Land Registration Act 2002: Adverse Possession & Overriding Interests

Introduction: Overriding Interests and the Case for Reform

Interests in land that cannot be registered as separate titles are either overriding interests or interests which need protection on the register. Overriding interests are enforceable without being protected on the register and bind a registered proprietor and his transferee despite the fact that he does not know of their existence. This means overriding interests effectively detract from the principle that the register should be a mirror of the title. Under the old regime of the Land Registration Act 1925, overriding interests were listed in section 70(1), which states these to be "all incumbrances, interests, rights, and power not entered on the register but subject to which dispositions are to take effect."

If, however, an overriding interest appears on the register (as in Re Dance Way, West Town, Hayling Island), then its protection under this category is superfluous. It will cease to bind as an overriding interest and its protection becomes that of a minor interest on the register. The grounds for reform of overriding interests contained in the Land Registration Act 2002 ("LRA 2002") arose as a result of criticism of the category of overriding interests under the Land Registration Act 1925. Overriding interests caused uncertainty and were the subject of several reports attempting to deal with the problems, culminating in the LRA 2002. As illustrated in Overseas Investment Services Ltd v Sim Cobuild Construction Ltd, judicial opinion was also in favour of change. In that case, Peter Gibson LJ stated: "as overriding interests constitute an exception [to the mirror of title principle] the court should, in my opinion, not be astute to give a wide meaning to any item constituting an overriding interest."

The LRA 2002 aims to create an electronically based conveyancing system where it will be possible to investigate title online with minimum additional enquiries. A major obstacle to achieving this is the existence of overriding interests. The LRA 2002 has therefore reduced the circumstances in which overriding interests can exist. The policy behind the Act is that interests should only have overriding status where protection against buyers is needed, but where it is neither reasonable to expect nor sensible to require any entry on the register. With the advent of electronic conveyancing, the circumstances in which overriding interests can arise will be reduced further, because expressly created rights will only come into existence through simultaneous registration.

In addition to electronic conveyancing, the LRA 2002 adopts four approaches for handling the problems associated with overriding interests:

1. The abolition of certain rights which can exist as overriding interests, including the liability to repair the chancel of a church. Abolition follows the Court of Appeal decision in Aston Cantlow Parochial Church Council v Wallbank, which held that chancel repair liability contravenes the European Convention on Human Rights and is therefore unenforceable. The LRA 2002 also affects the rights of those acquired by squatters under adverse possession. It introduces an entirely new scheme of adverse possession for registered land, although there are limited transitional provisions to protect squatters' vested rights. For three years after the Act comes into force, a squatter whose 12-year limitation period had already expired will continue to have an overriding interest even if not in actual occupation, and will have three years to protect their position by registering their rights. Furthermore, on first registration the legal estate is vested in the first registered proprietor subject to interests acquired under the Limitation Act 1980 of which he or she has notice at the time of registration.

2. The phasing out after ten years of several existing categories of overriding interest, including ancient rights of franchises, manorial rights, crown rents, rights concerning embankments and sea walls, and corn rents.

The LRA 2002's Four Approaches to Overriding Interests

3. The narrowing down and clarification of the scope of some previous categories that remain as overriding interests — the most important being easements and profits under the old s. 70(1)(a) of the Land Registration Act 1925, and the rights of persons in actual occupation or in receipt of rents and profits under the old s. 70(1)(g) of the 1925 Act.

4. A requirement that when overriding interests come to light they are, as far as possible, entered on the register. In addition, a new requirement exists whereby a person who applies for registration must disclose any overriding interests known to them.

The LRA 2002 provides for the continued existence of 14 categories of overriding interest and further creates a new category: the Public-Private Partnership (PPP) lease. Five of the 14 categories will disappear after ten years. In the case of legal easements and profits, the rights of persons in actual occupation, and short leases (seven years or less), the substantive requirements for what amounts to an overriding interest will differ depending on whether it is a first registration or a subsequent registrable disposition for valuable consideration. The LRA 2002 recognises this distinction by listing those interests which override first registration in Schedule 1, and those interests which override registered dispositions in Schedule 3.

These are set out in Schedule 1 of the LRA 2002. When a person becomes the first registered proprietor of land on first registration, they take the estate subject to certain interests, including interests the burden of which is entered on the register (s. 11(4)(a)) and interests the burden of which is not entered on the register but which fall within any of the paragraphs of Schedule 1 (s. 11(4)(b) — overriding interests).

Subject to exceptions discussed below, a leasehold estate that has been granted for a term not exceeding seven years from the date of grant overrides first registration. This replicates the position under the Land Registration Act 1925, s. 70(1)(k), except for the reduction in the duration of short leases from 21 years to 7. It is also likely that in the future the Lord Chancellor will reduce the period to 3 years. The reason for excluding short leases from having their own registered titles is to prevent the register from becoming cluttered with leases that are shortly to expire. Instead, a notice of the short lease should be entered on the register of the title out of which it has been granted.

There are, however, exceptions to this rule. The following types of leases are incapable of being considered overriding interests, even where they are for 7 years or less, and must be registered with their own titles:

Unregistered Interests Overriding First Registration (Schedule 1)

(a) a reversionary lease granted out of unregistered land to take effect in possession more than three months after the date of the grant of the lease (this is new, and they are excluded because they may be difficult to discover); (b) a lease granted out of an unregistered legal estate under the right-to-buy provisions of Part V of the Housing Act 1985 (no change from previous law); (c) a lease granted by a private-sector landlord out of an unregistered legal estate to a person who was formerly a secure tenant and has a preserved right to buy under the Housing Act 1985 (again, no change from previous law).

The interests of persons in actual occupation have historically been the most problematic of all overriding interests, resulting in considerable litigation. Prior to the LRA 2002, the relevant provision was s. 70(1)(g) of the Land Registration Act 1925, which read: "the rights of every person in actual occupation of the land or in receipt of rents or profits thereof, save where enquiry is made of such person and the rights are not disclosed."

The LRA 2002 deals with unregistered interests which override first registration in Schedule 1, paragraph 2, which defines the interests of persons in actual occupation as "an interest belonging to a person in actual occupation, so far as relating to land of which he is in actual occupation except for an interest under a settlement under the Settled Land Act 1925."

The Law Commission concluded in its report that it remained necessary to protect the rights of those in actual occupation. This is predicated on the assumption that such persons will often not have appreciated the need to take further steps to protect their rights against purchasers by lodging a caution against first registration. This is especially the case for informally created rights — for example, a matrimonial home right of occupation which may be protected by a Class F land charge registration.

It should be noted that the LRA 2002, unlike the old law, does not give overriding status to those who are only in receipt of rents and profits. This is a change from s. 70(1)(g) and was made on the basis that it is often very difficult for buyers to discover the existence of an intermediate landlord simply from an inspection of the property. The new law maintains the exception that a beneficiary under a settlement under the Settled Land Act 1925 is excluded from overriding status. Despite the fact that this retention goes against the Law Commission's original recommendation, it was decided that the exception was sensible, given that since the Trusts of Land and Appointment of Trustees Act 1996 came into force, such settlements can no longer be created.

It is important to consider the wording of Schedule 1, paragraph 2, which states "so far as relating to land of which he is in actual occupation." This is a new addition made by the 2002 Act and means that where someone is in actual occupation of part of the land but has rights over the whole of the land purchased, the rights protected by actual occupation are confined to the part which they occupy.

A further change in the law, in relation to occupiers' rights on first registration, is the absence of the qualification in s. 70(1)(g) which provided: "save where enquiry is made of such person and the rights are not disclosed." These words are excluded from the 2002 Act because they are no longer relevant to overriding interests on first registration. Whether a purchaser has made enquiries of a person in actual occupation is irrelevant on first registration because the question of whether the first registered proprietor is bound by the rights of an occupier will have been decided at an earlier stage under the unregistered conveyancing rules — that is to say, on completion when the legal title becomes vested in the purchaser. It should, however, be noted that the qualification is retained for registered dispositions.

Under the old law, equitable easements which were openly exercised and enjoyed by the dominant owner as appurtenant to their land could take effect, on first registration, as overriding interests. Under the new law, only legal easements and profits à prendre can do so. Accordingly, in preventing unregistered equitable easements from acquiring overriding status, the decision in Celsteel is reversed. This follows the underlying principle of the new Act that rights expressly created over land should be completed by registration. It further reflects the established view in unregistered land that equitable easements should only bind a purchaser if they are registered as Class D(iii) land charges under the Land Charges Act 1972. It is hoped that in the future, few legal easements and profits will qualify as overriding interests. In fact, the LRA 2002 contains rule-making powers to ensure that, as far as possible, overriding interests are disclosed to the registrar on first registration so that they may be noted on the register.

The 2002 Act retains both customary and public rights as overriding interests. These are noted here for the sake of completeness but are not discussed further.

This category of overriding interest has not been changed by the new Act. Schedule 1, paragraph 6 of the 2002 Act replicates s. 70(1)(i) of the Land Registration Act 1925 by allowing a local land charge to override first registration. Again, these are noted for completeness and will not be discussed further.

No change has been made by the new Act to this category of overriding interests. The overriding status of some mining and mineral rights previously found in s. 70(1)(l) and (m) of the Land Registration Act 1925 is today found under Schedule 1, paragraphs 7–9 of the Land Registration Act 2002. Many of these rights would be impossible to register in light of their extent and complexity, as well as the prohibitive cost of preparing plans for them. The Law Commission accordingly thought it best in this instance to preserve their overriding status.

There are five categories of overriding interests grouped together under a miscellaneous heading in Schedule 1, paragraphs 10–14 of the 2002 Act. These are rare, of ancient origin, and not always easy to discover. They have maintained their overriding status in the same way as under the Land Registration Act 1925 and are as follows: a franchise; a manorial right; a right to rent reserved to the Crown on the granting of any freehold estate (whether or not the right continues to be vested in the Crown); a non-statutory right in relation to an embankment or sea or river wall; and a right to payment in lieu of tithe (corn rents).

Maintaining these miscellaneous items as overriding interests had been thought unpopular, but the Law Commission concluded that to abolish their overriding status immediately might risk a contravention of the right to property under the European Convention on Human Rights. Therefore, the 2002 Act provides that these rights will cease to have overriding status ten years after the Act comes into force. In the meantime, s. 117 of the Act allows persons with the benefit of those rights to protect them during the ten-year period without charge. This can be achieved by entering a caution against first registration (for unregistered land) or an entry on the register (for registered land). If the interests are protected in this way, any intending buyer of the subject property will be made aware of them.