Acquisition and transfer of estates and interests - Legal fo...

Learning Outcomes

This article explains the legal formalities required to create and transfer estates and interests in land for the SQE1 FLK2 exam, including:

• the distinction between legal estates, legal interests and equitable interests, and why the distinction matters for enforceability and exam problem questions
• the statutory requirements for creating and transferring legal estates and interests, focusing on deeds, valid execution and delivery
• how equitable interests arise, are documented, and are protected where formalities for legal rights are not satisfied
• the consequences of non-compliance with deed, writing and registration requirements, including conversion to equitable rights or total failure
• the operation and limits of short legal leases without a deed under section 54(2) LPA 1925, and how they are examined
• contracts for dispositions of land and variations under section 2 LPMPA 1989, and their relationship with equitable interests (Walsh v Lonsdale)
• priority rules in registered land under sections 28 and 29 LRA 2002, and how purchasers for value can take free of unprotected interests
• the nature of overriding interests in registered land, particularly actual occupation, and their interaction with overreaching
• how overreaching can remove beneficial interests from the land when capital money is paid to two trustees or a trust corporation
• structured approaches for applying these formalities and priority rules to SQE1-style multiple-choice and scenario questions

SQE1 Syllabus

For SQE1, you are required to understand the legal processes and formalities for creating and transferring estates and interests in land, with a focus on the following syllabus points:

• the two legal estates in land (freehold and leasehold) and how they are created and transferred
• the distinction between legal and equitable interests, including how equitable interests arise
• the statutory requirements for deeds and registration under the Law of Property Act 1925 and Land Registration Act 2002
• the effect of failing to comply with formalities (e.g. resulting in equitable interests only)
• the operation of overreaching and its impact on purchasers
• how equitable interests are protected, including the use of notices, restrictions, and the doctrine of actual occupation
• short legal leases without a deed (section 54(2) LPA 1925) and their limits
• contracts for dispositions of land (section 2 LPMPA 1989), including variations
• priority rules and purchasers for value (sections 28 and 29 LRA 2002) and their interaction with notices/restrictions
• the protection of rights in unregistered land by Land Charges and the impact of failing to register

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which two legal estates can exist in land under English law?
2. What are the minimum requirements for a valid deed?
3. What is the effect of failing to register a registrable disposition of a legal estate?
4. How can a purchaser take land free of certain equitable interests?
5. What is overreaching and when does it apply?

Introduction

The creation and transfer of estates and interests in land are subject to strict legal formalities. These requirements are designed to ensure certainty, protect parties, and maintain a reliable system of land ownership. For SQE1, you must be able to identify the correct formalities for different types of estates and interests, understand the distinction between legal and equitable rights, and apply the relevant statutory rules to practical scenarios. It is essential to distinguish proprietary rights (which may bind third parties) from personal rights (licences), and to identify when formalities produce a legal right at the moment of creation and when failure pushes the right into equity or leaves only a personal permission.

Key Term: freehold estate
A freehold estate (fee simple absolute in possession) is ownership of land for an unlimited duration, with the right to possess and use the land immediately.

Key Term: leasehold estate
A leasehold estate (term of years absolute) is the right to possess and use land for a fixed, certain period, after which possession reverts to the freeholder.

Legal estates must be created and transferred by deed, and, for registered land, must be registered to take effect at law.

Legal Estates in Land

There are only two types of legal estate in land that can exist or be created:

• the estate in fee simple absolute in possession (freehold)
• the term of years absolute (leasehold)

An estate is best understood as a “slice of time” in land. The “in possession” element denotes an immediate right to enjoy the land (which includes receipt of rent), rather than a future entitlement. Life interests and other successive interests now generally arise as equitable interests under trusts of land rather than as legal estates, but the formalities for dispositions and protection remain critical.

Legal Formalities: Deeds

Most legal estates and interests must be created or transferred by deed. The requirements for a valid deed are set out in statute.

Key Term: deed
A deed is a written document that must state it is a deed, be signed by the executing party in the presence of a witness, and be delivered as a deed.

The core rules are:

• section 52(1) Law of Property Act 1925: a legal estate or interest must be created or conveyed by deed, unless an exception applies
• section 1 Law of Property (Miscellaneous Provisions) Act 1989: the instrument must make clear it is a deed, be validly executed (signed and witnessed) and delivered as a deed

Common transactions requiring a deed include transfers of freehold, the grant or assignment of a lease for more than three years, the grant of a legal mortgage/charge, and the express grant or reservation of legal easements and profits.

An important exception is the short legal lease:

• section 54(2) LPA 1925 permits creation of a legal lease for three years or less without a deed if it takes effect in possession at the best rent reasonably obtainable and without a fine or premium. This exception covers many periodic tenancies (for example monthly periodic tenancies), provided they meet the statutory conditions.

Where a deed is required and not used, the intended legal right cannot be legal. Depending on the circumstances, equity may recognise an equivalent equitable right if there is a valid, specifically enforceable contract.

Key Term: equitable interest
A right in land recognised and enforced by equity, often arising where legal formalities are not met or where the right is not capable of being legal.

Worked Example 1.1

Scenario:
Sarah wants to grant a 10-year lease of her shop to Tom. They sign a simple contract, but do not execute a deed.

Answer:
The lease will not be a legal estate, as it was not created by deed. If the contract is valid and specifically enforceable, Tom may have an equitable lease only.

Contracts for dispositions of land must satisfy section 2 LPMPA 1989 (in writing, containing all the expressly agreed terms, signed by both parties). Any variation of such a contract must also comply with section 2. Where a valid contract exists and specific performance would be granted (equity requires “clean hands”), equity may treat as done that which ought to be done (Walsh v Lonsdale) and recognise the equitable right.

Registration of Estates and Interests

For registered land, certain transactions must be registered to take effect at law. This is known as substantive registration.

Key Term: substantive registration
The process by which a legal estate or registrable interest is entered on the register, making it effective at law.

Section 27 LRA 2002 lists “registrable dispositions” that must be completed by registration. These include:

• transfer of a registered freehold or leasehold estate
• grant of a legal lease for a term of more than seven years (and certain shorter leases that take effect more than three months after grant)
• grant or reservation of express legal easements and profits
• grant of a legal charge (mortgage)

If a registrable disposition is not registered, section 27(1) LRA 2002 provides that it does not operate at law, even if the deed is valid. The transferee or grantee will hold an equitable interest only until registration.

Priority of rights in registered land is governed by sections 28 and 29 LRA 2002:

• section 28 states the basic priority rule: priority is determined by date of creation for dispositions not made for valuable consideration (e.g. gifts or inheritances)
• section 29 states the special priority rule: a registered disposition for valuable consideration takes subject only to interests protected on the register (registered charges and notices), and to overriding interests listed in Schedule 3. Unprotected interests lose priority against such a purchaser.

Key Term: notice (registered land)
An entry on the register protecting an interest in land, ensuring it binds future purchasers.

Key Term: restriction (registered land)
An entry on the register limiting the owner's ability to deal with the land, often used to protect beneficial interests under a trust.

A notice (section 32 LRA 2002) protects the priority of an interest. Restrictions (section 40 LRA 2002) control how dispositions can be registered; for example, a Form A restriction ensures that dispositions by a sole proprietor under which capital money arises will not be registered unless overreaching can occur (payment to two trustees or a trust corporation).

Worked Example 1.2

Scenario:
A freehold owner transfers her property to a buyer by deed, but the buyer fails to register the transfer.

Answer:
The buyer acquires only an equitable interest. The legal estate remains with the seller until registration is completed.

Worked Example 1.3

Scenario:
Bella has an unregistered option to purchase a registered freehold (granted by deed), and later Ami purchases the freehold for market value. Bella did not enter a notice on the register before Ami’s purchase.

Answer:
Against a purchaser for valuable consideration, an unprotected registrable interest loses priority under section 29 LRA 2002. Bella’s option will not bind Ami unless it was protected by a notice or qualifies as an overriding interest (options generally do not).

Equitable Interests in Land

Equitable interests arise in several ways, including:

• where the formalities for a legal estate or interest are not satisfied (e.g. no deed or no registration)
• where the right is not capable of being legal (e.g. a restrictive covenant or a beneficial interest under a trust)
• by operation of equity (e.g. resulting or constructive trusts, proprietary estoppel)

Typical equitable rights include:

• equitable leases (arising under a valid, specifically enforceable contract)
• equitable easements or profits (e.g. created by contract but not by deed or arising in ways confined to equity)
• estate contracts (options, rights of pre-emption)
• restrictive covenants (equitable by nature)
• beneficial interests under trusts (express, resulting or constructive)
• equitable mortgages (e.g. where there is a valid contract to create a mortgage but no deed, or a mortgage of an equitable estate)

Key Term: resulting trust
A trust imposed by law when one person provides the purchase money for property held in another's name, presuming an intention to retain a beneficial interest.

Key Term: constructive trust
A trust imposed by law to reflect the parties' common intention or to prevent unconscionable conduct, often where someone has contributed to the acquisition or improvement of property.

Key Term: proprietary estoppel
An equitable remedy preventing a landowner from denying rights to someone who has relied on an assurance and acted to their detriment.

Express trusts of land must be evidenced in writing signed by the settlor (section 53(1)(b) LPA 1925). Dispositions of existing equitable interests must be in writing signed by the person disposing (section 53(1)(c) LPA 1925). Implied trusts (resulting and constructive) arise without formal written evidence (section 53(2) LPA 1925).

Where the parties intended a legal right, but the deed or registration is defective, equity may recognise an equivalent equitable right if there is a valid contract complying with section 2 LPMPA 1989 and specific performance is available (Walsh v Lonsdale; Parker v Taswell). Equity will decline relief if the claimant has not behaved equitably (Coatsworth v Johnson).

Worked Example 1.4

Scenario:
James pays the deposit for a house, but the property is registered in his partner's sole name. There is no written declaration of trust.

Answer:
James may have a beneficial interest under a resulting trust, proportionate to his contribution to the purchase price.

Worked Example 1.5

Scenario:
Priya is granted an option to buy an unregistered freehold by deed but fails to register the option as a Land Charge. The owner later sells to Zoe for £500 (well below market value).

Answer:
An option over unregistered land is a Class C(iv) Land Charge. If not registered before completion, it is void against a purchaser for money or money’s worth. The buyer’s knowledge is irrelevant (Midland Bank Trust Co Ltd v Green). Zoe takes free of Priya’s option.

Overreaching

Overreaching is a statutory mechanism that allows a purchaser to take land free of certain equitable interests, provided the purchase money is paid to at least two trustees or a trust corporation.

Key Term: overreaching
The process by which equitable interests in land are detached from the land and transferred to the purchase money when paid to two trustees or a trust corporation.

The legislative basis is section 2 and section 27 LPA 1925. If capital money is paid to two trustees or a trust corporation on a conveyance of a legal estate, equitable interests under a trust are removed from the land and instead attach to the proceeds. This protects purchasers and ensures that beneficial interests do not bind the land if the correct process is followed. Overreaching also operates on the grant of a legal charge by co-owners (City of London Building Society v Flegg).

Key points:

• payment must be to at least two trustees or a trust corporation
• it applies to overreachable interests (chiefly beneficial interests under trusts of land)
• if overreaching occurs, actual occupation does not preserve a beneficial interest against the purchaser

Worked Example 1.6

Scenario:
A house is held by two trustees on trust for themselves and a third person. The house is sold, and the purchase money is paid to both trustees.

Answer:
The third person's equitable interest is overreached and attaches to the sale proceeds. The buyer takes the house free of that interest.

Worked Example 1.7

Scenario:
A single trustee sells trust property and receives the purchase price alone. The beneficiary is in actual occupation.

Answer:
Overreaching does not occur if money is paid to only one trustee. The beneficiary’s interest may bind the purchaser as an overriding interest (subject to the Schedule 3 exceptions) if the beneficiary is in actual occupation at the time of the disposition.

Protection of Equitable Interests

Equitable interests must be protected to bind purchasers. In registered land, this is usually done by entering a notice or restriction on the register. Some interests may also be overriding if the holder is in actual occupation.

Key Term: overriding interest
An interest that binds a purchaser even if not registered, such as the rights of a person in actual occupation.

For registered land:

• protect most third-party rights by notice (section 32 LRA 2002). An agreed notice is entered with evidence of the interest; a unilateral notice can be made without the proprietor’s consent, but the registered proprietor can seek cancellation. The applicant must act with reasonable cause (section 77 LRA 2002).
• use restrictions to control registration of dispositions (section 40 LRA 2002). Restrictions can protect co-ownership arrangements (e.g. Form A) and other cases where consent or compliance is required before registration.

Short legal leases (seven years or less) are overriding interests (Schedule 3, para 1 LRA 2002). Rights of persons in actual occupation can be overriding (Schedule 3, para 2), subject to exceptions:

• if the purchaser made enquiries of the occupier and the occupier failed to disclose the right when reasonably expected to do so
• where occupation would not have been obvious on a reasonably careful inspection and the purchaser had no actual knowledge

Actual occupation is a question of fact, assessed at the time of the disposition. It normally requires physical presence or continuing presence evidenced by belongings and an intention to return. Relevant authorities include Williams & Glyn’s Bank v Boland (physical occupation), Chhokar v Chhokar (temporary absence did not prevent occupation), Link Lending v Bustard (occupation from a care setting due to intention to return and continuing connection), and Strand Securities v Caswell (occupation by another on one’s behalf is limited). The timing is important: in Abbey National v Cann, occupation must exist at the time of the disposition; preparatory steps alone do not suffice.

Legal easements and profits can override only in limited cases (Schedule 3, para 3):

• they must be legal easements/profits arising by implication or prescription (expressly created legal easements after 13 October 2003 are registrable and do not override)
• to override, they must be known to the purchaser, or obvious on a reasonably careful inspection, or have been exercised within one year before the disposition

Worked Example 1.8

Scenario:
Maria has a beneficial interest under a trust and is living in the property. The legal owner sells the property to a buyer, who does not check for other occupiers.

Answer:
Maria may have an overriding interest if she is in actual occupation. The buyer may be bound by her interest, unless it is overreached.

Worked Example 1.9

Scenario:
An easement of way was used frequently for the past year but was not expressly granted by deed. The servient land is sold to a purchaser who did not inspect the land.

Answer:
If the easement is legal by implication or prescription, it may override under Schedule 3 para 3 if it was exercised within the year before the disposition. If so, it binds the purchaser despite not being entered on the register.

Failure to Comply with Formalities

If the required formalities for a legal estate or interest are not satisfied, the right may still exist in equity if there is a valid contract and specific performance is available. If there is neither a valid deed nor a valid, specifically enforceable contract, no proprietary right arises: at most, the claimant has a personal licence or a claim framed in proprietary estoppel or constructive trust where the facts support it. For equitable interests and express trusts, the written evidence rules in section 53(1) LPA 1925 must be respected.

Failure to register a registrable disposition of a legal estate in registered land means the disposition is ineffective at law; the transferee has only an equitable interest. Failure to protect a registrable interest by notice can lead to loss of priority against a purchaser for value (section 29 LRA 2002). In unregistered land, many equitable rights must be protected by registering a Land Charge against the estate owner’s name; failure to do so generally renders the interest void against a purchaser for money or money’s worth (e.g. Class C(iv) for estate contracts, Class D(ii) for restrictive covenants, Class D(iii) for equitable easements).

Exam Warning

If a registrable disposition is not registered, the transferee acquires only an equitable interest. This can have serious consequences for priority and enforceability.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• There are only two legal estates in land: freehold and leasehold.
• Legal estates and most legal interests must be created and transferred by deed (section 52 LPA 1925) and comply with section 1 LPMPA 1989.
• Short leases for three years or less can be created legally without a deed if section 54(2) LPA 1925 conditions are met.
• For registered land, registrable dispositions must be registered to take effect at law (section 27 LRA 2002).
• Priority is governed by sections 28 and 29 LRA 2002: unprotected interests may lose priority against a purchaser for value.
• Failure to comply with formalities (deed or registration) usually results in an equitable interest only; without a valid, specifically enforceable contract, no proprietary right arises.
• Equitable interests arise where legal formalities are not met, or where the right is not capable of being legal (e.g. restrictive covenants, beneficial interests).
• Overreaching allows a purchaser to take land free of certain equitable interests if purchase money is paid to two trustees or a trust corporation.
• Equitable interests must be protected by notice or restriction in registered land; some interests may override by actual occupation.
• In unregistered land, many equitable interests must be protected by registering the appropriate Land Charge; failure to do so will usually render the right void against a purchaser for money or money’s worth.
• Legal easements expressly created post-2003 must be registered; implied/prescriptive legal easements may override if known, obvious, or used in the previous year.

Key Terms and Concepts

• freehold estate
• leasehold estate
• deed
• substantive registration
• equitable interest
• resulting trust
• constructive trust
• proprietary estoppel
• overreaching
• notice (registered land)
• restriction (registered land)
• overriding interest

Worked Example 1.10

Scenario:
Omar grants by deed a right of way over his registered land to Lina. The deed is never entered on the charges register. Omar later sells to Raj for market value.

Answer:
An express legal easement over registered land is a registrable disposition. If it is not completed by registration, it does not operate at law (section 27 LRA 2002). Lina will, at best, have an equitable easement; unless protected by a notice, it will lose priority against Raj under section 29 LRA 2002 and will not bind him.