Registration of title and protection of interests - The rules for priority of interests in registered land

Learning Outcomes

After studying this article, you will be able to explain the statutory rules for priority of interests in registered land under the Land Registration Act 2002, including the distinction between the basic and special priority rules, the effect of registration, and the operation of overriding interests. You will also be able to identify and apply the requirements for protection of third-party rights, especially those relating to actual occupation, in SQE1-style scenarios.

SQE1 Syllabus

For SQE1, you are required to understand the rules for priority of interests in registered land, including the statutory framework and practical implications for purchasers and third parties. As you revise this topic, focus on:

• the effect of registration and the statutory rules for priority of interests in registered land (LRA 2002, ss 28–29)
• the concept and categories of overriding interests (Schedule 3 LRA 2002)
• the requirements for protection of third-party interests, including notices and restrictions
• the significance of actual occupation and its impact on priority
• how to apply these rules to determine which interests bind a purchaser

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. What is the effect of section 29 of the Land Registration Act 2002 on a purchaser for valuable consideration who registers their disposition?
2. Which of the following is an overriding interest under Schedule 3 LRA 2002? a) a legal lease for 10 years b) a restrictive covenant protected by notice c) a right of a person in actual occupation d) a puisne mortgage
3. True or false? An unregistered equitable easement created after 13 October 2003 will always bind a purchaser of registered land.
4. In what circumstances will a beneficial interest under a trust override a registered disposition?

Introduction

The Land Registration Act 2002 (LRA 2002) sets out the rules for determining which interests in registered land take priority and bind a purchaser. Understanding these rules is essential for advising clients on the security of their title and the enforceability of third-party rights. This article explains the statutory priority rules, the role of registration, and the operation of overriding interests, with a focus on the requirements for protection and the practical consequences for purchasers and third parties.

The Mirror, Curtain, and Insurance Principles

The LRA 2002 is built on three main principles:

Key Term: mirror principle
The register should reflect all rights and interests affecting the land, so a purchaser can rely on the register as a complete record.

Key Term: curtain principle
Certain equitable interests (such as those under a trust) are kept off the register and do not need to be investigated by a purchaser, provided overreaching applies.

Key Term: insurance principle
The state guarantees the accuracy of the register and provides compensation (indemnity) for loss caused by mistakes in registration.

Statutory Priority Rules: Sections 28 and 29 LRA 2002

The LRA 2002 sets out two main rules for priority of interests in registered land.

Key Term: basic priority rule (s 28 LRA 2002)
Interests rank in order of creation: earlier interests have priority over later ones, regardless of registration.

Key Term: special priority rule (s 29 LRA 2002)
A purchaser for valuable consideration who registers their disposition takes the land free of all pre-existing interests except those protected on the register or overriding interests.

Section 28 applies to non-purchasers (e.g. donees, devisees) and means that all prior interests bind the new owner. Section 29 protects purchasers for value who register their disposition, giving them priority over unprotected interests.

Protection of Third-Party Interests

To ensure that an interest binds a purchaser under section 29, it must be either:

• protected by a notice on the register (e.g. restrictive covenants, equitable easements), or
• qualify as an overriding interest under Schedule 3 LRA 2002.

Key Term: notice
An entry in the charges register protecting a third-party interest so it binds a purchaser.

Key Term: restriction
An entry in the proprietorship register limiting the registered proprietor's ability to deal with the land, often used to protect beneficial interests under a trust.

Worked Example 1.1

Olivia grants an option to purchase her registered freehold to Noah in January. In March, she sells and transfers the land to Liam, who pays valuable consideration and registers the transfer. Noah did not enter a notice on the register. Can Noah enforce his option against Liam?

Answer: No. Under section 29, Liam takes free of Noah's unprotected option, as it was not protected by notice and is not an overriding interest.

Overriding Interests: Schedule 3 LRA 2002

Some interests bind a purchaser even if not protected on the register. These are called overriding interests.

Key Term: overriding interest
A right or interest that binds a purchaser of registered land even if not entered on the register, as listed in Schedule 3 LRA 2002.

The main categories are:

• legal leases granted for seven years or less
• legal easements and profits à prendre (if known to the purchaser, obvious on inspection, or used within the last year)
• rights of persons in actual occupation

Actual Occupation

The most significant overriding interest is the right of a person in actual occupation.

Key Term: actual occupation
Physical presence on the land that is sufficiently permanent and apparent, giving the occupier's proprietary interest overriding status if certain conditions are met.

To override, the person must:

• have a proprietary interest (e.g. beneficial interest under a trust)
• be in actual occupation at the time of the disposition
• have occupation that is obvious on inspection or known to the purchaser, unless the purchaser made reasonable enquiry and the interest was not disclosed

Worked Example 1.2

Daniel is the sole registered proprietor of Blueacre. His sister Emma has a beneficial interest under a trust and lives in the property. Daniel mortgages Blueacre to a bank without Emma's knowledge. Daniel defaults, and the bank seeks possession. Is Emma's interest binding on the bank?

Answer: Yes, if Emma was in actual occupation at the time of the mortgage and her occupation was obvious or known to the bank, her interest overrides the bank's charge.

Exam Warning

Purchasers must make careful enquiries and inspect the property. If a person in occupation fails to disclose their interest when asked, their overriding status may be lost.

The Role of Overreaching

Overreaching allows a purchaser to take free of certain equitable interests (such as beneficial interests under a trust) if the purchase money is paid to at least two trustees.

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

If overreaching occurs, the equitable interest does not override and the purchaser is not bound.

Worked Example 1.3

Sophie and Tom are trustees of registered land held on trust for their parents. They sell the land to a buyer, who pays the purchase price to both trustees. Do the parents' equitable interests bind the buyer?

Answer: No. The parents' interests are overreached and attach to the purchase money, so the buyer takes free of them.

Protection by Notice and Restriction

Most third-party interests should be protected by entering a notice or restriction on the register.

• A notice protects the priority of most interests (e.g. restrictive covenants, equitable easements, options).
• A restriction is used to control dispositions, often to ensure overreaching occurs or to protect a beneficiary's interest under a trust.

If an interest is not protected and does not override, it will be lost against a purchaser for value who registers their disposition.

Revision Tip

Always check whether an interest is protected by notice, restriction, or overriding status. If not, it may be lost on a sale.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• The LRA 2002 sets out statutory rules for priority of interests in registered land.
• Section 28 applies the basic rule: earlier interests have priority.
• Section 29 gives special protection to purchasers for value who register their disposition.
• Most interests must be protected by notice or restriction to bind a purchaser.
• Overriding interests (Schedule 3) bind even if not registered, including actual occupation.
• Overreaching removes certain equitable interests if purchase money is paid to two trustees.
• If an interest is not protected and does not override, it will be lost on a sale for value.

Key Terms and Concepts

• mirror principle
• curtain principle
• insurance principle
• basic priority rule (s 28 LRA 2002)
• special priority rule (s 29 LRA 2002)
• notice
• restriction
• overriding interest
• actual occupation
• overreaching