Learning Outcomes
After reading this article, you will be able to explain how equitable interests in land are created and transferred, identify the statutory formalities required for valid dispositions, distinguish between legal and equitable interests, and apply the rules of overreaching and priority in both registered and unregistered land. You will also be able to advise on the enforceability of equitable rights against third parties, a core requirement for SQE1.
SQE1 Syllabus
For SQE1, you are required to understand the creation and transfer of equitable rights in land, including the relevant statutory formalities and the effect of overreaching. In your revision, focus on:
- the distinction between legal and equitable interests in land
- the statutory requirements for the valid transfer of equitable interests (including writing and signature)
- how overreaching operates to protect purchasers and affect beneficiaries
- the rules governing priority and protection of equitable interests in both registered and unregistered land
- the consequences of failing to comply with formalities or registration requirements.
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.
- What statutory provision requires dispositions of existing equitable interests to be in writing and signed?
- What is overreaching, and when does it occur?
- In unregistered land, what is the effect of failing to register an equitable interest as a land charge?
- True or false? A resulting trust must always be evidenced in writing to be valid.
Introduction
Equitable rights in land arise when legal formalities are not fully satisfied, or when the law recognises fairness-based claims. Understanding how these interests are created, transferred, and protected is essential for SQE1. This article explains the formal requirements for transferring equitable rights, the operation of overreaching, and the rules that determine whether an equitable interest will bind a purchaser.
Creation and Nature of Equitable Interests
Equitable interests are property rights recognised by equity, often when legal requirements are not met or when fairness demands protection.
Key Term: equitable interest A property right in land recognised by equity, enforceable against the legal owner and sometimes against third parties.
Equitable interests commonly arise from trusts (express, resulting, or constructive), estate contracts, restrictive covenants, or failed attempts to create legal rights.
Key Term: express trust A trust intentionally created by the legal owner, usually in writing, specifying who holds the beneficial interest in land.
Key Term: resulting trust A trust arising automatically when someone contributes to the purchase price of land but is not named as a legal owner.
Key Term: constructive trust A trust imposed by the court to prevent unjust enrichment, often where there is a common intention or detrimental reliance.
Formalities for Transfer of Equitable Interests
The transfer (disposition) of an existing equitable interest is subject to strict statutory requirements.
Key Term: disposition of an equitable interest Any act that transfers, assigns, or otherwise deals with an existing equitable interest in land.
Statutory Writing Requirement
Section 53(1)(c) of the Law of Property Act 1925 requires that any disposition of an existing equitable interest must be:
- in writing; and
- signed by the person disposing of the interest or their authorised agent.
Failure to comply renders the disposition void.
Key Term: s 53(1)(c) Law of Property Act 1925 The statutory rule that a disposition of an existing equitable interest must be in writing and signed to be valid.
Exceptions
Section 53(2) LPA 1925 provides that the writing requirement does not apply to resulting, implied, or constructive trusts. These arise automatically by operation of law and do not require formal documentation.
Key Term: s 53(2) Law of Property Act 1925 The statutory exception that resulting, implied, and constructive trusts do not require writing or signature to be valid.
Methods of Transfer
Equitable interests can be transferred by:
- Assignment: The beneficiary assigns their interest to another, complying with s 53(1)(c).
- Declaration of trust: The legal owner declares they now hold the beneficial interest for another.
- Sub-trust: The beneficiary declares a new trust of their own equitable interest.
Key Term: assignment (of equitable interest) The transfer of an existing equitable interest by the beneficiary to another person, requiring writing and signature.
Worked Example 1.1
A is the beneficiary under a trust of land. She wishes to assign her interest to B. She writes and signs a letter to the trustees stating she assigns her interest to B. Is this valid?
Answer: Yes. The assignment is in writing and signed by A, satisfying s 53(1)(c) LPA 1925.
Overreaching
Overreaching is a statutory mechanism that removes certain equitable interests from land and attaches them to the proceeds of sale, protecting purchasers.
Key Term: overreaching The process by which a purchaser who pays capital money to at least two trustees takes land free of beneficial interests, which transfer to the sale proceeds.
When Does Overreaching Occur?
Overreaching occurs when:
- There is a sale, mortgage, or lease of land;
- Capital money is paid to at least two trustees (or a trust corporation).
If these conditions are met, the purchaser takes the land free of the equitable interests, which are instead attached to the money received by the trustees.
Worked Example 1.2
C and D are trustees of land. E is a beneficiary in actual occupation. C and D sell the land to F, who pays the purchase price to both trustees. Is E's interest overreached?
Answer: Yes. The purchase money was paid to two trustees, so E's equitable interest is overreached and attaches to the proceeds, not the land.
Exceptions to Overreaching
Overreaching will not occur if:
- The purchase money is paid to only one trustee;
- The interest is not capable of being overreached (e.g., certain commercial equitable interests).
In such cases, the equitable interest may bind the purchaser if protected as an overriding interest (in registered land) or by registration (in unregistered land).
Exam Warning
If purchase money is paid to a single trustee, overreaching does not occur. The purchaser may then be bound by the equitable interest if it is protected as an overriding interest or by registration.
Priority and Protection of Equitable Interests
The enforceability of an equitable interest against a purchaser depends on the system of title (registered or unregistered) and compliance with registration requirements.
Registered Land
- Equitable interests should be protected by entry of a notice or restriction on the register.
- Some interests (e.g., beneficial interests under a trust) may be protected as overriding interests if the beneficiary is in actual occupation.
- If not protected, the interest may lose priority to a purchaser for value.
Key Term: notice (registered land) An entry on the register protecting an interest in land, ensuring it binds future purchasers.
Unregistered Land
- Most equitable interests must be registered as land charges against the name of the estate owner.
- Failure to register (where required) renders the interest void against a purchaser for value.
- Some interests (e.g., beneficial interests under a trust) are not registrable and are protected by the doctrine of notice or overreaching.
Key Term: land charge A registration of an equitable interest in unregistered land, required for enforceability against purchasers.
Worked Example 1.3
G is the beneficiary of an equitable mortgage over unregistered land but fails to register it as a land charge. H later buys the land for value. Is G's interest enforceable against H?
Answer: No. Failure to register the equitable mortgage as a land charge means it is void against a purchaser for value.
Consequences of Failing to Comply with Formalities
- If a disposition of an equitable interest does not comply with s 53(1)(c), it is void.
- If an equitable interest is not registered as required, it may be unenforceable against a purchaser.
- If overreaching does not occur, the purchaser may be bound by the equitable interest if it is protected as an overriding interest or by registration.
Revision Tip
Always check whether the statutory formalities for transferring an equitable interest have been met, and whether overreaching or registration requirements apply.
Key Point Checklist
This article has covered the following key knowledge points:
- Equitable interests arise where legal formalities are not fully satisfied or where equity recognises fairness-based claims.
- Dispositions of existing equitable interests must comply with s 53(1)(c) LPA 1925 (writing and signature), unless resulting, implied, or constructive trusts apply.
- Overreaching removes certain equitable interests from land when capital money is paid to at least two trustees.
- In registered land, equitable interests should be protected by notice or restriction; in unregistered land, most must be registered as land charges.
- Failure to comply with formalities or registration requirements may render an equitable interest unenforceable against a purchaser.
- Overreaching does not occur if purchase money is paid to a single trustee; in such cases, the equitable interest may bind the purchaser if protected.
Key Terms and Concepts
- equitable interest
- express trust
- resulting trust
- constructive trust
- disposition of an equitable interest
- s 53(1)(c) Law of Property Act 1925
- s 53(2) Law of Property Act 1925
- assignment (of equitable interest)
- overreaching
- notice (registered land)
- land charge
