Lecture 3 - equity, estates and unregistered title PDF

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Land Law – Lecture 3 Equity, Estates and unregistered title In this lecture: •

We will look at what Equity is and why it is important to understand it for the study of Land Law

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We will look at “Estates in Land, Legal Interests & Equitable Interests”

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We will then look at the Unregistered title to land and how estates, interests and equitable interests are discoverable and whom they bind.

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This is a precursor to next week’s session on Registered Land.

Equity an introduction; -

Imperative to an understanding of Land Law is the contribution that Equity (as a major source of law has made over the years). Where does it fall in the scheme of things? For the potted story see David Hayton, ‘The Development of Equity and the “good person philosophy in Common Law systems’ [2012] Conv 263

Legal Estates under the Law of Property Act 1925 Under s1(1) of the LPA 1925 the only legal estates that could exist in land were reduced to two: 1. The term of years absolute and 2. The fee simple absolute. 1. However, apart from the two legal estates, there were lesser rights which could be created and were enforceable at law: (Legal Interests under the LPA Under section 1(2) of the Law of Property Act 1925 the following interests could exist at law: a) An easement, right or privilege in or over land for an interest equivalent to an estate in the fee simple absolute in possession or a term of years absolute (s1(2) (a)) b) A rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute (s 1(2) (b) ) c) A charge by way of a legal mortgage (s 1(2) (c)) d) And any other similar charge on land which is not created by an instrument (of very little importance today) s(1(2) (d)) e) Rights of re-entry exercisable over a legal term of years absolute (this right reserved to the owner of the rentcharge to enter the land if the owner of the estate fails to pay the sum due) (s 1(2) (e) b) Other proprietary rights in land therefore are said to be equitable only under s1(3) of the 1925 Act. These include c) The rights or a beneficiary under a trust of land

Land Law – Lecture 3 d) An interest under a contract to create a legal estate or interest in land. The purchaser is treated as owning an equitable estate from the date the contract is exchanged. The legal estate continues to vest in the owner. e) Restrictive covenants f)

Interests that become equitable as a result of statutory reform.

g) Interests that have not conformed with the requisite formalities in their creation, e.g. A deed to convey an interest in land which must be signed witnessed, contain all the terms and be delivered. If these are not complied with then the interest conveyed will be equitable only. This lit would include leases, easements, profits a prendre and also mortgage charges. (They are all capable of existing at law) •

Note also two important equitable remedies –

Injunction – an order to act or refrain from acting

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Specific performance – remedy for breach of contract – orders party to perform contract •

Compels vendor (seller) of an estate in land to sell the estate to the buyer – rather than merely paying compensation for failure to do so.

Conflict between law and equity •

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Two sets of courts and two bodies of law could produce results on the same facts – eg: –

In the case of the use / trust created by X:

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Y is the legal owner of the estate, and at Common law can use it for his own benefit; but in Equity he is a trustee, and must hold the property for the benefit of X’s family

How were these reconciled.................?

Administration of Law and Equity fused in 19th century •

Court structure reformed by the Judicature Acts 1873/5 – separate courts of law and equity abolished – replaced by the Supreme court of Judicature (High court and Court of Appeal)

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Law and Equity applied as appropriate in all courts

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NB statutory provision that in any conflict between rules of common law and equity ‘the rules of equity shall prevail’ –

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Judicature Act 1873 s. 25(11) –provision now contained in Supreme Court Act 1981 s.49

Maxims •

Equity will not suffer a wrong to without a remedy

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Equity follows the law

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He who seeks equity must do Equity

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He who comes to Equity must come with clean hands

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Equity is Equality

Land Law – Lecture 3 •

Where the equities are equal the first in time prevails

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Equity imputes and intention to fulfill an obligation

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Equity regards as done that which ought to be done

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Equity looks to intent (substance) rather than form

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Delay defeats Equity

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Equity acts in personam

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Equity will not allow a statute to be used as an instrument of fraud

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Equity will not perfect an imperfect gift

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Equity will not assist a volunteer

Equitable interest in land •

The Court of Chancery developed third-party rights in land (equitable interests)

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(A) Janet may hold the freehold estate in The Oaks as a trustee –

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Under an express trust – eg for her children

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Under an implied trust – eg for herself and her husband or partner – because: •

Husband / partner contributed to the cost of buying The Oaks (resulting trust)

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Husband/ partner was led to believe by Janet that would receive a share in the property and court considers that she acted unconscionably in denying this (Constructive Trust)

(B) Janet may have contracted to sell The Oaks to Percy – who will have rights to the property under an Estate Contract – –

If Janet refused to perform contract, Percy could seek equitable remedy of specific performance ie compel Janet to transfer freehold estate to Percy.

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Equity ‘regards as done that which ought to be done’ i.e it regards parties to specifically enforceable contracts as being in position they would be in if contract was performed-

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So percy is regarded by Equity as owning freehold estate from date of contract.

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(c) A previous owner of The Oaks may have covenanted with a neighbour that he would not use the property for business purposes – the neighbour may have the right to enforce this restrictive covenant against Janet.

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(d) Janet may have encouraged her elderly mother to come and live with her in The Oaks, promising that she will have a home for life there. If Janet’s mother ‘relied on this representation to her detriment’ she may have ‘an equity arising from estoppel’ and may be entitled to stay in the property.

Estates, legal and equitable rights

Land Law – Lecture 3 Pre 1925 •

3 Common freehold estates

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Fee simple –

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Fee Tail –

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For as long as there were heirs to inherit. Estate would not end unless all possible heirs were dead. Estate could potentially last forever.

For as long as the grantee’s lineal descendants lasted. (N.b Fee tail male)

Life estate –

For as long as the life of the grantee or the life of a named person. Not a fee, because it is not inheritable.

Modern impact of the doctrine of estates •

Old Common law estates were preserved, with modifications and additions in the property legislation of 1925

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Title registration now contained in LRA 2002 is premised on intellectual construction of the estate.

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Modern property legislation faithfully maintains the ancient theory that land ownership and use are mediated, not by the attribution to individuals of any direct ownership or dominium over the land itself, but rather by the distribution of intangible jural entitlements which are interposed between persons and land.

Emergence of the leashold estate •

During the last 3 centuries – the gradual decline of the lesser freehold estates has been accompanied by the increasing prominence of the leasehold estate.

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Known more properly as “term of years absolute” – denotes exclusive possession of land for a term certain

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Although viewed early on as conferring merely a personal or contractual right, - the leasehold device later came to be recognised as giving rise to entitlements of a distinctly proprietary character

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1925 legislation duly confirmed that the fee simple absolute had been joined by the “term of years absolute”.

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More later on in the course…

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The leasehold estate comprised by definition a slice of time of fixed maximum duration, which can be granted either out of the allodium of the crown (by way of crown lease), or by the owner of a fee simple estate, or indeed by a leaseholder by way of sublease (for a period shorter than the duration of his own leasehold estate).

Fee simple absolute in possession •

Fee simple can assume several forms.

Land Law – Lecture 3 •

Only FSAP is straightforwardly declared by statute to ‘be capable of subsisting or of being conveyed or created’ as a legal estate in land.

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Term absolute – qualifies the character of a fee simple estate in such a way as to distinguish it from various forms of modified fee such as ‘determinable’ and ‘conditional’

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These more limited forms of fee simple can still exist – usually in equity and are rare nowadays and the preserve of the eccentric!

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“in possession” connotes that the owner of the fee simple is immediately entitled to occupation and enjoyment of the land from the effective date of the grant. Possession – distinguishes this from of fee simple from those estates in fee simple which are merely ‘in remainder’ or ‘in reversion’

How does unregistered title work? •

In respect of Unregistered title – there exists NO Public record of Ownership. (Estates)

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NOR

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With the isolated exception of the Land Charges Act 1972 - do any proprietary rights exercisable over such estates appear on any general or centralised register. (Interests)

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It is therefore NOTORIOUSLY difficult to discover the proprietorship of certain unregistered estates

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An ancient & valuable clue to large tracts of dynastically owned unregistered land : ‘The New Domesday Book’ Kevin Cahill, Who Owns Britain (Canongate, Edinburgh 2001)

Evidence of title to an unregistered estate •

Evidence of title usually exists only in the form of a chain of documentary record (or ‘title deeds’) which detail successive transactions with that land over the course of time.

In short •

The process of unregistered conveyancing is thereby rendered repetitive , protracted and costly.

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Even today – where dealings with unregistered estates will more than likely TRIGGER a requirement of substantive registration of title – pre- registration rights and liabilities attaching to the land fall to be determined by reference to the principles which regulate unregistered estates and which require to be recorded on a first registration.

Principles which settle the priority of entitlements Estates •

Before 1926 – 3 Freehold estates

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After 1925

Land Law – Lecture 3 LPA 1925 s.1(1): The only estates in land which are capable of subsisting or of being conveyed or created at law are: (a) An estate in fee simple absolute possession (b) A term of years absolute Interests •

Other people in addition to the estate owner may have rights over the property i.e. ‘interests’ in the land (also called : ‘third party rights’, ‘encumbrances’ etc.).

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Examples of Third-Party Interests

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(a) Janet’s neighbour may have a right to drive over her land to reach his garage – a right of way – a type of easement.

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(b) another neighbour may have a right to graze a goat in Janet’s paddock – a profit a prendre.

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(c ) A bank or building society may have lent money to enable Janet to buy The Oaks – loan by a mortgage •

(mortgagor) : estate owner who mortgages his property to secure a loan (the borrower.

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(mortgagee): the lender, to whom the mortgage is granted to secure the load.

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(d) A third party may have a right to collect a periodical payment from Janet – eg to maintain shared facilities, such as a communal garden – a rentcharge.

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(e) A neighbour may be cultivating part of Janet’s garden without her knowledge – perhaps because of uncertainty about the boundary line – he will have the right of an ‘adverse possessor’ or ‘squatter’

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Historically, all the rights described above (and others) were recognised and developed by the Common Law Courts – and could exist as legal interests over Janet’s property

Buying an estate before 1926 •

Prospective buyer would want to know two things

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(1) Did the vendor (seller) own the estate he was offering to sell?

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(2) Was the estate subject to any third party rights? (i.e legal or equitable interests)

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Ownership of Estate

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Vendor would prove title by producing title deeds – i.e documents which had transferred the estate from one previous owner to another – and finally to the vendor.

Third party interests •

Discovering the Interests –

The prospective buyer would find out about such rights-

Land Law – Lecture 3 •

From title deeds

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By asking the vendor

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By inspecting the land

Would the interest bind the buyer •

Legal interests – were said ‘to bind all the world’ ie they were enforceable against anyone who acquired the estate – whether or not for value and irrespective of whether he knew about them

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So the buyer would be bound by all legal third-party rights.

Equitable interests •

Enforceable against anyone who acquired the estate provided he was not ‘a bona-fide purchaser of the legal estate for value without notice’

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So the buyer would have to be very careful to investigate title property to avoid having constructive notice; and process of checking title deeds, making enquiries and inspections etc. could be lengthy and complicated.

Bona fide purchaser •

Bona Fide Purchaser means ‘to act in good faith’

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Purchaser for value means that something of value must have been given. It does not have to be money, it could be in kind and it does not have to be what the property is worth.

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Of the legal estate : the purchaser must have purchased a legal estate in the land rather than an equitable estate.

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Bona Fide Purchaser must be without notice of the equitable rights.

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There are three forms of notice

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Actual notice

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Constructive Notice

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Imputed Notice.

Actual notice •

Actual Notice is, as the name suggests, actual knowledge of the existence of an equitable interest. A suspicion of the existence of an equitable or beneficial interest which arises from rumour or hearsay is not actual notice, though it could be constructive notice

Constructive notice •

Constructive notice is knowledge which you would have, had you made all the proper enquiries if such inquiries had been made as ought reasonably to have been made (s199 LPA 1925)

Land Law – Lecture 3 •

Before purchasing property with an unregistered title, a purchaser should make three types of enquiry –

Check the seller’s title to land up to a good root of title – s44 LPA 1925 as amended by s23 LPA 1969

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Check any relevant registers showing rights adversely affecting the land

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Inspect the land and enquire of those in occupation. See Kingsnorth

Kingsnorth Trust Ltd v Tizard [1986] 1 WLR 783 •

A husband and wife separated. The husband continued to live in the matrimonial home with two children of the marriage; the wife visited the property only when the husband was away on business, although she did keep some of her belongings in the premises.

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The husband (as sole legal owner) mortgaged the property to Kingsnorth. Kingsnorth, through their surveyor, agreed to a pre arranged inspection of the premises but never saw any sign of the existence of the wife and therefore made no enquiries of her.

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It was held that Mrs Tizard was in occupation, which need not be exclusive, continuous or uninterrupted.

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The presence of the children gave Kingsnorth constructive notice of the possible existence of a wife, who might have an interest in the house, and they should therefore have made further enquiries.

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For instance, they should not have made a pre-arranged inspection but should have visited without warning.

Imputed notice -

This is the actual or constructive notice of an agent acting for a purchaser. Thus the knowledge of a solicitor employed to undertake the conveyance of a house- or, as in Kingsnorth v Tizard, a surveyor (Kingsnorth’s surveyor knew of the existence of Mrs Tizard and that the couple were recently separated) – is imputed to the purchaser

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It should be remembered that much of the doctrine of notice has been NOW - TODAY been overridden by statute.

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(There are however, a number of crucial instances where aspects of it are in use)(See next time)

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So the buyer would have to be very careful to investigate title property to avoid having constructive notice; and process of checking title deeds, making enquiries and inspections etc. could be lengthy and complicated.

Unregistered land and trust property Trust property •

Might be desirable to sell land which was subject to a trust, but buyer would take free of ‘beneficiaries’ interests only if they, the beneficiaries, all consented to sale.

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Danger that if they did not, buyer would find himself holding property as trustee ie subject to beneficiaries’ interests.

Land Law – Lecture 3 •

19th century; statutes introduce the process of overreaching to deal with sale of trust property.

Overreaching •

Provided buyer pays purchase money to two trustees, beneficiaries’ interests in property are ‘overreached’ ie the beneficiaries’ interests are ‘taken off’ the land and go against the purchase money instead. So buyer takes the land free from the trust.

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The process was introduced by a series of acts, culminating in the 1925 legislation (see LPA 1...