With reference to case law, legislation and academic commentary critically assess the courts’ interpretation of ‘actual occupation’ in paragraph 2 of Schedule 3 to the Land Registration Act 2002.
The LRA 2002 has significantly changed a portion of land law. . The interests are now protected by means of notice which includes ‘cautions’ as they were previously and restrictions which includes ‘inhibitions’ as they were previously. The 2002 Act has made the protection of interests in registered land simplified.
Overriding interests were considered as a “major obstacle” by the Law commission. The reason these obstacles were not absolutely eliminated from the 2002 Act is because, as Cooke puts it, ‘they are too deeply entrenched in the law to be dispensed with’, therefore the 2002 Act had reduced the number and effect of these ambiguities. Unlike in 1925 Act, the consequence of an overriding interest depends on whether it tends to override a first registration of title which is dealt within Schedule 1 or a disposition of a registered title which is dealt within Schedule 3. A principle example of overriding interests is the interest of a person in actual occupation. Under 1925 Act, ‘difficult cases arose where actual occupation was not readily discoverable’.
Overriding interests are basically those interests which are not mentioned in the land register but can bind any person who takes the ownership of the land, the overriding interests are governed by the Land Registration Act 2002.The general principle under paragraph 2, Schedule 3 is that a person claiming an overriding interest must establish both that he holds a property interest in the burdened land and be in actual occupation of the land to which the interest extends within the meaning of the schedule.
A person to whom the land has been transferred is bound by the interests of the individuals who are in possession of the premises, irrespective of them being not on the register. A person holding such kind of interest can claim his right by providing that he or she satisfies the criteria which are stated in the schedule. At the time of disposition the interest holder is ought to show an actual proprietary interest over the land. Also it is expected that the latter should be at actual occupation, so that the purchaser is aware of the possible existence of an overriding interest. Therefore, the presences of both the elements are necessary.
Lastly, a claim for an actual occupation can be brought given the previously mentioned criteria are fulfilled unless this interests can’t be found by attempted a sensible watchful assessment of the land or if the buyer did not have genuine information or actual knowledge of the presence of such an interest, or either if the claimant had not revealed of their interests when enquired where it was not reasonable for the previous to have done as such.
The potential difficulty which arises because of the time lag between the execution of a registrable disposition and its later registration has been resolved in a case where it was decided that although the relevant date for judging actual occupation is the date of registration of the relevant contract, for actual occupation to established, it must be established also at the time of completion of that contract, installing carpets just 34 minutes before the time of exchange of contracts for the loan did not amount to actual occupation. This citation was followed in the another case where it was decided that actual occupation cannot protect that which does not exist at the relevant time, consequently an interest which might have arose because of the disposition cannot override as it would not pre-date the disposition.
The meaning of ‘actual occupation’ has been debated in recent times. Lord Denning tried to define actual occupation as a ‘matter of fact’. Lord Wilberforce in maintained that the words ‘actual occupation’ should be interpreted in plain English and the word ‘actual’ emphasises that the physical presence is required. Many case laws has been providing guidance to interpret this term however, there is no single test which has been found that can establish actual occupation as Mummery LJ stated that ‘the courts are reluctant to lay down, or even suggest, a single legal test for determining whether a person is in actual occupation’.
Lord Denning in Casewell held that the fundamental purpose of protecting overriding interests by actual occupation is to protect the person who might lose his or her rights in the confusion of registration. In Flegg the law of courts decided that an overreached right does not amount as an overriding right. Although actual occupation is mentioned the 2002 Act, the phrase has not been “statutorily defined”.
Another philosopher Martin Dixon put his bet on the section 70(1) of the LRA 1925 and stated ‘there is nothing inherently wrong with a category of non-registrable binding right… policy might dictate that there should be a class of right that binds a registered title despite the fact of its non-registration’. The section has now been repealed by the LRA 2002.
It is in respect of Schedule 3 that the Law Commission’s policy ensuring that ‘actual occupation’ operates as a warning to a prospective purchaser really comes to in the fore. Mustill LJ cautioned against superimposing definitions, taken from other branches of the law, on the meaning. Reflecting this, the Law Commission labeled actual occupation as “notorious and much-litigated.
To protect the overriding interest it is necessary that the occupation is obvious on a reasonable careful inspection of the land at the time of disposition. Now this exception is a farfetched one which favours the buyer and it would be impractical to assume that the occupation will not be revealed unless one tries to obscure it. However, there can be case where it would be quite impossible to reveal the occupation, for example what if the owner had moved out of town and also sold his furniture, in that case occupation is not obvious and therefore the overriding interest will not be protected. This theory makes the scale heavier on one side.
But it is submitted that it is actually not. It is a perfect example of a balance because the LRA 2002 has to favour the purchaser in these circumstances, so that the interest holder is encouraged to register his interest in the first place.
Consequently a buyer at some point might find himself bound by some interests which she/he was not aware of at the time of purchasing the land. Now this posses n ambiguity in the legal system for Land Registration as it is in turn bases on the mirror principle whereby it is provided that all those interests should be mentioned on the register which is associated with the land so that the register could be a true mirror of the land in question, thereby signifying the crack in the mirror. Therefore the duty lies on the shoulder of the potential buyer that he will know about the existence of those rights either by making physical inspection of the land or by making enquiries. However, this rule comes with some questions as it is sometimes not possible for the purchaser to actually have knowledge about the existence of the overriding interest instead of carrying out reasonable inspection or even in the case of enquiries the person whom he enquired of may not always give the right answer. Thus the buyer of the land would still be bound by the interests. As a judicial opinion was given by Peter Gibson LJ in judicial opinion was also one for change. In this case Peter Gibson LJ stated, “as overriding interests constitute an exception to the mirror of title principle the court should in my opinion, bet be astute to give a wide meaning to any item constituting an overriding interest”.
Therefore, all of these aforementioned overriding interests in one way or another poses a problem. Consequently even though short legal leases are not on the register, it is always the case that a transferee would be bound by such interests. Alternatively, it is necessary for a purchaser to undertake a physical inspection of the land so as to discover such rights. Nevertheless, as actual occupation is not a criteria under this interest, there could be a tendency for a purchaser to be bound by a lease which was not discoverable by actual occupation.
In terms of establishing a proprietary interest in actual occupation once again problems arise as it is not a tangible right but rather an intangible one. Illustrated in a case, where a wife jointly contributed with the husband to the purchase of the matrimonial home, whilst the husband went on the register as the legal title holder where both of them retained the beneficial interests. Subsequently, the husband without consultation from the wife took out to a mortgage. When he fell in arrears, questions arose as to whether the wives interest should take priority over the bank’s mortgage, where it was held that the wives interest took priority as the bank had failed to make the necessary enquiries. Yet this decision can be criticized as the bank would not know of the existence of such proprietary interests as it was not on the register and cannot even be found by a physical inspection.
In another case where the beneficiaries as well as the legal owners contributed to the purchase, but subsequently the legal owners failed to keep up with their mortgage payments which resulted in the bank gaining possession thereby defeating the beneficiaries interests though the latter was not enquired of their interest as it was stated to be overreached. But the problem arises to the transferee in circumstances where there is only one legal owner.
While describing the ambiguities about actual possession it has been illustrated that just because a person is away for a time period it does not necessarily mean that they are out of occupation. However, a potential buyer of the land might have some trouble. Illustrated by the case where a woman who was in hospital during the time she gave birth to a baby, irrespective of the fact that she did not live in the property in question, it was held that she was in actual occupation. Yet once again the problem arises that had the prudent purchaser carried out a thorough search she would have found traces of someone else living there as the woman’s clothes were there. Therefore, once again there would be no problem for a diligent purchaser.
In another case Robert Walker J held that whether a person’s continuous hold over the property should be seen as actual occupation or a pattern of alternating periods of presence and absence, is a matter of perception which defies deep analysis. However, there is a point where an absence is so long that the notion of having an actual occupation in the property fads away, and in Stockholm Finance it was decided that the point was satisfied. The decision of this case was followed in another case where the Court of Appeal found actual occupation was a justified finding as a result of several factors including the respondent’s regular visits and the third party’s knowledge of her mental incapacity and her intention of remain in occupation of her house.
Taking into account the three exceptions to actual occupation, in terms of the first criteria, an objective test would be implied by the Act. Therefore, the question would arise as to what kind of search or inspection would constitute reasonableness. Hence, on the other hand it is demonstrated that even if the buyer had taken all the sufferings of finding out the existence of an overriding interest and carried out an inspection beyond reasonableness, this does not forbid him from purchasing the property. This can be very unfair on the interest holder. Had the purchaser not undertaken a reasonable inspection, he still would be bound by the interest. Yet, this in itself does not pose a problem because it can be evident that any potential buyer would carry out inspection and scrutinize the land in detail to discover these overriding interests, otherwise it is the fault of the transferee if he/she had failed to do so.
Now considering the second criteria with regards to the actual knowledge of the transferee, the knowledge of the transferee about the right is what actually matters, the physical existence of the interest holders are not important for this criteria. As the schedule makes clear, the relevant time for assessing the discoverability of the occupation and the actual knowledge of the transferee is the time of the disposition. When the transfer and registration occur simultaneously under e-conveyancing, the time of the disposition will be taken to mean the time of the transfer, as this the time at which actual occupation must be established. The Law Commission takes the view this provision is simply a reformulation of the provision in the provision in the old section 70(1)(g) of the 1925 Act and that it operates by way of estoppel.
The final criterion for the exception is where the possible query arises as to the circumstances in which it would be reasonable for an interest holder to disclose their interest in the land. However, another curiosity that comes is that it depends on the interest holder himself but what if the person is a senile or mentally unstable, in that case how reasonably possible would it be for them to disclose their interest to the potential buyer. As it would not be reasonable to expect their response in such scenario therefore the transferee would still be bound by such interests.
The LRA 2002 is without any doubt a very well draft legal document and according to Cooke the Act is a classic instance of law reform which repealed the LRA 1925 and substituted the unsatisfactory sections, by which the law became more consistent and workable. Abbey and Richards are of the view that the wide-ranging and complex reforming provisions point towards a ‘genuine revolution’. It can be therefore said that although there is a room for improvement and the schedule 3 of Paragraph 2 is a legal rule which still has some ambiguities about the exceptions; however lately the 2002 Act has made some sections more clear and certain for lay people.
Lloyds Bank Plc v Rosset 1990 UKHL 144
Abbey National Building Society v Cann 1990 UKHL 3
Cook v The Motrtgage Business plc 2012
Strand Securities v Caswell 1965 EWCA Civ 1
Williams & Glyn’s Bank v Boland (1981) A.C. 487, at 504
Link Lending v Bustard 2010 EWCA Civ 424
City of London Building Society v Flegg 1988 1 AC 54 House of Lords
Chhokar v Chhokar 1984 FLR 313
Stockholm Finance Ltd v Garden Holdings Inc 1995 LTL
Link Lending Ltd v Bustard 2010 EWCA 424
Overseas Investment Services Ltd v Sim Co build Construction Ltd 1995 CA
Thompson v Foy 2009 EWHC 1076 (Ch)
Bank of Scotland v Qutb 2012 EWCA Civ 1661
Land Registration Act 1925
Land Registration Act 2002
Elizabeth Cooke, Land Law, Clarendon Law Series, 3rd Edition, 2014
Robert Abbey and Mark Richards, ‘Property law’, 10 Edition, Oxford University Press, 2017-2018
Martin Dixon, ‘Modern Land Law’, 10th Edition, Routledge Press, 2016
Cheshire and Burn’s Modern Law of Real Property, 18th Edition, Oxford University Press 2011
McFarlane B, Hopkins N and Need S, Land Law: Text, Cases and Materials (3rd Edition, Oxford University Press 2015
Officially Published Journal Articles:
Dixon, Martin, The Reform of Property Law and the Land Registration Act 2002: A Risk Assessment, June 2006
Rosset (n 5), 393 H (Nicholas LJ)
Law Commission, Report No 158, Third Report on Land Registration
Bogusz B, ‘The Relevance of “Intentions and Wishes” to Determine Actual Occupation: A Sea Change in Judicial Thinking?’ 2014
www.lawcommission.co.ukwww.lexisnexis.comwww.westlaw.com’I BP…. declare that this piece of work contains 2,379 words in total. I have read and fully understood the University Policy relating to Academic Misconduct as cited on the VLE.’