Property Rights

Property can be defined as “rights against the world”, in contrast to the contractual rights
which are rightsagainst individuals. In other words, property rights give the rights-holder the
ability to exclude anyone in theworld from interfering with that right apart from someone
with a better claim to the right in question (forexample, in the case of a landlord and lessee)

However, there are in fact two types of property rights, known as legal and equitable
interests. A legal property interest arises at law. Equitable interests tend to arise more
informally, but that is not always the case. Anyonewho has an equitable property interest is
in fact asserting a claim that takes priority over the legal owner.So, for example, if X leaves
property to Y for the “benefit of his family”, then X’s family can enforce theirequitable
interest in the property against Y if he turns out to be untrustworthy. Therefore, even
though Y has thelegal title in the land, X’s family has an equitable interest which takes
priority over the legal one.However, there are exceptions to this, as we shall study
later.Proprietary RightsProprietary rights are those which are attached to the land
itself and are capable of binding third parties(subsequent purchasers) who acquire the
land. It is important to understand that land is capable of havingseveral different types of
estates and interests attached to it at any given time. For instance, estates over land
caninclude a freehold estate or a leasehold estate:i) Freehold or Fee simple absolute in
possession—this is the highest possible form of estate/ownership that canbe held in land
and anyone possessing the fee simple is regarded as the ‘owner’ of property.ii) Leasehold or
term of years absolute—this is a right to exclusive possession of property for a certain
period oftime against the payment of rent. Ordinarily, it is referred to as a lease.An interest
in land is a right which a person has over another’s land. Examples of such interests include:
(a) Easements – an easement gives a person the right to use the land of another in some
way or to prevent itfrom being used for certain purposes, e.g. rights of way and rights of
water and light.(b) Profit-a-pendre – a profit gives the right to take natural resources such as
petroleum and minerals from theland of another.(c) Mortgage – a mortgage is a charge on
land to secure a debt.Personal RightsA personal right refers to a permission to use land for a
specific purpose that is personal to the owner and whichcannot bind future purchasers of
the land. One category of such rights is known as a licence. A licence ispermission from an
owner of land (licensor) to the licensee to use the land for a specific purpose. A
licence,unlike leases or easements, is a personal right and not a proprietary right. A licence
does not pass any interest inthe property itself. In other words, a licence cannot be
transferred and does not bind any subsequent purchaserof the property.

Legal and Equitable InterestsOnly those estates and interests mentioned in S. 1(1) and S.
1(2) Law of Property Act 1925 are capable of beinglegal.1. Legal estates and equitable
interests. 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 in possession; [Ownership]b. A term
of years absolute. [Lease]2) The only interests or charges in or over land which are capable
of subsisting or of being conveyed or createdat law are— a. An easement, right, or privilege
in or over land…;b. [Deleted]c. A charge by way of legal mortgage; All other estates and
interests can only exist in equity (i.e. they are equitable interests), as specified by S.1(3)LPA
1925. Therefore, if a particular estate or interest does not fall within S. 1(1) or 1(2), it must
be equitable in nature.
Registered and Unregistered TitleBefore 1925, in order to be enforceable, rights in
land had to be evidenced by “paper title deeds” (i.e.documentary proof of
ownership of property). This system led to quite a few problems, since it is not
alwaysobvious who owns land and who has rights over it. Purchasers of land had to conduct
thorough investigation ofthe land before purchase in order to determine whether the
property was “encumbered” by rights belonging toany other person. Failure to
conduct a proper investigation could result in future owners
(subsequentpurchasers) being encumbered by pre-existing rights. Therefore, a system of
land registration was designed through the Land Registration Act 1925, which wasupdated
by the Land Registration Act 2002, so that people's rights over land would be
certain, andconveyancing/transferring land would be simpler, cheaper and more efficient,
while ensuring that third-partyinterests in land (the proprietary rights of others in the
registered estate) are properly protected. Instead of papertitle deeds determining people's
rights in land, the entries in the Land Registry are the primary source thatdetermine
people's property rights. If a right is entered into the Land Register, it is automatically
binding on anynew owner of the land.However, there are many property rights that are
never expected to be registered, particularly the social claimsthat people had on family
homes (equitable co-ownership/trusts of the family home) or short
leases.Furthermore, not all land has to be registered and only when formal transactions
take place does registrationbecome a compulsory. This means that almost 12% of land in
the UK remains unregistered and a separatesystem of regulation applies to unregistered
land. Therefore, it is important to understand that in addition tocommon law and equitable
rules, two separate regimes exist for registered and unregistered land.Briefly, registered
land is land where the title deed has been registered at the Land Registry in a register that
isguaranteed by the state. Under Section 4 Land Registration Act 2002, certain transactions
require that the landbe compulsorily entered on the register. This includes any sale of the
property, mortgage, or any lease overseven years. However, the Land Registry registers only
legal estates. The underlying ownership (the ‘equitable’or ‘beneficial' interests) is not
registered. Accordingly, a person dealing with registered proprietors of an estatecan
generally assume they have unlimited power to dispose of the property, unless there is a
restriction or otherentry in the register limiting their powers. This reduces the need for
investigating separate titles.On the other hand, unregistered land is land that has
not been registered with HM Land Registry. Forunregistered land, proof of title of
ownership is based upon historical title deeds (documentary proof) and aregistry for certain
charges under the Land Charges Act 1972.Therefore, in order to properly understand land
law, you need to understand what right is being discussed: (i) Isit a legal right; or (ii) is it an
equitable right? Furthermore, you must determine if you are dealing with a right in:(i)
registered land; or (ii) unregistered land. After both of these questions have been settled, it
is important to askwhether the necessary steps have been taken to protect these rights i.e.
has the right been registered or not.

Unregistered LandUnregistered land is land that has not been registered with HM Land
Registry, and it therefore falls under theregime of unregistered land law. The rights that
exist as part of unregistered land and the doctrine of notice formkey elements of
understanding any scenario involving unregistered land. However, certain transactions
relatingto land can trigger compulsory registration. For instance, any transfer of land that
fails to register the land isautomatically void (LRA 2002, Section 6(4) and 7(1)).For
unregistered land, proof of title is based upon historical title deeds (Sen v Headley). These
documentsshould identify the person who currently holds the best “title” to the land and it
is necessary to look at least atthe previous 15 years in order to show a “good root of title.”
(S. 23 LPA 1969). Most interests in unregisteredland are capable of being protected by
registration as “land charges” under the Land Charges Act 1972 in aregister. This is different
from the HM Land Registry.1.1 Legal InterestsLegal estates/interests over unregistered land
(i.e. created by deed as per S. 52(1) LPA 1925 and S. 1 Law ofProperty (MP) Act 1989 - a
signed and witnessed document) are mainly automatically binding on any personcoming
into ownership or occupation of the land. Such interests include legal easements, legal
mortgages andlegal leaseholds. In other words, legal rights are binding on subsequent
owners. This rule is stated as 'legalrights bind the whole world' and is a principle of utmost
importance in unregistered land. As stated earlier, onlythose estates and interests
mentioned in S. 1(1) and S. 1(2) Law of Property Act 1925 are capable of being legal.All
other estates and interests can only exist in equity (i.e. they are equitable interests), as
specified by S.1(3)LPA 1925.1.2 Land ChargesThe LCA 1972 provides for the registration of
certain land charges (legal and equitable) in the land chargesregister, and this serves as
actual notice to all persons connected with the affected land (S. 198 LPA 1925),hence
protecting the interest even when the land is sold. A land charge is registered against the
name of theestate owner whose estate is intended to be affected, and not against the land
itself, which can cause difficultieswhen the estate was owned by multiple successive
owners. The land charges are set out in Section 2 LCA 1972and the most important for our
purposes (to be considered in more detail in later chapters) are: Puisne Mortgage (Class
C(i))— A puisne mortgage is defined in LCA 1972, S. 2(4) as a legal mortgagewhich is not
secured by a deposit of documents relating to the legal estate affected. This is usually a
secondmortgage of unregistered land. When lending money on the security of a
mortgage, a mortgagee willnormally take the deeds to the property away from the estate
owner in order to prevent further dealing withthe property. If the legal mortgagee takes the
deeds in this way, the mortgage is not a registerable landcharge, since the absence of the
title deeds is sufficient to alert any third-party buyers to the possibleexistence of a
mortgage.General Equitable Charge (Class C(iii))—this is any equitable charge which (1) is
not secured by a depositof documents relating to the legal estate affected1; and (2) does
not arise under a trust of land or affect aninterest arising under a trust of land (a beneficiary
under a trust of land cannot register that interest as a landcharge); and (3) is not included in
any other class of land charge.

1 This means that an equitable mortgagee who does not have the title deeds to the
property can register a C(iii) land charge, but an equitable mortgagee who has the deeds
cannot do so.

Estate Contract (Class C(iv))—this is a contract for the creation or conveyance of an estate in
the land; anoption to purchase; or a contract for a right of pre-emption. The contract
confers on the purchaser anequitable interest that is specifically enforceable against third
parties if registered. Equitable leases may beprotected under this head of land
charges.Restrictive Covenant (Class D(ii))—a restrictive covenant is a private
agreement between land ownerswhere one party will restrict the use of its land in some
way for the benefit of another's land.Equitable Easement (Class D(iii))—an equitable
easement is an implied easement created by equity, such asthrough an estate contract or by
other means.A Spouse’s/Civil Partner’s Right of Occupation Under the Family Law Act 1996
(Class F)—this is the rightof a spouse who is not entitled to occupy a house, but
can occupy on the basis of his/her spouse’sentitlement to occupy.Non-Registration of
Land ChargeIf a land charge is not registered before the completion of a purchase by a third
party, it will generally be voidagainst subsequent purchasers of the land (Hollington v
Rhodes), even if it is legal in nature (for example, apuisne mortgage). A purchaser is defined
in S.17 Land Charges Act 1972 as any person (including a mortgageeor lessee) who for
valuable consideration takes any interest in the land or in a charge on land. However,
theprecise effect of non-registration depends on the type of land charge and the
characteristics of the purchaser.An estate contract, restrictive covenant, or equitable
easement will be void for non-registration against apurchaser of a legal estate for money
or money’s worth (S. 4(6) Land Charges Act), whereas a puisnemortgage or a general
equitable charge or a spouse’s right of occupation of the matrimonial home will be voidfor
non-registration against any purchaser for value of the land or any interest in the land
(whether legal orequitable). ‘Money’s worth’ includes anything which is worth money (for
example transferring shares or other land to theseller) and includes nominal or “token”
consideration. However, ‘value’ is a broader term, and a 'purchaser forvalue' must offer
something that is recognized as valuable by the courts, but need not be financial. The
onlyexample likely to be encountered, and even then only rarely, is marriage consideration.
It is important to notethat an unregistered land charge is valid against a person who has
received the land as a mere gift, as it is neitherfor value or for money of money’s
worth.Summary of Land ChargesInterests in unregistered land which have a commercial
value should be registered as appropriate categories ofland charges. If no such registration
is carried out, then such an interest is void against a purchaser for value orfor
money/money’s worth, depending upon its nature. The doctrine of notice has no
application to land charges;thus, an unregistered land charge is void even if the purchaser
has actual notice of it, but the doctrine of notice isstill relevant in some areas of
unregistered land.

1.3 Overreaching:

Equitable rights of ownership under unregistered land can be either overreachable.

Overreaching is a process bywhich a purchaser of a legal estate will not be bound by pre-
existing equitable rights in the land, but theequitable interests do not ‘vanish’: instead,
they attach to the “purchase money”, converting rights into acorresponding share in that
money. Under s.2 LPA 1925, the purchaser will not be bound by any beneficialinterests
provided he pays the purchase money to at least two trustees under s.27 LPA 1925.For
example, if a purchaser pays $1000 to two trustees of a trust of land, which has 4
beneficiaries, each with25% share in the total, then the purchaser will not be bound by the
equitable interests of the beneficiaries.Rather, then beneficiaries will now each have 25%
share in the money. Overreachable rights are generally those of a family nature (such as
interests existing behind a trust) andregistrable land charges are those of a commercial
nature (such as easements, covenants and options). Interestswhich are registrable as land
charges under the Land Charges Act 1972 (LCA 1972) cannot be overreached. 1.4 Doctrine
of NoticeThe doctrine of notice applies in unregistered land to secure equitable interests,
the most significant of which isthe beneficial interest under a trust. Although it was
intended that equitable interests should be eitheroverreachable or registrable as land
charges, the doctrine of notice continues to govern those equitable intereststhat are not
covered by the 1925 scheme. Some of the more important interests which are still governed
bythe doctrine of notice are:1. Equitable interest arising under the doctrine of proprietary
estoppel; (ER Ives Investment Ltd vs High);2. A beneficial interest under a trust of land
where the interest is not overreached because, for example, thecapital money is paid to
only one trustee instead of two; (Caunce vs Caunce).Under the doctrine of notice, a bona
fide purchaser of a legal estate for value without actual, imputed orconstructive notice, is
not bound by a pre-existing equitable interest on the land. Such a purchaser is alsoreferred
to as “equity’s darling”.Bona fidesThis is a Latin term meaning good faith. The purchaser
must show that his absence of notice/knowledge was‘genuine and honest’ (Midland Bank
Trust Co Ltd v Green).Legal estateThis includes a purchase of the freehold, a legal lease or
charge by way of legal mortgage. It cannot be anequitable right.For valueThis excludes
gifts and conveyances for a nominal consideration. However, the consideration need not
bemarket value: Midland Bank v Green.Without notice For the purchaser or mortgagee to
take the legal estate free from the equitable interest, they must not havenotice (knowledge)
of the interest. Where a purchaser or mortgagee is aware or should have been aware of the
equitable interest this affects their conscience and they are then bound by the interest.
There are three types ofnotice: actual notice, constructive notice and imputed notice. Actual
notice This is where the purchaser or mortgagee was consciously aware of the existence of
the equitable interest LPA1925 s.199(1)(ii). Constructive notice Constructive notice is
concerned with what the purchaser or mortgagee ought to be aware of or what they
wouldhave discovered by making reasonable inquiries. Constructive notice is set out in
s.199(1)(ii) Law of PropertyAct 1925, which provides that a purchaser will be regarded as
notified if "it is within his own knowledge orwould have come to his knowledge if such
inquiries and inspections had been made as ought reasonably to havebeen made by
him."Reasonable inquiries including visiting the property and asking any occupants if they
have an interest or if theyare a tenant to whom they pay their rent: Hunt v Luck. Under the
rule in Hunt v Luck, a tenant’s occupation isnotice of all that tenant’s rights. The purchaser is
required to make inquiries as to all occupants: Williams &Glyn's Bank v Boland. Failure to
make any inspection of the property at all will result in the purchaser ormortgagee being
fixed with constructive notice: Lloyds Bank v Carrick An inadequate inspection may also
result in being fixed with constructive notice. For example, in KingsnorthFinance v Tizard, it
was held that when a bank’s agent inspected a property in which the clothes of a
divorceewere present, the bank’s agent was bound by the notice of the divorcee’s equitable
interest.Imputed notice A purchaser or mortgagee is deemed to know all that his agent
knows or has constructive notice of under s.199(1)(ii)(b) Law of Property Act 1925.
Diagram summary:

Summary Those interests in unregistered land which are neither registrable as land charges
nor overreachable, remainsubject to the old doctrine of notice. Actual, imputed or
constructive notice of such equitable rights may meanthat they bind even a purchaser of a
legal estate in the land. Much of the relevant law is confusing and complex.Voluntary and
Compulsory Registration of Unregistered LandCertain dispositions relating to unregistered
land can lead to the first registration of the title of the land, eithervoluntarily or
compulsorily. Registration can occur in advance of a dealing, on the basis of a
voluntaryapplication for first registration where a prospective purchaser or mortgagee may
have doubts about acceptingthe title. Otherwise, registration may also occur in the
following ways:Voluntary RegistrationUnder S. 3 of the LRA 2002, a person may apply to the
registrar to be registered as the proprietor of anunregistered legal estate if: (a) the estate is
vested in him, or (b) he is entitled to require the estate to be vested inhim. A leasehold
estate can only be registered voluntarily if more than 7 years of the term are still
left.Compulsory RegistrationCompulsory registration is triggered, according to S. 4 LRA
2002: (i) on a transfer of a freehold estate in land,(ii) on a transfer of an existing leasehold
estate in land; (iii) on the grant of a new leasehold estate in land for aterm of more than 7
years or for a term to take effect in possession after a period of 3 months from the date
ofthe grant; or (iv) on a first legal mortgage, among others.

Registration of Unregistered Title

The LRA 1925 was enacted to simplify conveyancing. It is based on the mirror,
curtain and insuranceprinciples, and has since been entirely replaced by the LRA 2002.
The 2002 Act does not have retrospectiveeffect, and therefore does not influence
dispositions made before 13 October 2003. Therefore, be careful toapply the relevant
instrument depending on the date of the disposition.1925: When must land be registered?
When there is a sale of previously unregistered land;When a gift of previously
unregistered land;When a lease of more than 21 years is made on unregistered
land;When a lease that has more than 21 years to run is transferred.

2002: When must land be registered?When there is a sale of previously unregistered

land;When a gift of previously unregistered land;When a lease of more than 7 years is
made on unregistered land;When a lease that has more than 7 years to run is
transferred;When the first legal mortgage is taken out on unregistered land;The owner
may voluntarily register his title (s.3)In registered land, interests are registrable under 4
categories:Registrable estates;Registrable interests;Overriding interests;Minor
interests.LRA 1925:Registrable estates: (1) freehold estate and (2) leasehold estate of more
than 21 years.Registrable interests: (1) easements and profits; (2) mortgages; (3) rights of
re-entry; (4) rent charge; and (5)land tax.LRA 2002:Registrable estates: (1) freehold estate
and (2) leasehold estate of more than 7 years; (3) Registrable interests: (1) easements and
profits; (2) mortgages; (3) rights of re-entry; (4) rent charge; and (5)land tax.