Allyson Colby analyses a case that illustrates the complications that can arise when a landowner offers a right of pre-emption
Key points
- Grantees of rights of pre-emption can register restrictions to prevent unlawful dispositions even if their pre-emption agreements do not say that they can
- Poor drafting in a pre-emption agreement will dilute the terms of any restriction that can be registered to protect it
A landowner who grants a right of pre-emption cannot be compelled to sell his land merely because the grantee wants to acquire it. However, if he does decide to do so, the landowner will have to offer it to the grantee before selling to anyone else. In other words, a pre-emption agreement offers the grantee hope that the property might one day become his. But hopes can be dashed and pre-emption rights often cause conflict.
In Law v Haider [2017] UKUT 212 (TCC); [2017] PLSCS 123, the Upper Tribunal (UT) had to consider a pre-emption right contained in an agreement settling a boundary dispute. The clause provided only that “in the event of the claimants or their estates selling… the remaining land”, the landowners would “give the defendants the first option to purchase that land”. Inevitably, further litigation followed.
The Upper Tribunal (UT) rejected arguments that the clause was unenforceable because it lacked operative provisions. After explaining that the landowners were obliged, before entering into an incompatible contract for sale, to offer the land to Mark and Annabel Law for the price at which they were genuinely willing to sell, and to allow them a reasonable time to respond, the UT moved on to consider how the right of pre-emption should be protected.
Restrictions
Section 115 of the Land Registration Act 2002 (the 2002 Act) enables grantees to register notices at the Land Registry to protect rights of pre‑emption granted on or after 13 October 2003 over registered land. The Laws took advantage of this, but applied to register a restriction as well.
Section 42(2) of the 2002 Act prohibits the use of restrictions to protect the priority of interests that are, or could be, the subject of a notice. But the Land Registry’s practice guidance indicates that grantees of options and rights of pre-emption can use restrictions to prohibit the registration of dispositions to third parties without their consent (as well as registering notices to protect their interests in the land itself), if their contracts so permit.
Does this mean that agreements must expressly limit the registered proprietor’s powers to dispose of their land, or specifically permit the registration of a restriction? Morgan J ruled that, by its very nature, a right of pre‑emption imposes a negative obligation on the grantor requiring him or her to refrain from disposing of his or her land without first complying with his or her obligations to the grantee. It followed that the Laws were entitled to register a suitably worded restriction to prevent the registration of an unlawful disposition to a third party.
Triggers
Were the Laws entitled to register a restriction to prevent the registration of any disposition (other than a charge, or a sale by a mortgagee whose charge was registered before their restriction) without a certificate from them, or their conveyancers, confirming that the landowners had complied with their obligations or that the pre-emption right had not arisen? The judge noted that the right of pre-emption arose if the landowners or their personal representatives wanted to “sell” their land and ruled that the proposed form of restriction was too wide because it would restrict the registration of other transactions as well.
The creation of a charge was not a trigger event. Furthermore, the Laws were not entitled to pre-empt a sale by a mortgagee; their rights arose if, and only if, the landowners or their personal representatives wanted to sell.
Was it possible to imply a term preventing the landowners from making a gift of their land, or making an intended gift a trigger event? The judge decided that this would go beyond the terms of the parties’ agreement and was not needed for business efficacy, even though this would mean that the landowners could sidestep their obligations by giving the land away.
The judge also upheld the landowners’ argument that the grant of a lease would not constitute a trigger event. He reasoned that a “sale” involves the transfer of the seller’s title, as opposed to granting an interest out of it. Lease lengths vary, as do rents and premiums; where would the court draw the line? Consequently, the landowners would be entitled to grant a 999-year lease to a third party, in return for a premium, without triggering the right of pre-emption.
Terms
The Land Registration Rules 2003 prescribe standard form restrictions designed to cover most applications made. If applicants choose to tailor their own form of restriction, section 43(3) of the 2002 Act provides that it must be reasonable and straightforward to apply and that its terms must not burden the Land Registry unreasonably.
A restriction in standard form L prohibits the registration of dispositions (or specified types of disposition) without a certificate confirming that the disposition can be registered. The judge suggested that the parties adapt the standard form to prohibit the registration of “any transfer by way of a sale”. And, if this were to turn the restriction into a “non-standard” form, the judge considered that the wording complied with section 43(3) and approved its registration.
What of the fact that the grantees of the right of pre‑emption, who had already caused difficulties, would control the provision of the certificate? The judge reminded the landowners that they could ask the Land Registry to disapply the restriction, or the court to vacate it, if the Laws were wrongfully to refuse a certificate. The court would adopt a robust approach and, on an interim application, might require an undertaking in damages before permitting the restriction to remain registered.
Allyson Colby is a property law consultant
