The ‘curtain principle’ concerns a trust arising in registered land. The trustees are registered as proprietors of the legal estate, but as far as possible, references to the trust are kept off the register. The reason for keeping the beneficial interests off the title is that the trust interests can be overreached on subsequent dealings by the trustees. The effect of overreaching is that the disponee, by way of statute, takes an absolute priority over beneficial trusts already existing in land (City of London Building Society v Flegg), these rights in the land are not extinguished but shifted from the land to be attached to capital money arising out of the disposition. The transferee of land need not concern himself with previous beneficial rights as he has overreached them. In order to safeguard the rights which have been overreached the disponee must pay any capital to at least two trustees. Any non-compliance with this rule will mean that the disponee does not take free of trust equities, which may remain binding as an overriding interest as can be demonstrated in the case of Williams & Glyn’s Bank Ltd v Boland.
The ‘insurance principle’ is governed by the fact that the state guarantees the title as portrayed by the register. The title to an estate, as shown on the register, is liable to modification by rectification of the register. Rectification means that the register may be changed to correct a matter on the register under powers contained in s82 of the LPA 1925. Examples of rectification are those such as where an entry has been obtained by fraud (Re Leighton’s Conveyance), where two people are mistakenly registered as proprietor of the same estate or charge, where a legal estate has been registered in the name of a person who would not have been the estate owner if the land had not been registered (Chowood’s Registered Land) and where because of error or omission in the register or any mistaken entry it is deemed just to rectify (Goodger v Willis).
The effect of such rectification may be to deprive a person in whom a legal estate is vested of that estate. Any person who has innocently suffered loss by reason of the operation of the Land Register should receive compensation from public money. The Land Registration Act 1925 s83(1)–(2) and (4) makes provisions for the payment of indemnity in certain specified circumstances. Indemnity is available as a right of three kinds of cases. First, where the register is rectified, ‘any person suffering loss by reason of the rectification’ is entitled to be indemnified in respect of that loss. Secondly, if the person in whose favour the register is rectified suffers loss, irrespective of the rectification, they will be indemnified. Thirdly, where there is an ‘error or omission’ in the register and the Registrar decides not to correct the error or omission any person affected by this will be indemnified.
There are, however, numerous restrictions on the right to receive indemnity. Where a registered title is rectified to give effect to a subsisting overriding interest, the proprietor is ineligible for compensation, the reason for this is that the rectification confirms an existing entitlement and therefore inflicts no genuine loss on the proprietor (Chowood’s Registered Land where a person bought land which was already partially subject to a squatter’s right under the Limitation Acts). The argument being in this case that there can be no compensation where there has been no loss. The right to indemnity is also withheld where the claimant has suffered loss as a result of his own fraud or as a result of his own lack of proper care. This also applies where the applicant derives his title from the person who is guilty of fraud or lack of proper care, but not if the applicant is a person who is claiming under a disposition for value which is protected on the register or is registered.
It can be seen therefore, that although the three principles do indeed form the tripod on which land registration rests in England and Wales, the system is not perfect and certain rights are not registrable and may not be discovered even with the other checks available.
There are clearly circumstances in which the established principles do not assist an innocent purchaser of land nor compensate them for any loss which may arise from the system.
(b)
Many interests in land can be overriding. The importance of such overriding interests is that they are an exception to the principle that the register is a mirror image of title, and thus the register can not always be relied upon by any purchaser of land. There are several kinds of overriding interest that can remain undiscovered even by a purchaser who carefully inspects both land and title. These overriding interests are enforceable on any purchaser notwithstanding that they are not registered in any way. Therefore, they are important in that any purchaser of property, who has an interest in registered land, takes that interest subject to any overriding interest. It may be that the transferee who is innocently caught up by a virtually undiscoverable overriding interest does not qualify for any form of statutory compensation if the register is rectified to recognise the interest.
There are 12 groups of overriding interests specified in LRA 1925, s70(1), however, the most important categories are those appertaining to legal easements, rights acquired or being acquired under the Limitation Act, the rights of persons in actual occupation and legal leases for less than 21 years.
With regard to legal easements s70(1)(a) makes overriding interests of ‘profits and other easements not being equitable easements required to be protected by notice on the register.’ As a consequence of Celsteel Ltd v Alton House Holdings and Thatcher v Douglas, equitable easements may be protected as overriding interests. Previously in relation to registered land, until completion by registration, an easement was equitable and if it was equitable it could not be overriding. In Celsteel, Scott J stated that pursuant to the LRA there is a power to make rules delegated by the Lord Chancellor and this power had been used to make Rule 258. As the defendant was using the easement for the benefit of his land it was overriding under this rule. Thus it is now accepted that equitable easements may be overriding.
In respect of rights acquired and being acquired under the Limitation Act s70(1)(f) applies. A squatter who takes adverse possession of land becomes a tenant in fee simple. Good title can only be achieved if the better title is not asserted within 12 years. This was shown in the case of Bridges v Mees where the title of the registered proprietor had become barred due to the adverse possession of the original purchaser, hence the rights of the adverse possessor were rendered overriding against the new proprietor.
Probably the most controversial of categories is those overriding interests covered by s70(1)(g). The rights protected under this paragraph are wide and diverse to protect individuals who on equitable grounds deserve protection, but whose interests are inappropriate for registration, or indeed, if they are registrable are usually created informally and are therefore not registered by the layman. This class is defined by reference to the fact that the owner is in actual occupation. In order for a person to qualify as having an overriding interest, he must first prove that he has rights in the land and that he is in actual occupation of the land or in receipt of rents and profit from it.
The section protects the rights of persons in actual occupation, not the occupation itself. The rights must ‘subsist in reference to the land’, thus in Williams & Glyn’s Bank Ltd v Boland, the House of Lords held that the beneficial interest of an occupying tenant in common ie a wife, the legal estate being held by the husband on trust for sale for both of them as tenants in common to the extent of their contributions, fell within the paragraph and an overriding interest was established.
Actual occupation under the section is a matter of fact and requires physical presence as a purchaser under a registered disposition is claiming to take the land free of the allegedly overriding interest (Hodgson v Marks). A wife living with her husband is in actual occupation, her interest arising from contributions to the purchase price, as can be seen in Williams & Glyn’s Bank Ltd v Boland. Actual occupation has also been defined as some form of established or settled occupation and not just a mere fleeting presence (Abbey National BS v Cann), but occupation need not be of the entire property (Ferrishurst Ltd v Wallcite Ltd). It has been seen that preparatory steps before completion such as carrying out building work may not be sufficient (Lloyds Bank v Rosset). It is generally the time of creation of the registered disposition that is the relevant time for determining whether someone is in actual occupation for the purposes of this section.
In respect of rights in the land, purely personal interests, such as the spouse’s right of occupation under the Family Law Act 1996, are not within the protection of the section (National Provincial Bank v Ainsworth) such rights must be proprietary in nature, however, they would be protected as a minor interest by the entry of notice on the appropriate register. Children living with their parents who were the legal owners of the property could not have an overriding interest under this section; a child in occupation of premises is not in actual possession for the purpose of this section (Hypo-Mortgage Services Ltd v Robinson).
There is finally a proviso to s70(1)g in that if a person is asked and fails to disclose his interest, he loses his status as an overriding interest, but if a registered chargee fails to ask a person because his occupation is unknown, the chargee is unprotected (City of London Building Society v Flegg).
It can therefore be concluded that in respect of overriding interests there is no procedure which is really safe to any unsuspecting purchaser. A person who takes an interest in the land under a registered disposition takes it subject to overriding interests.
Bibliography
SPR Notes
Maudsley & Burn’s Land Law Cases and Materials
Gray and Gray Elements of Land Law
