Legal notes: Race to the register

Allyson Colby looks at a right-of-way dispute involving conflict between overriding interests and overreaching Key points A delay in registering a transfer enabled a third party to register a right of way over land The transferee had had an equitable interest in the land, pending registration, which constituted an overriding interest because he was in actual occupation of the land But his interest had been overreached by, and subordinated to, the grant of the easement Once upon a time, buyers and sellers would meet on site and exchange earth, stones or twigs when land was sold. Conveyancing has become a little more sophisticated since then. Nowadays, buyers and sellers execute transfers, which must be registered at the Land Registry. Indeed, transfers of registered land do not operate at law until they are completed by registration. The length of time between completion of a disposition and its registration is known as the registration gap. It is made up of two distinct periods: first, the gap between completion of a disposition and the application to register it and, secondly, the gap between the application and the time taken to register it. It is possible to protect a disponee’s priority before submitting an application for registration by making a priority search. This freezes the register while the search remains valid. But applicants cannot tack one priority period onto another by making fresh searches. Applications that are made in the interim will reach the register when the relevant search expires and before any fresh priority period begins. So, the longer the registration gap, the greater the risks. Slip ups The litigation in Baker and another v Craggs [2016] EWHC 3250 (Ch); [2016] PLSCS 351 resulted from a series of errors. The owners of farmland sold some of it to Martin Craggs. One month later, they granted a right of way over the very same land in a transfer of another parcel to Paul Baker. His solicitors had seen a copy of the transfer to Craggs, but did not notice that the easement granted to Baker crossed land that had already been sold to Craggs. This would have caused problems when Baker applied to register his right of way, had it not been for the fact that the Land Registry had had to cancel the application to register the transfer to Craggs because the plan was defective. By the time that Craggs was able to resubmit his application, the priority period provided by his official search had expired and Baker’s application for registration had been completed. Consequently, the land transferred to Craggs was registered as being subject to Baker’s right of way. Overriding interest Was the grant of the right of way effective? The easement was a registered disposition for valuable consideration and, under section 29 of the Land Registration Act 2002, such dispositions take priority over unprotected interests. Unprotected interests are, broadly, interests that are not protected on the register, unless they qualify as overriding interests. Craggs relied on the fact that he had had an equitable interest in the land transferred to him, pending registration of his title to it, and tried to persuade the court that it took priority over Baker’s right of way. He argued that he had been in actual occupation of the land and, as a result, had had an overriding interest under schedule 3 of the Land Registration Act 2002. The court agreed, but noted that overriding interests are subject to the rules on overreaching. Overreaching 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. Baker reminded the court that the sellers had remained registered as the proprietors, despite executing a transfer in favour of Craggs. Therefore, during the four-month period before Craggs was registered with title the sellers had held the property on trust for Craggs. Baker claimed that the sellers had granted the right of way to him, which fell within the scope of section 2(1), and had received the money paid by him as trustees for sale. Craggs replied that overreaching is a process by which equitable interests under a trust of land are converted to interests in the proceeds of sale when the land itself is sold. Consequently, he claimed that his interest had not been overreached because the trustees for sale had purported to grant a limited interest, in the form of an easement, instead of selling the land outright. Newey J was not persuaded. He was also unmoved by the suggestion that, if Baker’s argument were to be taken to its logical conclusion, the sellers would have been able to grant an easement that bound the land sold even if the original application to register the transfer to Craggs had been in order. Finally, the judge refused to apply section 2(3)(iv) of the 1925 Act, which excludes estate contracts from the effect of overreaching. The judge ruled that the sale contract in favour of Craggs had merged with the transfer to him on completion of his purchase. Therefore, it did not qualify as an “estate contract” for the purposes of section 2(3). Not the end of the story? Interests that are overreached cannot override. This meant that the land belonging to Craggs was bound by the right of way granted to Baker. Craggs has applied for permission to appeal. If that proves unsuccessful, he might then consider potential claims against his solicitors for negligence and against his sellers for breach of trust. Allyson Colby is a property law consultant