioritised in accordance with date registered (s 48 LRA 2002). Registered equitable mortgages ❖ Prioritised in accordance with date registered (ss 34-6 LRA 2002). ❖ Equitable mortgages protected as an interests in actual occupation will rank in Unregistered legal mortgages ❖ Legal mortgages protected by the deposit of title deeds take precedence over all order of creation. other mortgages. ❖ All other legal mortgages must be registered as a Land Charge. Mortgages Unregistered equitable mortgages 331 ❖ Equitable mortgages must be registered as a Class C Land Charge. Chapter summary A mortgage is one of the five classes of legal interest in land listed in Section 1(2) of the Law of Property Act 1925. In order for a mortgage to be legal it must be created by way of a legal charge by deed (ss 52 and 85 LPA 1925). A borrower’s contractual right to redeem the mortgage is usually set at six months from the start of the mortgage. Terms in mortgages which postpone or limit that borrower’s right to redeem the mortgage will be allowed in commercial loans provided there remains a realistic chance of redemption. Collateral advantages are allowed in commercial lending cases, as long as the advantage is not unconscionable and does not extend beyond the life of the mortgage (Kreglinger v New Patagonia Meat Co). Equity has the power to strike down any unconscionable or oppressive terms in the mortgage agreement (Cityland v Dabrah; Multiservice Bookbinding). In cases of undue influence, the person influenced may not be bound by the terms of the mortgage. The emphasis is on the lender to ensure all parties to the mortgage are adequately advised (Etridge). The lender has the right to possession of the property ‘before the ink is dry on the mortgage’ (Four Maids v Dudley Marshall Properties). If the lender applies for a court order for possession, the borrower can apply to the court for this to be stayed or suspended, where there is a realistic prospect of repayment of the mortgage debt within a reasonable time (s 36 AJA 1970). The power of sale will arise wherever the mortgage monies have become due (s 101 LPA 1925). The power of sale will become exercisable wherever there are three months’ mortgage arrears and notice has been served under the mortgage; two months’ interest payments outstanding; or another of the terms of the mortgage has been breached (s 103 LPA 1925). When selling the mortgaged property, the lender has a duty to obtain a ‘proper price’ for it (Cuckmere Brick Co v Mutual Finance). A legal mortgage is a registrable disposition (s 27(2)(f ) LRA 2002) and can only take effect in equity until registered. An equitable mortgage can be protected by way of notice on the Land Register or as an interest in actual occupation (Sched 3, para 2 LRA 2002). 332 Optimize Land Law Mortgages will generally be given priority in order of the date of their registration either at the Land Registry (s 48 LRA 1925) or as land charges in unregistered land. Putting it into practice 1. In 2009 The Trusty Bank lent Iris £100,000 to buy her first home on a 100% mortgage. The house was registered with freehold title at the Land Registry in Iris’ sole name. Iris suffered a back injury at work and has been unable to work for the last six months. She has been finding things difficult financially as a consequence and has been unable to keep up her mortgage payments for the last three months. Her employer now says that it will have to let her go because of her continued absence. She has taken legal advice and believes she may be entitled to a claim against her employer for unfair dismissal, and for negligence in causing the accident. In the meantime the Trusty bank is concerned that with falling house prices they will be unable to recoup their loan. They wish to seek possession of the property as soon as possible and minimise their loss. How can they achieve this? 2. The Acorn Building Society have repossessed and sold with the benefit of a court order a house at 4 Beech Grove, a registered freehold property. They received £102,000 for the property. Their costs on the sale were £2,000. There were a number of mortgages over the property: Lender Acorn Building Society Date Legal or Amount equitable of loan 08/2012 Legal £80,000 06/10/2012 03/2013 £15,000 Not registered Hazel Bank plc 09/2012 Equitable Willow Bank plc 05/2013 Sycamore Building Society Registration Legal Equitable £10,000 £25,000 08/09/2012 14/05/2013 Put the mortgages into order of priority and say what each lender will receive. Feedback on putting it into practice 1. Here we have a first registered mortgage for £100,000 in favour of the Trusty Bank. The bank is seeking to repossess the property and recoup what is owing to them. Mortgages 333 Technically speaking, a lender is entitled to possession of the mortgaged property from the date on which the mortgage is completed, regardless of any default (Four Maids v Dudley Marshall). The bank could obtain possession by way of peaceable re-­entry without a court order; however, as the property is occupied they would be best advised not to do this, as if they use or threaten violence to do so this will be a criminal offence under the Criminal Law Act 1977 s 6(1). The safer course of action would be for them to apply for a court order for possession. Iris could fight the bank’s action for possession with an application under s 36 AJA 1970 for an order postponing possession of the property, but in order to be successful she would have to prove that she could pay the arrears within a reasonable time and also continue to make her usual mortgage payments. A reasonable period means the remaining term of the mortgage (C&G v Norgan). Iris might argue that she has a windfall coming to her in the form of a payout from her employer, but as this is no means guaranteed, nor does she know when it might become available, it is unlikely to be sufficient (First National Bank v Syed). Once the Trusty Bank has obtained possession of the property, it will want to sell it to recoup the debt. In order for the power of sale to arise under s 101 LPA 1925 the mortgage must be created by deed (we can assume it has been as the mortgage is registered) and the mortgage money has to have become due: in other words the legal date for redemption must have passed. As this is usually six months after the mortgage has been created and the mortgage was taken out over six months ago, we can assume this is the case. As well as the power of sale having arisen it must also be ‘exercisable’ as there are more than two months’ interest in arrears on the loan, this requirement is satisfied (s 103 PA 1925). Once the property is sold the Trusty Bank must apply the proceeds of sale in prescribed order (s 105 LPA 1925). As Trusty are the only lender, this will not be an issue. They must simply pay the costs of the sale and then the remainder can go towards paying off the mortgage loan. As this was a 100% mortgage and we are told house prices are falling, they may not achieve on sale the full amount of the loan. Any outstanding balance they would have to sue Iris for personally. 2. The mortgages will take priority in order of the date on which they were registered. The mortgage with the Acorn Building Society, whilst created before the mortgage in favour of the Hazel Bank plc, will come after the Hazel bank in priority because it was registered after the Hazel bank mortgage, despite the Hazel bank’s mortgage being equitable in nature. The mortgage with the Sycamore Building Society was never registered and so can take place in equity only. It will rank after the mortgage with the Willow Bank plc because it has not been registered. 334 Optimize Land Law The lenders will therefore receive: Hazel Bank plc Acorn Building Society Willow Bank plc Sycamore Building Society £10,000 £80,000 £10,000 £0 Both the Willow Bank and Sycamore Building Society will be left with a deficit that they will have to seek to recover in another way, perhaps by suing the borrower personally for the debt. Table of key cases referred to in this chapter Case name Fairclough v Swan Brewery Co Ltd [1912] Area of law The prevention or postponement of redemption G&C Kreglinger v New Collateral advantages Patagonia Meat and Cold Storage Co. Ltd. [1914] Cityland & Property (Holdings) Ltd. v Dabrah [1967] Unconscionable terms Barclays Bank v O’Brien [1993] Undue influence Royal Bank of Scotland plc v Etridge (No. 2) [2001] Undue influence Four Maids v Dudley Marshall (Properties) Ltd [1957] The right of the lender to possession Cheltenham and Gloucester Building Society v Norgan [1995] Deferral of possession under s 36 AJA 1970 Principle Equity will allow the repayment of a commercial mortgage to be postponed or limited provided it is not rendered an illusion. Equity will allow limited collateral advantages to exist, provided that they are not unconscionable. Equity will strike down any unconscionable or oppressive term in a mortgage agreement. The courts place a positive duty on lenders to ensure that all parties to the mortgage agreement are fully advised. Wherever a wife stands surety for her husband’s debts, the bank will be put on inquiry of the possibility of undue influence. The mortgagee may go into possession before the ink is dry on the mortgage. A ‘reasonable period’ is the outstanding term of the mortgage. Mortgages Ropaigealach v BarclaysBank plc [2000] Deferral of possession under s 36 AJA 1970 335 S 36 does not operate where the lender has obtained possession through peaceable re-entry. Cuckmere Brick Co Ltd Duties of the lender on It is incumbent upon the lender v Mutual Finance Ltd sale of the property as the seller of the property to [1971] obtain a proper price for it. @ Visit the book's companion website to test your knowledge .:. Resources include a subject map, revision tip podcasts, downloadable diagrams, MCQ quizzes for each chapter and a flashcard glossary .:. www.routledge.com/cw/optimizelawrevision This page intentionally left blank Index absolute title 78 actual occupation: continuity/ permanence 52–3; interests of people in 49–53 adverse possession: acknowledgement of landowner’s title 126; actual possession 118–19; changes in law 131; definition 121; dispossession/ discontinuance 119–20; establishing a claim 118; fraud/concealment/ mistake 125–6; human rights 130; implied licences 128–9; intention to possess 120; leasehold land/ leaseholder 127–9; limitation period 124–5; making a claim 122–5; preventing a claim 125–7; squatters’ rights 123–5; without owner’s permission from 121 airspace 16–19 annexation: degree of 21–3; express 270–2; implied 272; purpose of 24–5, 28; statutory 273; tests 21, 25–7; types of 270 breaches of covenant: appointment of receiver 303; breach by landlord 303; breach by tenant 303–4; damages 303; default notices 302; distress 304; forfeiture 304; head landlords and sub-tenants 301; injunctions 303; liability 298–302; overriding leases 302; post-1995 301; pre-1995 299–301; privity of contract 298–9, 301; remedies 303–4; retrospective provisions 302; specific performance 303, 304; touching and concerning land 300 caveat emptor 92 charges register 80 chattels 12–13, 20–9; buildings as 28–9; definition 20; fixtures, difference 20; see also annexation common law rights 8 commonhold 39–40 constructive trusts: basic points 149; calculating the share 146–8; common intention 142–3; contracts 105–6; detriment 144–6; express agreement 142; implied agreement 143; informality 105, 138; meaning 141; proprietary estoppel, similarities 194–5; reliance 143–4; see also resulting trusts contract: basic points 106; constructive trusts 105–6; estate contracts 56; exceptions to writing requirement 105; exchange of 100–1; form of the contract 97–104; incorporating all terms 97–9; legal effect 107; preemption rights 103; privity of see privity of contract; public auction contracts 105; purpose 96; resulting trusts 105–6; short lease 105; signed by all parties 101–3; variations 104; in writing 97; written signature 101, 103 conveyancing practice: basic steps 93; caveat emptor 92; completion 107–8; 338 Index conveyancing practice continued contract see contract; investigation of title 93–4; physical inspection 94; registration 108–10; searches and enquiries 95; unregistered land 70–1 co-ownership: bringing to an end 222–6; of equitable estate 207; express declaration 210–11; joint tenants 208, 210; of legal estate 206–7; presumptions 212–13; severance 213–22; tenants in common 209, 210; words of severance 211; see also severance of joint tenancy corporeal hereditaments 13–14 corporeal/incorporeal hereditaments 13–14 covenants: implied covenants 290–6; restrictive covenants 56; see also breaches of covenant; freehold covenants; leasehold covenants detriment: constructive trusts 144–6; proprietary estoppel 188–9 easements: abandonment 253–4; agreement to amend 252; basic points 241, 251; capability of lying in grant 239–41; characteristics 237–41; common intention 244–5; common law prescription 249; continuous user 250; creation 242–51; dominant tenement 237–9; equitable 56; exclusive possession 235; existing forms 241; expenditure of money 240; express creation 242; extinguishment 252; grants/ reservations 242; by implication/ prescription 53; implied grants/ reservations 243–7; legal capacity 239; of light 250–1; lost modern grant 249–50; meaning 41, 234; necessity 243; as overriding interests 53; positive/negative 236–7; prescription 247–51; quasi-easements 245–6; reform proposals 254–5; registered land 251; right to park 234–6, 249; separate ownership/occupation 238; servient tenement 237–8; specific piece of land/defined area 239; unity of seisin 253; unregistered land 252; upgrading a licence 246–7; user as of right 248–9; vagueness of right 240 equitable interests 44–5; unregistered land 55–7 equitable ownership 9–11 equitable rights 7–9 estate contracts 56 estates: doctrine 6–7; in land 7, 38–40, 75–6 estoppel see proprietary estoppel express agreement 142 Facchini categories 163–5 failed estate contracts 190–1 Family Law Act charges 55 fixtures 20–9; chattels, difference 20; definition 20; see also annexation forfeiture of lease: breach capable of remedy 173–4; continuing breach 176; meaning 172–3; methods 173; once and for all breach 176; reform proposals 177; relief from 174–5; waiver of right 175 freehold, meaning 7, 38–9 freehold covenants: annexation 270–4; basic points 275; benefit at law, transmission 266–7; benefit in equity, transmission 270, 275; between original parties 265–6; building schemes 274–5; burden at law, transmission 267–8; burden in equity, transmission 268–9; commonhold developments 276; declaration by court 280; express assignment of benefit 270; express discharge/variation 280; implied agreement 280; indemnity chain Index 276–7; by Lands Chamber 280–1; long leases 276; mutual benefit and burden 277; negative covenants 264–5; positive covenants 264–5; privity of contract 265–6; protection 277–8; reform proposals 281–2; remedies for breach 279–80; removal of 280–1; restrictive covenants 56; successors in title 268 good leasehold title 79 hereditaments, corporeal/incorporeal 14 history of land law 4–7; 1925 reforms 6 incorporeal hereditaments 14 insurance principle, registered land 73 interests in land 41–6; equitable interests 44–5; legal interests 42–4 joint tenancy, severance of see severance of joint tenancy joint tenants see under co-ownership land: above/below surface 15–19; definition 4, 13–19 land register see registered land leasehold covenants: allowing landlord to enter and view 291; alterations 298; breaches of covenant 298–304; express covenants 297–8; fitness for human habitation 293–4; implied covenants 290–6; landlord obligations 291–6; meaning 290; not to assign or sublet 297; not to commit waste 290–1; not to derogate from grant 292; payment of rates/taxes 290; preconditions for assignment 298; quiet enjoyment 291–2; repair 293–6; tenant obligations 290–1; use of property in tenant-like manner 290 leases: authority to grant 165; basic 339 components 160; break clause 172; definition 158; determinate term 160; effluxation of time 172; exclusive possession 161–3; Facchini categories 163–5; forfeiture see forfeiture of lease; formalities 166–7; no intention to create legal relations 163–4; lodgers 164–5; long leases 276; merger 172; notice to quit 172; registered land 170–1; rent 160; service occupancies 164; surrender 172; termination 171, 176; terminology 159; types of lease 158; unregistered land 171 legal interests, creation of 43–4 legal leases, seven years or less 48–9 legal ownership 9–11 legal rights 7–9 licences 168; bare licence 168; contractual licence 169–70; coupled with a grant 168–9; estoppel licence 170; upgrading to an easement 246–7 mines/minerals 14 mirror principle, registered land 72 mortgages: borrower’s rights 314–21; collateral advantages 316–17; contractual right to redeem 314; definition 43, 314; equitable mortgages 327–8; equitable right to redeem 314; inequitable terms 320; informal mortgages 327; lender’s rights 321–7; managing sale 325–6; power to appoint receiver 326; prevention/postponement of redemption 315–16; priority 329–32; protection of mortgage interest 328–9; puisne mortgages 56; registered/unregistered land 328, 329; right to foreclose 326; right to possession 321–4; right to sale 324; right to sue 321; unconscionable terms 317–18; undue influence 318–20 340 Index notice to quit 172 overreaching 58–60; payment to two trustees 58–9 overriding interests: actual occupation, people in 49–53; easements as 53; legal leases, seven years or less 48–9 ownership see co-ownership personal property 11–13 possessory title 79 privilege 41 privity of contract: breaches of covenant 298–9, 301; freehold covenants 265–6 property register 77 proprietary estoppel: assurance 188; basic points 195; constructive trusts, similarities 194–5; detriment 188–9; effect 192–3; establishing a claim 186; failed estate contracts 190–1; meaning 185; reliance 188; remedies 193; testamentary promises 191–2; unconscionability 189–90 proprietary nature of land 11–13 proprietorship register 78–80 public auction contracts 105 puisne mortgages 55–6 qualified title 79 registered land 46–54, 68–85; alteration 81–5; charges register 80; compensation 83–4; conveyancing practice 108–10; curtain principle 73; equitable interests behind a trust 110; estates in land 75–6; indemnity for mistake 81–5; insurance principle 73; leases 170–1; mirror principle 72; mortgages 328, 329; need for reform 74–5; overriding interests 48–54; priority of interests 109–10; property register 77; proprietorship register 78–80; protection of interests 46–54; proving title 94; purpose 71; rectification 82–3; registrable interests 46–7; squatters’ rights 124–5; third party interests 47–8; see also unregistered land rentcharge 43 restrictive covenants 56 resulting trusts: contracts 105–6; informality 105, 138; meaning 138–41; see also constructive trusts severance, words of 211 severance of joint tenancy 213–22; basic points 222; effect of severance 221; mutual agreement 218–19; mutual course of dealing 219–20; operating upon their own share 217; other acts or things 216–21; unlawful killing 220–1; written notice 214–16 short lease contracts 105 squatters’ rights 123–5 statutory charges 43 tenures 5–7, 14 title: grades of 78–80; investigation of 93–4; proving 94 trust of land, informally created 138 unregistered land: conveyancing practice 70–1; easements 252; equitable interests 55–7; leases 171; legal interests 55; meaning 69–70; mortgages 329; non-registered interests 56–7; protection of interests 46–54; proving title 94; reasons for non-registration 69; see also registered land variations of contract 104 waiver of right to forfeit 175 words of severance 211 written notice, severance of joint tenancy 214–16
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