Some interests override the registration system; these bind disponees, including disponees for value, despite being unregistered. [1]
EG: leases shorter than 7 years, legal easements, and rights of actual occupiers override the register.
The 1925 legislation said nothing of how disponees would discover overriding interests. Practically, this runs against the ‘mirror principle’.
Although the Law Commission considered abolition, the 2002 Act redefines overriding interests so that disponees have a better chance of not being bound by interests that they could not find yet are ultimately bound by. The reform significantly reduced the number of overriding interests that would be binding on disponees for value.
Actual Occupation:
When a person holds a proprietary right over some land (though not an estate), the interest will upgrade from an equitable right in rem to a legal right in rem if the person is occupying the property. [2]
Actual occupation can be an overriding interest for any proprietary right, providing it has not been specifically excluded by statute.
Note: personal rights, like contractual licences, do not qualify though.
Rights Requirement:
Permanent and personal physical occupation is not required to satisfy actual occupation, but the occupier must hold a proprietary right / interest.
The law protects this right to occupy, not the occupation itself.
In Kling v Keston, A had an option to purchase B’s garage. With B’s consent, A kept his car in the garage. A did not register the interest on the register. B sold the garage to C and C said that A couldn’t use the garage anymore.
The court held that A (by nature of the car being parked there – not personal occupation) was in actual occupation so he could enforce his overriding interest.
Where there is no right, there cannot be an overriding interest. This right must exist before the sale to the disponee to be a binding overriding interest.
In Scott v Southern Pacific, D (the title holder) promised C, who was in actual occupation, a lease over their land. D secured a mortgaged from SP and didn’t make good on their promise to C. When D defaulted on repayments, SP sought repossession. C claimed they had an overriding interest that frustrated SP’s action.
The SC held that C did not have a claim since D did not fulfil any promises, so C has no right. The occupier must have a right ‘at the time of the disposition’ (upon the creation of the mortgage).
A Degree of Continuity and Permanence:
Occupation of the land does not have to be permanent. However, there has to be some degree of continuity and permeance to occupation so that the actual occupation may be discoverable by the disponee. This means that there should be some evidence of a continuing intention to occupy.
In Link Lending v Bustard, the occupant had been in hospital for 6 weeks and at the time of inspection. The CA held that they had not given up their intention to return (especially since their personal belongings were still there and she continued to pay bills), so actual occupation was upheld.
In Stockholm v Garden, M conditionally gifted a house to D, meaning D had a proprietary right in it. The condition was that M may have to use the house as loan security in the future, which she did. D lived in the house and later moved out. M defaulted and the mortgagee sought to sell. D moves back in, on M’s request, to prevent the sale by asserting actual occupation. The court held D to not be in actual occupation.
Occupation by Proxy:
Actual occupation may be by proxy – you don’t have to be there.
In Malory v Cheshire Homes, M’s occupation was evident from having built a perimeter fence on the land and having boarded up broken windows on derelict land.
There has to be something about the proxy element that raises the possibility of there being an actual occupier who is someone other than the title holder. For this reason, the mere presence of chattels doesn’t usually establish actual occupation.
The use of access rights isn’t actual occupation. [3]
Children do not have overriding interests in their own right.
They may hold property rights (EG: beneficial entitlements by being named as beneficiaries of a trust, such as a will) but cannot claim overriding interests because they are not judged to be in actual occupation.
They are only on the land by virtue of the fact that their parents occupy it.
Reasonable Inspection:
Actual occupation must be capable of being ‘obvious on a reasonably careful inspection of the land at the time of the disposition’ or the transferee must actually know at the time of disposition.
This requirement was introduced following the Boland case.
In Williams v Boland, A holds title to the house, but B has contributed to the purchase price (so has a beneficial entitlement to the value of the house) and likes in the house. A took out a second mortgage with W to keep his business afloat. W assumed that B’s interest was overreached but did not check. When B defaulted, W wanted to sell.
The HL held that B’s beneficial entitlement is a property right and, if they are also in actual occupation, the rights is protected as an overriding interest. Therefore, the house could not be sold.
The Law Commission recommended that actual occupation be downgraded to an interest that only binds if registered. The recommendation was not followed, but rules tightened under LRA 2002.
Land Registration Act 2002:
Schedule 3, para 2(c) – An interest of a person in actual occupation binds a disponee as an overriding interest, except:
- Where actual occupation was not obvious on reasonably careful inspection of the land, and
- Where the disponee also didn’t know of the occupier’s proprietary right.
Schedule 3, para 2(b) – A disponee won’t be bound by actual occupation if the occupier failed to disclose this interest ‘when [the occupier] could reasonably been expected to do so’.
In Begum v Issa, I (disponee) alleged that he and B had discussed the property in an informal setting. B had an overriding interest but did not disclose this to I when questioned. The court held that it was not unreasonable for B to not disclose (due to the circumstances).
The disponee doesn’t actually have to carry out an inspection. The relevant question is hypothetical and objective: had the disponee carried out a reasonably careful inspection, would the occupation have been obvious?
In Chhokar v Chhokar (pre-LRA 2002), C1 was the sole registered title holder and C2 contributed to the purchase price. When the marriage fell apart, C2 remains in the property. When C2 was later hospitalised, C1 changed the locks and sold the house to P.
The CA held that C2 had an overriding interest which took priority over the sale to P. They decided that C2 was in actual occupation since she never gave up her intention to occupy and also because there was a proxy element (furniture, belongings etc.), which made the occupation discoverable to P. Sale therefore void.
Where the Overriding Interests of Actual Occupation can be Defeated:
Where overreaching occurs (EG: Flegg case – 2 trustee rule).
Where the actual occupiers assent to it occurring, explicitly or implicitly. [4]
Where the actual occupation cannot be proved.
Where the occupier does not have a property right.
Where the disponee is protected under LRA 2002 (schedule 3).
Where it is established that the occupier unreasonably failed to disclose.
Resources:
References:
[1] Land Registration Act 1925, s70 [2] Land Registration Act 1925, s70(1)(g) [3] Chaudhary v Yavuz [2011] EWCA Civ 1314 [4] Bristol & West Building Society v Henning [1985] 1 WLR 778; also see Paddington Building Society v Mendelsohn (1985) 50 P & CR 244
Cases Mentioned:
Kling v Keston Properties [1985] 49 P & CR 212
Scott v Southern Pacific Mortgages [2014] UKSC 52
Link Lending v Bustard [2010] EWCA Civ 424
Stockholm Finance v Garden Holdings [1995] NPC 162
Malory v Cheshire Homes [2002] EWCA Civ 151
Williams & Glyn’s Bank v Boland [1981] AC 487
Begum v Issa [2014] EW Misc B51 (CC)
Chhokar v Chhokar [1984] FLR 313