A buyer’s equitable interest in land, pending registration of a transfer, was subordinated to a right of way thanks to the doctrine of overreaching

A short while ago, we discovered that the rules on overreaching apply more widely than had been thought. Baker and another v Craggs [2016] EWHC 3250 (Ch); [2016] PLSCS 351 reveals the serious impact that the rules can have when things go wrong in a conveyancing transaction. As a result, it would seem, of conveyancing slips, the owners of farmland sold much of it to a buyer and then granted a right of way over the very same land in a transfer of another parcel to a third party. Was the grant of the right of way effective in circumstances where the grantees of the easement had registered their right of way before the buyer had registered his transfer? Everyone agreed that the right of way would not have been binding on the buyer, had he registered his transfer at once. But the Land Registry had had to cancel the buyer’s application for registration because the plan attached to the transfer was defective. And, by the time that the buyer was able to resubmit his application, the grantees of the easement had registered their own title at the Land Registry. The buyer tried to persuade the court to alter the register in his favour. He argued that his interest had had priority over the easement because he had retained an equitable interest in the land transferred to him. Furthermore, his interest had constituted an overriding interest because he had been in actual occupation of the land at the time. The judge agreed that the buyer had had an overriding interest. However, overriding interests are subject to, and are trumped by, the rules on overreaching. In other words, interests that are overreached cannot override. The combined effect of sections 2(1) and 2(1)(ii) of the Law of Property Act 1925 is that, when capital sums are paid to trustees for sale, a conveyance to a purchaser of a legal estate in land “shall overreach any equitable interest or power… capable of being over-reached… affecting that estate”. In such cases, claims against the land attach to the sums received by the trustees instead. The buyer had purchased the farmland from a couple, who remained the registered proprietors of the land until registration of the change of ownership. During the interim, the couple had held the property on trust for the buyer. Furthermore, when they granted the right of way over the farmland (which constituted a “conveyance to a purchaser of a legal estate in land”), they had received the capital sum paid by the grantees of the easement as trustees. The buyer argued that overreaching is a process by which equitable interests under a trust of land are converted to interests in the sale proceeds when that land is sold to a third party purchaser for consideration. But the judge rejected the argument that the doctrine of overreaching did not apply because the trustees of the farmland had purported to grant a limited interest (ie an easement) over the land, instead of transferring the fee simple. Therefore, the buyer’s equitable interest in the farmland had been overreached and subordinated to the easement, and the farmland was bound by the right of way. Allyson Colby is a property law consultant