2. Land law - creation and priority of interests Sample question and application of model answer template (University of London international LLB students) Copyright © G.Vuolo and Law Student's Companion 2013. All rights reserved.

3. Example question Hector was the registered owner of 3 houses, numbers 77 & 79 & 81 Park Road. He had bought the houses so that he and his girlfriend, Clara, could live in number 77, while getting an income from renting out the other two. Clara had contributed part of the purchase price of number 77. In July 2012, Hector agreed in writing with Alan that he would give Alan a right to occupy number 79 for 5 years. Alan moved in straightaway and has paid Hector £500 every month. (cont…..)

4. In January 2013, Hector orally granted a 2 year lease of number 81 to Bina, an actress. Bina lives abroad and uses the house only when filming in the UK. Six months ago, Clara became bored and decided to go on a round-the-world cruise. Hector was so angry at her leaving that he burned all her possessions. Hector has just sold the three houses to Rashid, and has gone off to live with a new girlfriend. (cont…..)

5. Clara has now returned, and Rashid seeks your advice on whether he is bound by any rights that she or any of the other parties may have. Would your answer differ if title to the houses were unregistered at the time of sale to Rashid?

6. Create your answer in 3 easy steps. 1. Delete any optional steps which don't apply 2. Delete the issues that do not arise in your question 3. Add in the statements of law, and add your comments in the appropriate places applying the contents of the template to the facts

7. Creation Generally, a right which does not amount to an interest in land can only be enforced between the original parties. To amount to an estate or interest in land, the right must be of a recognised type, and must have been created in accordance with the requirements of either law or equity. Example answer

8. Interests at law A right will amount to a legal interest if it is capable of being a legal interest, properly granted and, in some cases, registered.

9. The right must be capable of being a legal interest The only rights capable of existing as estates and interests at law are listed in s.1(1) & (2) LPA 1925. Other rights may amount to interests, but could only ever be equitable (s.1(3) LPA 1925).

10. Express right of occupation A lease is within s.1(1) LPA 1925 and so is capable of existing at law. To amount to a lease, the right must be for a period which is certain, and must allow exclusive possession of the property (Street v Mountford 1985).

11. Here, Alan’s right to occupy for 5 years is capable of existing at law (as a lease), provided it allows him exclusive possession of number 79. Bina’s right to number 81 is, we are told, a lease, and so capable of existing at law.

12. The claimant was allowed into possession Provided the claimant is entitled to exclusive possession, this will be treated as an implied grant of a (legal) periodic lease, provided rent has been paid. The period of the lease will be the period for which rent is paid.

13. Here, then, Alan has an implied periodic tenancy. It would be a monthly tenancy, since his rent is paid monthly.

14. The right must have been properly created There must have been an immediate grant, by will or in a ‘deed’ (s.52(1) LPA 1925). A 'deed' is a document which is clear on its face that it is a 'deed', signed by the grantor, witnessed and delivered (s.1 LPMPA 1989)

15. Agreement to grant An agreement to grant is not an immediate disposition and so cannot create the interest in law. It may, however, be effective in equity (to be discussed below)..

16. So Alan’s right cannot take effect as a legal 5 year lease.

17. Lease for 3 years or less As an exception to s.52(1), a grant of a lease for 3 years or less will be effective in law, regardless of how it was made, provided that it is to take effect immediately, there is no fine or premium and it is at the best rent (s.54(2) LPA 1925).

18. Assuming that the other conditions of s.54(2) LPA 1925 are met here, the oral grant to Bina of a 2 year lease will be effective at law.

19. Registration None of the possible legal interests here requires registration.

20. Interests in equity A right may take effect as an equitable interest in certain specific circumstances. If none of these applies, the right remains a merely personal one.

21. Agreement for a legal interest In order to be enforceable as a valid contract, even between the original parties personally, an agreement for an interest in land must not only meet the usual requirements of a contract, but must also satisfy s.2(1) LPMPA 1989 (be in writing, signed by both parties and contain all the agreed terms). Provided the contract is one which a court would enforce by an order for specific performance, the contract itself creates an interest in equity, following the maxim, ‘equity regards as done that which ought to be done’ (Walsh v Lonsdale 1882).

22. Here, provided the written agreement between Hector and Alan contained all the agreed terms and was signed by both of them, it will take effect as an equitable lease for 5 years.

23. Financial contribution This may give rise to an implied beneficial interest under a trust. No formalities are required (s.53(2) LPA 1925).

24. Clara contributed to the purchase of number 77, and so is likely to have an implied trust interest.

25. Priority of interests (registered title) By S.29 Land Registration Act 2002, on a registered disposition a purchaser not for value will be bound by all prior interests. A purchaser for value will only be bound by a prior interest if i/. the interest appears on the register, or ii/. the interest is one which ’overrides’.

26. Legal interests A legal interest will always be binding, either because it had to be registered when originally acquired, or because it is one of the legal interests which overrides under sch.3.

27. Post - LRA 2002 non-registrable legal lease This is specified under sch. 3, para.1 LRA 2002 as a type of interest which overrides.

28. Neither Bina’s lease for 2 years nor Alan’s monthly periodic tenancy were registrable. Both these interests bind Rashid as interests which override within sch.3, para.1.

29. Equitable interests Equitable interests can always be actively protected by entry on the register, usually as a notice under s.32 LRA 2002.

30. Beneficial interest under a trust A trust interest cannot be entered as a notice, but instead a restriction can be entered on the proprietorship register under s.40 LRA 2002. This will prevent transfer into the purchaser’s name, unless the interest is ‘overreached’ (sections 2 and 27 of the LPA 1925). It will only be overreached if the purchase was from 2 or more legal title holders and payment was made to all of them, in which case the purchaser takes the property free from the interest (ss.2 & 27 LPA 1925).

31. Clearly here, since the property was sold by Hector alone, Clara cannot have entered a restriction.

32. Interest is not protected on register Any interest held by someone in ‘actual occupation’ at the time of the sale overrides under sch.3, para.2 LRA 2002, provided that the purchaser is aware of the interest or the occupation is obvious on a reasonably careful inspection.

33. Interest holder temporarily absent from the property at time of sale Although obviously now less likely to be reasonably discoverable, the interest holder may still be regarded as in ‘actual occupation’ despite being absent. This will always be a question of fact. For example, in Chhokar and Chhokar (1984), a wife whose husband transferred their home while she was in hospital having a baby was nevertheless held to be in actual occupation. (cont…..)

34. What is required in these circumstances is a ‘sufficient degree of permanence and continuity’ and a ‘persistent intention to return’ (Link Lending v Bustard 2010). In Link Lending, the claimant had been in hospital for a year. She was held nevertheless to be in actual occupation, since at all times she had an intention to return, and also because of the fact that she was not absent by her own choice. In Stockholm Finance v Garden Holdings (1995), a claimant who only used the property during her occasional visits to London was held not to be in actual occupation while she was absent.

35. Here, then, it is possible that Clara would still be considered to be in actual occupation. Nevertheless, Clara’s interest will only bind if Rashid knew of the interest or if Clara’s occupation was discoverable on a reasonably careful inspection. This may not be the case, since Hector had burned all her possessions.

36. As far as Alan is concerned, it appears he was in actual occupation at the time of sale. Assuming then that his occupation was discoverable on a reasonably careful inspection, his equitable lease binds Rashid under sch.3, para.2.

37. Priority of interests (unregistered title) Priority on the sale or mortgage of and estate with unregistered title depends on whether the interest is a land charge, and if not, on whether it is legal or equitable.

38. Land charges If the interest is a land charge under the Land Charges Act 1972, and has been entered on the land charges register, the purchaser is bound by it (s.198 LPA 1925).

39. Alan’s equitable lease is a land charge and so will bind Rashid if it has been entered on the land charges register.

40. Land charge not registered, but the purchaser knew the interest existed The purchaser’s actual knowledge is irrelevant (Midland Bank v Green (1981)).

41. So, if Alan had not registered his interest, it will not bind Rashid even if he knew it existed.

42. Land charge not registered, but the purchaser paid a low purchase price The amount the purchaser paid for the property is irrelevant (Midland Bank v Green (1981)).

43. So, if Alan had not registered his interest, it will not bind Rashid even if he paid a low purchase price.

44. Other legal interests Legal interests which are not land charges are still governed by the rule that ‘legal interests bind the world.’

45. So, both Bina’s lease and Alan’s implied periodic tenancy are binding on Rashid.

46. Other equitable interests Equitable interests which are not land charges are still governed by the old rule that the purchaser will be bound unless he is a bona fide purchaser of a legal estate for value without notice (‘equity’s darling’).

47. Purchaser was unaware of the interest Although he may have no ‘actual’ knowledge of the interest, the purchaser will still be bound if he had ‘constructive’ notice. This is defined in s.199 LPA (1925) as the knowledge he would have had if he had taken reasonable steps to discover the existence of the interest. What would be ‘reasonable steps’ is a question of fact (eg. Kingsnorth Finance v Tizard 1986).

48. So, even if Rashid had no actual knowledge of Clara’s interest, it will still bind him if Clara’s interest could have been discovered by taking reasonable steps. Again, this may not be the case, since Hector had burned all her possessions.

49. End Copyright © G.Vuolo and Law Student's Companion 2013. All rights reserved.