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Land Law in England and Wales - 1

17 April 2008

Land Law in England and Wales:
The Challenges of Modernisation
By: Paul Omar of Gray's Inn, Barrister
Senior Lecturer, University of Sussex

Introduction
The major statutory reforms of 1925-1926 affecting land law in England and Wales resulted in the Law of Property Act 1925, which confirmed the relative ownership model, in which the free simple absolute in possession (colloquially known as the 'freehold') and the term of years ('leasehold') are the two methods of signifying the greatest interest inland. Also part of that omnibus of reforms, the Land Registration Act 1925 (LRA 1925), continued a system of title by registration introduced near the end of the Victorian era. Statutory developments since these major reforms have been sporadic and of minor impact until the Land Registration Act 2002 (LRA 2002), which came into force on 13 October 2003. This Act deals not only with registration issues but with some substantive changes to land law. This article looks at some of the changes that were introduced by this Act as well as some proposals for future changes.

1. E-Conveyancing
Parts of the Land Register that was itself introduced in 1925 have for many years been undergoing a process of computerisation, although the use of technology did not necessarily mean that transactions in land could also take place electronically. However, Part 8 of the LRA 2002 now introduces five sections, which set out a framework by which e-conveyancing will be permitted. Section 91 sets out the formality requirements applying to all dispositions by means of a document in electronic form, subject to the presence of a number of conditions for formal validity as listed in section 91(3): including date and time, e-signatures and how these are to be certified. Documents complying with the conditions are deemed in subsections 91 (4)-(5) to be the equivalent of writing and of deeds. Section 92 gives the power to set up a Land Registry network and, furthermore, the existence of a network imposes a duty on the Land Registrar to facilitate do-it-yourself conveyancing, although in paragraph 7 of Schedule 5 of the Act, the Registrar is not obliged to provide legal advice in connection with transactions. Next, section 93 contains a power to require the registration process to take place on-line, while section 94 sets up an electronic settlement scheme for the finalisation of transactions. Finally, section 95 deals with data communication and electronic storage requirements.

The idea is that individuals (in all probability professional in the area, such as lawyers, licensed conveyancers and others working on property developments) will have access to specific software to enable transactions to occur over a dedicated network. These services are, for the moment, not available over the Internet, although the duty to promote do-it-yourself conveyancing may require some form of public access framework to be provided. There remain a number of issues related to the delivery of services via technology, including that of Internet Service Provider liability, the licensing and control of trusted third parties for the issue of public and/or private keys for use in encrypting data as well as data protection itself. Some of these are dealt with by the Electronic Communications Act 2000, which served to implement a number of European Directives in this field. Section 1 of the Act creates a register of approved providers, with section 2 allowing for the granting and withdrawal of approval from providers. Section 4 contains a data protection and privacy guarantee and section 7 deals with the question of how electronic signatures are established. The Act also contains a power in section 8 enabling current rules on formalities to be disapplied in the case of electronic transactions.

Following the enactment of the LRA 2002, the strategy set out by the Land Registry in 2003, was, inter alia, to promote and introduce progressively new electronic transactions in land and property from 2005 as part of an e-conveyancing initiative with data terminals to be made available at local registries and solicitors' offices and to make all key Land Registry services available online by 2005 (the e-business element of the initiative), including 'instant access' pay-to-search facilities akin to how access is currently available to the Companies Register in the United Kingdom. Although the overall timetable has been a little delayed, the Land Registry Report on EConveyancing, produced in September 2005, has stated that it has been possible since 2002 for practitioners to lodge applications for updates to the Land Register in electronic form. A pilot project was also launched in 2004 to permit the electronic delivery of any application that could otherwise be made on a Land Registry paper form, while in the following year, a further project, this time dealing with mortgage lenders, allowed the latter to electronically signal changes to the Land Register on the discharge of mortgages. Also, according to the report, financial lenders were further involved in a project extending over 2005-2006 to permit the registration of mortgage charges and updating of information.

In support of the initiative overall, the Land Registry was able to state in its 2003-2004 Annual Report that it had achieved completion in the computerisation of all registers and index maps and in making key information services available over the Internet with a specific section of its website (www.Iandreg.gov.uk) now being devoted to e-conveyancing. More recently, in its 2005-2006 Annual Report, the Land Registry has reported the introduction of the first tranche of e-conveyancing facilities and that it has made all land registration data accessible via the Internet. It is intended ultimately for all transactions to take place electronically, although the process for the full implementation of this requirement rests on the ability of the Land Registry to roll out services to the various user sectors. However, taking a 'modular' and 'incremental' approach to e-conveyancing, the Land Registry will be experimenting further with a pilot project to test the ability to provide a full range of services, sometime after July 2007.

Apart from the overall desirability of proceeding with the provision of services by modern technological means, e-conveyancing will also have an impact on the priority rules for interests in land. For first registrations, the significance of sections 11(4) and 12(5) of the LRA 2002 is that freeholds and leaseholds respectively as estates are vested subject to entries at time of disposition. For dispositions of already registered land, sections 29 and 30 of the LRA 2002 will postpone to the legal estate any interest or charge not already protected by registration, subject to a limited range of exceptions, notably overriding interests. There remains, nonetheless, a potential 'registration gap' between disposition and registration. The delay between the creation and registration of estates and charges may offer in this 'window of opportunity' space for the unscrupulous in relation to dealings with assets. E-conveyancing will do much to narrow, if not eliminate, this gap, given that the simultaneous creation of interests and registration of transactions will become feasible.

2. Enhancing the Register
E-conveyancing is only one aspect of the process, the other being the initiative to enhance the content of the Land Register itself. In fact, the transition to registration was inaugurated by the Land Transfer Act 1897 and applied by the LRA 1925 progressively to England and Wales. The overall aim of this system is to eventually replace the old (and problematic) system of deed transfers with a one-stop shop system so that, in the words of Lord Oliver: 'title can be regulated by and ascertainable from the register alone' (Abbey National BS v Cann [1991] 1 AC 56 at 78C). Registration was accelerated by the compulsory registration requirement imposed in 1989, which made the whole geographical area of England and Wales an area of compulsory registration, but only where there was the kind of transfer of land that would trigger the terms of the legislation: all conveyances of freeholds and long leaseholds as well as all new grants of leaseholds falling under the ambit of this requirement. Encouragement was also given to this process by the possibility of reduced fees.

The LRA 2002 now cements registration as the norm, the important policy shift being the implicit assumption that its provisions will ensure that the quantity of unregistered land will eventually decline. It thus aims not just to simplify and modernise land registration law, given that it is the first major overhaul of the land registration system for 75 years, but also to make the register a more complete picture of a title to land showing more fully the rights and interests affecting it and provide a framework for the development of electronic conveyancing. In their Report on Land Registration for the Twenty-First Century (Law Comn. No. 271), the Law Commission's intention was that the register becomes 'a complete and accurate reflection of the state of the title of the land at any given time, so that it is possible to investigate title to land online, with the absolute minimum of additional enquiries and inspections' (paragraph 1.5). The idea is that the volume of unregistered estates and interests will eventually decline to an unimproved residue, while there will be a progressive accretion of titles and interests on the register. The fact that e-conveyancing is not being extended to unregistered land, except where dispositions will trigger registration, has been underlined as further encouraging the process of registration for the concomitant technological advantages and benefits. Supporting this is the strategy of the Land Registry, which aims to create a Land Register with comprehensive content and national coverage by 2012; in 2005 it was estimated that it was over 85% complete, even though the numbers of unregistered titles (5 million) and the land area uncovered (then some 20%) appeared still to be elevated. This unregistered land is formed for the most part of land held by the Crown in its own right as well as through Government Departments - the Forestry Commission and the Ministry of Defence being the two largest property owners in the country in 2001. Other important landholdings are those owned by the Church of England, university colleges (such as Oxford, Cambridge and London) and large private estates in family hands. In recent years, changes to the ownership of land have led to non-governmental organisations such as the National Trust and the Royal Society for the Protection of Birds becoming important accumulators of tracts of land, although this is often held for the benefit of the public. Furthermore, as a result of privatisation initiatives in the 1990s, an important amount of land held by the former state utility companies is now in private hands.

The new registration requirements introduced by the LRA 2002 are set out in section 2, which defines what interests are capable of registration, including all estates of land (freeholds and leaseholds); rent charges (entitlements to revenue arising out of someone else's land); franchises (rights to hold markets and fairs); profits en gross (hunting, shooting and fishing rights); other rights secured on registered rights as well as interests created by disposition of registered title. Voluntary registration has always been encouraged since its introduction in the LRA 1925. Section 3 of the LRA 2002 now carries on the provision, and discounted fees for voluntary registration are available to encourage this process. Section 27 of the LRA 2002 also makes registration compulsory for dispositions of estates and charges through transfers, for grants for a term of more than seven years, for rights to buy under the Housing Act 1985, for grants of franchises or profits as well as for grants of all charges with limited exceptions in the case of transfers resulting from death, bankruptcy or corporate dissolutions (i.e. distributions to shareholders). Furthermore, section 5 of the LRA 2002 also allows the relevant government minister (currently the Lord Chancellor) to extend instances in which registration will be compulsory, thus supporting the policy aimed at the progressive accretion of titles and interests on the Land Register. Reduced fees also encourage this process. Under this section, examples of further powers that might be made include the possibility of requiring the registration of a parent estate (whether freehold or leasehold), where a lease (or sub-lease) carved out of that estate is in fact registered.

Under sections 11(3) (first registration of freeholds) and 12(3) (first registration of leaseholds), the effect of registration is to confer title and to make that title conclusive, subject to any statutory right of rectification. The effect of a failure to register when registration is compulsory is severe. Section 6 of the LRA 2002 imposes the duty to apply for registration within two months of disposition, while section 7 provides that the failure to register makes purported grant or conveyance void. In this instance, property will revert to former owner subject to bare trust for new owner, except where it is a new grant, in which case it takes effect instead as a contract for consideration to transfer land (an estate contract). Section 8 makes the former owner liable for costs and any reasonable consequences. Under this registration scheme, there is an incentive to register, particularly in light of the pre-Act decision in (Brown & Root Technology Ltd v Sun Alliance Ltd) [2002] 2 WLR 566, which held that a third party cannot deal with an unregistered transferee while the legal estate remains outstanding in transferor, despite any equitable interest that the transferee might have.

3. Minimising Off-Register Interests
Part of the policy shift towards ensuring the full content of the register includes initiatives dealing with overriding interests, enhanced notice requirements and dealing with the problematic issue of adverse possession.

(i) Overriding Interests
The critical difference between the rules in registered and unregistered land is the concept of the overriding interest, which are exceptions to the rule that the Land Register mirrors or reflects the actual structure of title. Overriding interests -commonly interests held by third parties in or on the land - are often termed the 'crack in the mirror'. There is a list of interests that are overriding in the context of land transfers, which includes both legal and equitable types. The traditional explanation for these interests, first introduced and defined in section 70 of the LRA 1925 and renamed in the LRA 2002 as 'interests that override a registered disposition', is that people with these rights cannot reasonably be expected to protect them on a register. The list of overriding interests include a number of very important rights, including servitudes by prescription, rights based on the doctrine of estoppel, constructive and other implied trusts, and short leases as well as occupiers' rights. Overall, however, this category will decline as more interests become subject to registration by virtue of powers that may be issued under section 5 of the LRA 2002. Furthermore, after the LRA 2002, some of the more obscure examples (often of medieeval origin) of such interests are now subject to 'sunset clauses' and will no longer be overriding if not registered or protected by 13 October 2013.

Furthermore, the LRA 2002 alters significantly the application of 'overriding interests' by distinguishing between overriding at the point of first registration and when transfers are subsequently made of registered land. Schedule 1 of the Act deals with 'unregistered interests which override first registration' and preserves the impact of the doctrine of overriding interests as first enacted in 1925, in that these interests will override when land is first registered irrespective of any enquiry, inspection or investigation. Schedule 3, dealing with 'unregistered interests which override registered dispositions' contains provisions similar to those in Schedule 1, but with extra conditions or restrictions, the rationale here being that the law should be stricter in the case of claims for the creation and maintenance of overriding interests where the underlying land is already registered. For example, in relation to the interests of persons in actual occupation, these will continue to override subsequent transfers unless there is a failure to disclose the interest on inquiry when disclosure could have been reasonably expected or where a person's occupation would not have been obvious on a reasonably careful inspection of the land of which the purchaser had no actual knowledge.

(ii) More Notice of Other Interests
Under the LRA 1925, this category was known as 'minor interests', which were normally not binding unless registered or holder was in 'actual occupation', when they would be 'promoted' to overriding interests. Now, under LRA 2002, there are two classes of interest which require protection on the Land Register: (a) those that will bind a purchaser if appropriately protected by entry on the Land Register; and (b) those that will not bind a purchaser even when registered but will be overreached. The forms of registration for such interests are: (a) notices by an entry in the charges section of the Land Register of two possible types: agreed notice (where the registered proprietor consents to notice) and unilateral notice (or hostile notice) which is valid for a limited period and can be challenged by the registered proprietor; and (b) restrictions by an entry in the proprietorship section of the Land Register; which are usually to prevent dealings with property unless certain conditions are met; for example, to protect beneficiaries of a trust by making third parties aware of need to pay to two trustees in order to overreach their interests.

(iii) Adverse Possession
The ordinary limitation rules for adverse possession (possession by prescription) have been disapplied for registered land and replaced with the scheme in section 96 and paragraphs 9(1)-(3) of Schedule 6 of the LRA 2002. The three-stage process involves an application by the adverse possessor after ten years in occupation together with notice to the registered owner being served by the Land Registry allowing for resolution by the owner and the initiation of recovery proceedings. In the absence of any response being received, the adverse possessor is entitled to immediate registration as owner. If, despite a response by the true owner, no further proceedings are taken by him, the adverse possessor is also entitled to make a further application after two years for registration as the owner. Where proceedings are initiated by the true owner, normally this will lead to the eviction of the adverse possessor. Nonetheless, the adverse possessor's application may still be saved by special conditions, including where it would be unconscionable (because of an estoppel) for the applicant to be dispossessed or if there are circumstances in favour of registration. Furthermore, where the adverse possessor is entitled for some reason to be registered (usually where the adverse possessor is on the land under a belief that he has title or has been given a title that is not subsequently perfected) or where the issue relates to adjacent land where a boundary has not been determined and there is a reasonable belief of ownership, registration under Schedule 6 may also be permitted. The new regime for land registration reduces the function of adverse possession for land governed by the Land Registration Act 2002, although its impact may be limited mostly to genuine boundary disputes, such as in the context of new estate developments, where the developer puts fences up or delineates boundaries wrongly. Nonetheless, because the existing regime for unregistered land is being left untouched, under which twelve years in adverse possession will ground an absolute right to become registered as owner of the land, this fact may also lead to more land becoming registered to take advantage of the new (and more) restrictive rules under the LRA 2002.

The author would like to acknowledge the kind invitation by Professor André Boraine of the University of Pretoria to deliver a paper to the Pretoria and UNISA Property Law Group in May 2007, on which this summary is based.

Repubished with permission from SA Deeds Journal

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