Registration of title and protection of interests - Interests that override registration

Learning Outcomes

This article outlines the concept of overriding interests within the registered land system of England and Wales. After studying this material, you should be able to identify the main categories of overriding interests under the Land Registration Act 2002, particularly those listed in Schedule 3 which affect registered dispositions. You will understand the requirements for these interests to be binding on a purchaser despite not being entered on the register, focusing on short leases, the interests of persons in actual occupation, and certain legal easements. This knowledge is essential for applying the principles of registered land priority rules in SQE1 assessment scenarios.

SQE1 Syllabus

For SQE1, you are required to understand how third-party interests are protected in registered land and which interests can bind a purchaser even without registration. A key area is identifying interests that override registered dispositions under Schedule 3 of the Land Registration Act 2002. Your revision should focus on:

• The principle of overriding interests as an exception to the mirror principle.
• The specific categories of overriding interests detailed in Schedule 3 LRA 2002.
• The requirements for short legal leases (Sch 3, para 1) to override.
• The detailed requirements for interests belonging to persons in actual occupation (Sch 3, para 2) to override, including the meaning of 'interest', 'actual occupation', and the relevant exceptions.
• The specific conditions under which implied or prescriptive legal easements and profits à prendre (Sch 3, para 3) override.
• The interaction between overriding interests and the concept of overreaching.

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 of the following interests cannot override a registered disposition under Schedule 3 LRA 2002?
   1. A legal lease granted for a term of five years.
   2. A restrictive covenant protected by notice on the register.
   3. An equitable interest belonging to a person in actual occupation (subject to exceptions).
   4. An implied legal easement that is obvious on a reasonably careful inspection.
2. For an interest to override under Schedule 3, paragraph 2 LRA 2002 (actual occupation), which two elements must be present?
   1. A legal interest and physical presence.
   2. A proprietary interest and actual occupation at the time of disposition.
   3. A personal right and continuous occupation.
   4. An equitable interest and the purchaser having notice.
3. A person buys a registered freehold property. They discover the neighbour has been using a clearly visible track across the property for the last 15 years without permission. The neighbour's right was not mentioned on the register. Is the purchaser likely bound by this right of way?
   1. No, because the right was not registered as a notice.
   2. Yes, if it is a legal easement acquired by prescription and obvious on inspection.
   3. No, because easements must be expressly granted to bind purchasers.
   4. Yes, but only if the purchaser had actual knowledge of the use before buying.

Introduction

The system of registered land, primarily governed by the Land Registration Act 2002 (LRA 2002), aims to provide a clear and comprehensive record of land ownership and the rights affecting it. This is often referred to as the 'mirror principle' – the register should accurately reflect the reality of the title. However, certain interests can bind a purchaser of registered land even though they are not recorded on the register. These are known as 'unregistered interests which override' or, more commonly, 'overriding interests'. Understanding these interests is important because they represent a significant exception to the general principle that a purchaser takes free from any rights not entered on the register. This article focuses on those interests which override registered dispositions under Schedule 3 LRA 2002.

Key Term: Overriding Interests
Proprietary rights that bind a purchaser of registered land even though they are not protected by an entry on the register of title.

OVERRIDING INTERESTS UNDER LRA 2002

The LRA 2002 categorises overriding interests into two lists: those which override first registration (Schedule 1) and those which override a registered disposition (Schedule 3). A registered disposition typically refers to the transfer or creation of an interest (like a sale or a mortgage) relating to land whose title is already registered. Our focus here is on Schedule 3, which affects purchasers acquiring already registered land.

The policy behind allowing certain interests to override without registration often relates to the practicality or desirability of registration. Some rights, like short leases, are common and numerous, making registration burdensome. Others, like the rights of those in occupation, may be discoverable by physical inspection of the land. The LRA 2002 aimed to reduce the number and scope of overriding interests compared to the previous LRA 1925, enhancing the reliability of the register.

CATEGORIES OF INTERESTS WHICH OVERRIDE REGISTERED DISPOSITIONS (SCHEDULE 3 LRA 2002)

Schedule 3 LRA 2002 details the specific categories of interests that override subsequent registered dispositions (e.g., sale, charge) of the registered estate. We will examine the most significant categories for the SQE1 exam.

Legal Leases Not Exceeding Seven Years (Paragraph 1)

This category covers most short legal leases.

Key Term: Legal Lease
A leasehold estate created with the necessary formality (usually a deed, unless the parol lease exception applies) that is capable of existing as a legal estate under s.1(1)(b) LPA 1925.

Paragraph 1 provides that a legal leasehold estate granted for a term not exceeding seven years will override a registered disposition. This includes:

• Fixed-term leases granted for seven years or less.
• Periodic tenancies (weekly, monthly, yearly etc.), as each period is treated as a lease for that duration.
• Legal leases arising under the 'parol lease' exception in s.54(2) LPA 1925 (leases taking effect in possession, for three years or less, at the best rent reasonably obtainable, without taking a fine).

Certain types of leases are excluded, even if for seven years or less, such as certain leases registrable in their own right (e.g., some shared ownership leases) or leases taking effect in possession more than three months after the date of grant.

Worked Example 1.1

Aisha grants Ben a legal lease of a registered flat for five years by deed. Ben moves in. Aisha then sells the freehold reversion to Chen, who registers as the new proprietor. Chen was unaware of Ben's lease as it was not noted on the register. Is Chen bound by Ben's lease?

Answer: Yes. Ben has a legal lease granted for a term not exceeding seven years. Under Sch 3, para 1 LRA 2002, this lease is an overriding interest and binds Chen, the purchaser, despite its absence from the register.
Key Term: Proprietary Interest
A right relating to land which has the character of property, as opposed to a purely personal right. Examples include beneficial interests under a trust, options to purchase, or equitable leases. Personal rights, like licences, do not qualify.
Key Term: Actual Occupation
Requires physical presence on the land, which must have a degree of permanence and continuity. It is a question of fact in each case.

Exceptions under Paragraph 2

Even if a person has a proprietary interest and is in actual occupation, the interest will not override in two specific situations:

1. Failure to disclose: If inquiry was made of the person claiming the interest before the disposition, and they failed to disclose the right when they could reasonably have been expected to do so (Sch 3, para 2(b)).
2. Occupation not obvious AND purchaser lacks knowledge: If the person’s occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, AND the person acquiring the interest (the purchaser) did not have actual knowledge of the interest at that time (Sch 3, para 2(c)). Both parts of this condition must be met for the exception to apply.

This second exception aims to protect purchasers from undiscoverable rights. If occupation is obvious, the purchaser is expected to make inquiries. If occupation is not obvious, the interest only binds if the purchaser actually knew about the interest.

Worked Example 1.2

David holds the registered freehold title to a house. His partner, Chloe, contributed significantly to the purchase price, giving her a beneficial interest under a trust. Chloe lives in the house with David. David secretly mortgages the house to Bank plc. The Bank did not inspect the property before advancing the loan. Is the Bank bound by Chloe’s interest?

Answer: Yes, likely. Chloe has a proprietary interest (beneficial interest under a trust) and is in actual occupation. Her occupation would likely be obvious on a reasonably careful inspection. As the bank did not inspect, they cannot rely on the exception in Sch 3, para 2(c). Chloe's interest overrides the bank's registered charge. (Note: This assumes Chloe's interest was not overreached)

Worked Example 1.3

Same facts as Example 1.2, but assume Chloe was temporarily staying with her sick mother for two weeks when David granted the mortgage and when the Bank's surveyor briefly inspected the exterior only. Chloe's clothes and possessions remained in the house. The Bank's surveyor saw no signs of female occupation from the outside. The Bank had no actual knowledge of Chloe's interest. Is the Bank bound?

Answer: This is more complex. Chloe likely remains in actual occupation due to her intention to return and presence of belongings. However, if her occupation was not obvious on a reasonably careful inspection (which might be argued given the surveyor's limited inspection and absence of obvious signs), AND the Bank had no actual knowledge of her interest, then her interest would not override under Sch 3, para 2(c). The outcome depends on the specific facts regarding the 'obviousness' of her occupation.

Exam Warning

Remember that beneficial interests under a trust, while potentially overriding under Sch 3, para 2, can be overreached if the disposition (e.g., sale or mortgage) involves payment of capital money to at least two trustees or a trust corporation (ss. 2 & 27 LPA 1925). If overreaching occurs, the beneficial interest detaches from the land and attaches to the money paid, meaning it cannot override the purchaser's or mortgagee's interest, regardless of actual occupation. Always check if overreaching applies, especially when there are two or more legal owners involved in the transaction.

Legal Easements and Profits à Prendre (Paragraph 3)

This paragraph provides limited overriding status for certain legal easements and profits à prendre.

Crucially, paragraph 3 does not apply to legal easements or profits that were expressly granted or reserved out of a registered estate after 13 October 2003. These require registration under s.27 LRA 2002 to be legal and binding.

Paragraph 3 primarily protects:

• Legal easements or profits created by implication (e.g., by necessity, common intention, under Wheeldon v Burrows, or s.62 LPA 1925).
• Legal easements or profits acquired by prescription (long use).

These types of legal easements/profits will override a registered disposition only if one of the following conditions is met:

• The easement/profit would have been obvious on a reasonably careful inspection of the land; OR
• The person entitled to the easement/profit proves it has been exercised in the period of one year ending with the day of the disposition; OR
• The easement/profit was known about by the person to whom the disposition was made (actual knowledge).

An easement/profit registered under the Commons Registration Act 1965 also overrides, but this is rare. Equitable easements cannot override under this paragraph; they require protection by notice.

Revision Tip

The scope of Schedule 3, paragraph 3 is narrow. It excludes expressly created legal easements (which need registration) and all equitable easements (which need protection by notice). It mainly saves certain implied and prescriptive legal easements from being defeated by a sale, provided one of the specified conditions (obviousness, recent use, or actual knowledge) is met.

DISCLOSURE AND PROTECTION OF OVERRIDING INTERESTS

While overriding interests bind purchasers without registration, the LRA 2002 encourages their entry onto the register to improve the accuracy of the mirror principle. Under section 71 LRA 2002, applicants for registration (e.g., a purchaser applying to register their transfer) have a duty to disclose any overriding interests of which they are aware. If disclosed, the Land Registrar can then note these interests on the register, usually by way of a Notice. Once noted, the interest ceases to be overriding and binds simply because it is registered. However, failure to disclose does not prevent a qualifying interest from overriding.

Summary

• Overriding interests bind purchasers of registered land despite not being on the register (LRA 2002, Sch 3).
• Short Legal Leases (Sch 3, para 1): Legal leases granted for 7 years or less generally override.
• Actual Occupation (Sch 3, para 2): Protects proprietary interests of those in discoverable actual occupation at the time of disposition, unless specific exceptions apply (failure to disclose on enquiry, or occupation not obvious and purchaser lacks actual knowledge). Overreaching can defeat these interests.
• Certain Legal Easements (Sch 3, para 3): Implied and prescriptive legal easements/profits override if obvious on inspection, known to purchaser, or recently exercised. Express legal easements require registration. Equitable easements require a Notice.

Key Point Checklist

This article has covered the following key knowledge points:

• Overriding interests are rights binding on registered land without appearing on the register.
• They are an exception to the 'mirror principle' of land registration.
• Schedule 3 LRA 2002 lists interests overriding registered dispositions.
• Key categories include short legal leases (≤ 7 years), interests of persons in actual occupation, and certain implied/prescriptive legal easements/profits.
• Actual occupation requires a proprietary interest plus sufficient physical presence.
• Exceptions to overriding status via actual occupation exist (non-disclosure on enquiry, non-obvious occupation + no actual knowledge).
• Overreaching (payment to two+ trustees) defeats beneficial interests under trusts, even if coupled with actual occupation.
• Implied/prescriptive legal easements override only if specific conditions (obvious, known, recent use) are met.
• Express legal easements and equitable easements require registration/notice for protection.

Key Terms and Concepts

• Overriding Interests
• Legal Lease
• Proprietary Interest
• Actual Occupation