Pre-1925 situation
Before 1925, the processes involved in purchase of land were quite complicated. The basic principle at that time was that a purchaser of land was always bound by legal estates and interests in land (rights ‘in rem’). In other words, if a legal right affected the land, then any person who purchased that land was bound by that right irrespective if he had notice of it before buying that land. It was therefore crucial for the buyer to inspect the title deed very closely to see whether the seller actually owned what it was trying to sell to him. Concerning equitable interests attached to the land on sale, the purchaser was not bound by them if he was a ‘bona fide (of good faith) purchaser for value without notice’ of those equitable rights.
There were three forms of notice namely actual notice, imputed notice and constructive notice - which is the most relevant one for this essay because it includes the practice of physical inspection of land. Constructive notice was developed in equity since a purchaser would seek to know as little as possible on any equitable interest in the land since he was bound only by any equitable interest he was aware of. Hence, a test was confirmed in the Conveyancing Act 1882 to establish what a purchaser should have discovered by making reasonable enquiries.
The two sources of information were investigation into title and a physical inspection of the property. As stated earlier, the purchaser had to inspect the title deed (which were piles of paper relating to legal and equitable interests in the land) very closely to see whether the seller actually owned what it was trying to sell to him. This documentary evidence was important to account for how the land became vested in him. The investigation had to go back to at least 15 years and this would provide the root of title. If the investigation of title was correctly carried out, it was considered that the purchaser had constructive notice of all interests, whether legal or equitable.
However, there were some equitable interests which would not be known to exist if the purchaser relied only on investigation of title. They were equitable interests that did not appear on title deed and could be discovered by physical inspection of the land (first recognised in Hunt v Luck (1901)). Physical inspection meant to allow the purchaser to enquire about any interests, for example in cases of shared occupancy with the seller, and eradicate the limits of investigation of title. Thus, establishing constructive notice was a time-consuming and expensive process.
LRA 1925 – mirror principle
The introduction of this statute had the aim to make conveyancing in land simple, quick, cheap and reliable. It introduces a scheme whereby titles and all interests which might affect titles are required to be registered in the Land Registry which becomes a ‘mirror’ of all the rights pertaining to any piece of land at any particular time (mirror principle). As stated in the 2001 Law Commision No 271 para 1.5, ‘the fundamental objective of the Act…the register should be a complete and accurate reflection of the state of title to land at any given time…’. Hence, on first registration, it is the Registrar who investigates the title deeds to decide whether title has been sufficiently proved to justify registration. Once a title is registered, it is guaranteed by the State (insurance principle) and a perspective purchaser only needs to consult the Registry to find out about all interests pertaining to a specific land. There is no need for him to inspect the title deed (curtain principle). Hence, interests have to be registered for them to be legally binding.
Overriding interests
However, the register was never intended to be a perfect mirror of all the interests, especially equitable interests. Even in 1925, it was conceded that legislation could not cover all equitable interests. Some equitable interests arising mainly from informal arrangements, which would have been apparent on physical inspection of land in the pre-1925 conveyancing practice, were to be excluded from the register in order to avoid it being too long and cumbersome. Thus, there are interests which survive the need or registration. They are called overriding interests and are listed in s70 of LRA 1925.
S70(1)(g) is the most relevant section for the purpose of this essay. It is a concession to the doctrine of notice. It provides that a purchaser will take subject to ‘the rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed’. Under the LRA 2002 Schedule 1 para 2, only actual occupation qualifies for overriding interests. Thus, when a person has a proprietary right and is in actual occupation, he has an overriding interest. But if the purchaser makes a physical inspection of the land and this person’s rights are concealed or not disclosed, then the interests are not overriding.
Conclusion
Thus, from a modern stance, the basic problem with occupation-based overriding interests is that to require purchasers to go beyond what appears on the register and this defeat the purpose with which the LRA 1925 was introduced. Those writing the LRA wished to create a fool-proof system of conveyancing in the mirror principle which states that all interest should be perfectly reflected in the register and any reference to actual occupation is anomalous. However, it can be also be argued that the provision in s70(1)(g) specifically providing for overriding interests except where enquiry is made and those interests are not disclosed never intended to alter the practice of physical inspection. This loophole was left mainly to protect innocent parties who have equitable interests but failed to register them. This form of notice offers a fair and just solution to those parties.
(1100 words)
Bibliography:
Modern Land Law by Thompson
Understanding Property Law by Murphy
