Suggested Answer to Exercise 16.2 (Part 3)
A Detailed Answer Plan
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The transfer of the legal estate to Dee will trigger first registration (LRA 2002, s 4(1)(a)(i) LRA 2002). Dee will take the land subject to any interests entered on the Register or capable of overriding it (LRA 2002, s 11(4)), provided that these interests were valid at the date of the transfer of the estate. We shall assume that the contract between Hilary and Dee satisfies section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
The validity of the interests up to and including the date of the transfer of the legal estate depends upon the basic rules of unregistered land. Dee will take the house subject to:
- any pre-existing legal interest, except an unregistered puisne mortgage,
- any interest which must be registered under the Land Charges Act 1972, and is properly registered, and
- any other interest which could not have been registered under the Land Charges Act 1972, which has not been overreached under the LPA 1925, and of which Dee has actual, imputed or constructive notice.
- Clive does not have a pre-existing legal interest. For the lease to Clive to operate at law it must be made by deed (LPA 1925, s 54); and be registered within two months of its creation (LRA 2002, ss 4(1)(c)(i), 5, and 6).
Note that if Hilary had granted Clive a legal lease, that lease would have had priority over both the contract to sell the land to Dee, and the eventual transfer of the land to Dee. However, see also the comments on the restrictive covenant below.
- Neither does Clive have a pre-existing equitable interest. An equitable interest in land must be in writing, satisfying s.2 LP(MP) Act 1989.
Note that if the lease had been equitable, Clive should register it as a C(iv) Land Charge (an estate contract). If he protected an equitable lease before Dee had protected her contract (whether by registration of a land charge, applying for a search giving her priority or by completing the transfer) Dee would take subject to Clive’s equitable lease. If Clive had an unprotected equitable lease, it would be void against Dee provided that she gave money or money’s worth for Hilary’s legal estate in the land. However, see also the comments on the restrictive covenant below.
- Clive has no interest in the land. He must negotiate with Dee and meet her terms. He has a personal remedy against Hilary (damages) if he can find her.
- Assuming that Lucy is not a co-owner of the legal estate (that is, that her name does not appear on the title deeds), Lucy’s contribution to the purchase of the house means that she has a beneficial interest. Quantification of this beneficial interest lies outside the scope of this answer.
- A beneficial interest (trust) cannot be protected by registration as a land charge under the LCA 1972.
- Lucy’s interest can be overreached by the transfer of the legal estate in the house to Dee, provided that Dee pays the proceeds of sale to two or more trustees or a trust corporation (LPA 1925, ss 2, 27). Payment to Hilary alone will not overreach Lucy’s interest.
- Subject to there being sufficient trustees, Dee will be bound by Lucy’s interest after the registration of her title to the house unless:Dee did not have actual, constructive or imputed notice of Lucy’s interest at the date of the transfer: if Lucy was in occupation up to the date of transfer Dee will almost certainly have constructive notice (see, for example, Hunt v Luck  1 Ch 45 and Kingsnorth Finance Co Ltd v Tizard  1 WLR 783).
Lucy is no longer in actual occupation of the land (s.11(4)(b) and para. 2, Sched. 1 LRA 2002). Lucy’s interest will only be protected against that part of the land she actually occupies, in this case the ground floor.
- Emma’s lease is capable of being a legal lease. The formality requirements of do not apply to leases for a term not exceeding three years (LPA 1925, s 54(2)). The grant of a lease for a term not exceeding seven years does not normally trigger first registration of the lease (LRA 2002, s 4(1)).
- As Emma’s lease predates the contract with Dee, it will take priority over that contract. Upon completion and registration of the transfer to Dee, Emma’s lease will be binding on Dee as an interest capable of overriding the Register (LRA 2002, s 11(4)(b) and Sch 1, para. 1); note that it cannot be protected by registering a notice against the title (LRA 2002, s 33(b) LRA 2002).
- Emma may wish to register a caution against first registration of the house (LRA 2002, s 15) to ensure that Dee is alerted to Emma’s lease.
- There is, however, a further problem concerning Emma’s lease. The grant of the lease may be in breach of the restrictive covenant (it is being used as more than one private dwelling house, and as a source of income for Hilary). Even assuming that the burden of the restrictive covenant has passed to Hilary, the covenant will only still enforceable if it was created before 1926, or it has been protected by the registration of a D(ii) Land Charge.