Property Law Notes

Part 1 out of 2

[125 pages]

Contents:

Definitions: What is Property? Distribution of Property Taxonomy

Possession + Interference with Possession + Relativity of Title

Ownership Tenure and Estates Introduction to Freehold & Leasehold Covenants

Personal Property Rights: Security Interests Fixtures and Mixtures Sale of Goods

Creation and Transfer + Formalities + Conveyancing

Priorities at Common Law + Priorities in Equity

Easements and Profits

1 What is Property?

Right in rem = a right to a thing which is enforceable generally against other members of society. Right in personam = a right to a thing which is enforceable only against specific persons. The division between property rights and personal rights is based on the enforceability of that right.

Wide definition – assignability of rights: Most rights in rem and rights in personam can be transferred to others, and most have value. If can be assigned to third parties, indicates they might be proprietary in nature. A right that can be transferred to others may have value because it can be sold. These rights count as assets.

Can consciously/actively assign property rights, or might be assigned to a third party by operation of law: o Death (intestacy provisions or will) o Bankruptcy (Insolvency Act, property is assigned/transferred to trustee in bankruptcy) o Wealth

Some in rem rights can’t be assigned so wouldn’t be recognised as proprietary under the wider definition of assignability. Some things are in rem proprietary rights that can’t be assigned, e.g. non-assignable lease, easement (if you don’t have the DT or ST).

One way to destroy an in rem right is to destroy the thing to which it relates. They bind the whole world to respect the right, e.g. an easement.

 Yvonne promises Xavier to keep off Zoe’s land. Is Xavier’s right different from Zoe’s?

What is the difference? Content of the right is exactly the same. The only difference is that X's right is enforceable only against Y, but Z's right is enforceable against everyone. Theory that the difference between rights in rem and rights in personam is the number of people the right can be enforced against. Rights in rem  about the thing not the person, you know you are not supposed to go on the person's land, don't care about the person, doesn't matter to you who has the right. Just know that you don't have the permission to interfere with that thing.

2  Essential characteristics of property

Value, permanence, assignability, enforceability, excludability, or something else? Right to the thing in question, corresponds to a general duty to ensure others do not interfere or perform other things to it. Things that are inhibited or things that are mandatory. Own land  can prohibit you from passing over it unless you have right of way. Mandatory obligation to only walk on land you have the right to walk over. Land is unique in that you can’t revoke agreement to sell, can have specific performance ordered.

Is property different from wealth? Is wealth transferable? Wealth/value is the measure of property rights you have.

King v David Allen & Sons Billposting Ltd [1916] UKHL 1

Narrow meaning of property = based on enforceability Who can this right be enforced against? Was the plaintiff’s right to post bills on a wall a right in rem enforceable generally against others or a right in personam enforceable only against the person who granted it?

K made contract with D to allow D to post bills on wall of cinema to be built on K’s land  D had rights to advertise on a billboard. K and others created company to build cinema, K leased land to company, which built cinema. New occupants aware of the agreement but did not formalise it. Company refused to let D post bills. Did D have a property right to post bills? Company wins, D loses. Goes to HL.

Right that relates to a specific thing. Not enforceable against others, can only be enforceable against K. Personal right, not a property right. K said it was to do with the company, court decided it was to do with K not the company. K didn’t realise that the licence not being factored into the agreement would result in it being pushed away. In English law, can't have free standing right to wall, can have specific right to post ad on wall. D only had a personal right  It is a property right in personam. This is the kind of thing where you can request specific performance, building is unique in quality/characteristic (not like selling a chair, can replace with another chair). K had to pay damages.

3 Grady v HM Prison Service [2003] EWCA Civ 527

Wide meaning of property = assignability, is this right assignable? Is a claim for unfair dismissal an assignable right? G’s claim for unfair dismissal was struck out G appealed to Employment Appeals Tribunal, became bankrupt while she is making the appeal. When she went bankrupt, her assignable rights were giving to trustee bankers. Property of a bankrupt vests in the trustee. Was G’s right to appeal “property” which vested in her trustee in bankruptcy? Is trustee custodian to all her rights? Entitled to damages that she gets?

Prison Service said that this right to claim was assigned away. Court said not assignable, personal to Grady. Trustee did have standing to represent Grady because proceedings already happening. G had standing, personal claim that she started before bankruptcy. Court says trustee is advocating on behalf of G.

Wrongful dismissal in labour law is assignable because claim for damages in lieu of notice. Unfair dismissal is a statutory wrong, one remedy is reinstatement into the job. That's why it was personal to Grady. Grady makes the claim before she is bankrupt  Important because trustee cannot be reinstated in the job. Property rights we can acquire as an individual may or not be transferable.

Had she been awarded damages, would be okay, would fall under job of trustee anyway. Court ruled in here that it is a personal matter, not property one. G can bring claim, but she can’t get the award for the claim because it is a personal right.

Foley v Hill (1848) 2 HLC 28, 9 ER 1002

Fundamental nature of bank account and nature of bank’s relationship with customer in relation to the account. A banker does not hold the sums in a bank account on trust for its customer. Instead the relationship between them is that of debtor and creditor. Bank account is right in personam, not right in rem because you are not claiming a right to the hard cash itself.

When the customer deposits money in the account it becomes the bank's money, and the bank's obligation to repay an equivalent sum (and any agreed interest) to the customer or the customer's order. Had it been held that the bank was a trustee then the bank would not be entitled to use the sums deposited for lending to other parties because of the rule against trustee's making a profit out of the trust property.

Role of bank  can be trustee with fiduciary responsibilities, in this situation the benefit you get you can pay for wealth management role as gratuitous thanks. Licence or contract to credit money to bank and they secure it on customers’ behalf.

4 Milirrpum v Nabalco Pty Ltd (1971) 17 FLR 141

The plaintiffs were members of an Aboriginal clan who claimed that the defendant’s mining activities were interfering with their right to perform traditional ceremonies on the land. The plaintiffs’ rights to perform traditional ceremonies on the land were held not to be property. They failed to prove that their relationship to the land was property because they did not have the rights (a) to alienate (transfer) their right to use the land to others and (b) to exclude other aboriginal clans from using the land.

Can property exist without those rights? Would a right to prevent others from interfering with the plaintiffs’ use of the land be a sufficient right of exclusion to constitute property? Blackburn J: Right to use/enjoy, right to exclude others, right to alienate, there may be qualifications to these and not all the rights have to exist together.

This case would probably have been decided differently after Mabo 1992.

Mabo v Queensland (No 2) [1992] HCA 23, 175 CLR 1

The High Court of Australia recognised native title as a form of property. The doctrine of terra nullius, which imported all laws of England to a new land, did not apply in circumstances where there were already inhabitants present – even if those inhabitants had been regarded at the time as "uncivilised". Any indigenous land rights which had not been extinguished by subsequent grants by the Crown continued to exist in Australia.

5 Distribution of Property

Underkuffler (1990): “A right can be defined as that which fulfils an individual need or individual interest that is considered to be of sufficient moral importance to justify the generation of duties for others.”

Property rights need special justification because they correspond to duties imposed on everyone in society and not just on those who have consented to undertake particular duties to particular right holders.

Rare that any property is wholly private, an individual has 100% decision-making power, e.g. subject to planning law and public control, require permission to build on a piece of land you own. Decisions by government can affect. a privately owned building may be listed under the Planning (Listed Buildings and Conservation Areas) Act 1990 s 7 which prevents the owner from doing anything “which would affect its character as a building of special architectural or historic interest, unless the works are authorised”.

Two forms of public property: - Common  Members of society can use the property as of right. Common property is the right of all or many members of society to make use of something. It corresponds to the general duty of others not to use that resource in a way that interferes with the common use. No government or individual member of society is entitled to the exclusive use of a thing that is common property. - Collective  Decisions made by public institution, manages for the public interest/society's benefit, but public doesn't have the right to use the resource, e.g. public buildings, military base. Public access is granted by the decision-maker and does not exist independently as a common right. Public resources are often owned collectively, rather than as common property, because it is harder to regulate the use of common property. If everyone has a right to use a particular resource, it would be difficult to restrict that use for the greater good.

R (Newhaven Port and Properties Ltd) v East Sussex CC [2015] UKSC 7, [2015] 2 WLR 601

Local residents using the beach for recreation, port authority fences it off for health and safety purposes. Residents tried to register it as a village green  local inhabitants must have used it as of right for 20+ years (prescription justification). Is the beach common, collective or private? Are they trespassers? If they have a right to use the foreshore it’s not a trespass.

Supreme Court decided that the use of the foreshore of a harbour by the public for bathing was not a common right but had been exercised only with the implied permission of the corporation which operated the harbour. Allowed to use land unless the landowner says no.

6  Crown Ownership

Yanner v Eaton [1999] HCA 53, 73 ALJR 1518, 166 ALR 258 (High Court of Australia)

The defendant was charged with hunting crocodiles in Queensland without a licence. Claimed native title right to hunt crocodiles The High Court of Australia was asked to decide whether that native title right had been extinguished by the Fauna Conservation Act 1974 (Qld) s 7: “All fauna … is the property of the Crown” No, “the ‘property’ conferred on the Crown is not accurately described as ‘full beneficial, or absolute ownership’.” It's a way of managing valuable resources, doesn't immediately mean the Crown as an institution automatically owns every crocodile as a private property owner.

Committee for the Commonwealth of Canada v Canada [1991] 1 SCR 139, (1991) 77 DLR (4th) 385 (Supreme Court of Canada)

Respondents went to airport with placards, leaflets, etc. promoting political goals. Government airport regulations banned advertising or soliciting at airports. Can they just make any regulation they like to kick off the protestors the way a private landowner could? Does it apply equally to government ownership? Respondents claimed that this violated their right to freedom of expression under the Canadian Charter of Rights and Freedoms. If we allowed collective owners to make whatever regulation to exclude you that they please for their interests, that would not be collective property. L’Heureux-Dube J: “All lands belong to someone. If property rights alone can be invoked to limit, restrain, or abridge a fundamental freedom on any given place of public property, the Charter’s guarantees lose all meaning.” While the government had the right to restrict activities in the airport for security and operational purposes, that did not justify a ban on peaceful forms of expression in the parts of the airport to which the public normally had free access.

PruneYard Shopping Center v Robins (1980) 447 US 74

Supreme Court upheld the right to distribute political pamphlets and seek signatures on a petition in a privately owned shopping mall. This treats private property as public property when the owner chooses to use it as a public place.

Marsh v Alabama 326 US 501 (1946)

A B&B had two gay men and didn't like them, didn't welcome them. Court says you are subject to duty not to discriminate by virtue of the fact you opened your land to the public.

7 By opening up your property to the public for your own benefit, you are accepting some duty and curtailing of your rights. There is now a different dimension to your ownership. “Ownership does not always mean absolute dominion. The more an owner, for his advantage, opens up his property for use by the public in general, the more do his rights become circumscribed by the statutory and constitutional rights of those who use it.”

Jeremy Waldron, ‘Homelessness and the Issue of Freedom’ (1991) UCLA L Rev 295

How does the regulation of public spaces affect the freedom of those without private space of their own? Some things cannot be done on public land, private land makes you free to do the things you want to do. Acceptance of need for property rights to some extent Some people have more than others  grossly unequal distribution of property. Does private property enhance or diminish freedom? What freedoms are worthy of protection? If some people don’t have any private property where they can do these things, and public places are regulated in such a way that they cannot do it anywhere, does that make them unfree and take away the fundamental right to do basic things? Argues that you are not letting a person do basic functions, the homeless cannot even have privacy because in public place with street watches.

R v Hilton [1997] EWCA Crim 661, [1997] Crim LR 761, [1997] 2 Cr App R 445

The defendant on a theft charge was a co-signatory on an account and caused money to be transferred to other accounts. Held: The instructions to the bank had caused the transfers, and the defendant had therefore misappropriated the credit balance by assuming the right to that balance. The offence had taken place.

Personal property, the value of the note but not the exact piece of paper. Money is represented in value. It is a form of currency, the value of the exchange when buying something is money in lieu of the value of the exchange.

Misappropriate = took, stole Hilton is part of a joint appeal, another payment to drug dealer about stash in the account. Bank was wrong to allow the transfer to take place, but D caused the action to take place and that in effect amounts to a theft. Theft Act

If I used your mobile phone without your consent and thereby used up some of your allotted minutes, text messages, or data, could I be guilty of theft? The property you get is an experience, not the physical card itself. Interest is in the experience as the product. Issue of privity in contract with TFL about travel card. But freedom pass limited to one person, can be theft because uniquely assigned to one person who meets the category they set. Limited credit = withdraw experience from the person who paid for it. Experience corresponds with the person.

8 Taxonomy

Roman law How the law is organised has four main categories: 1. Sources of law  judge made law 2. Law of persons  status of a person as a citizen or slave etc. Status as legal person in company law is important 3. Rights that a person can hold and their duties 4. Legal actions that can be taken to enforce the rights and duties owed to you We are interested in the rights that people hold and the corresponding duties.

Characteristics of legal rights: • Content – what is right holder entitled to do or receive? e.g. right to be paid a sum of money owed to you, lease is right to possession of a space. • Source – how was right created? (Source of right, not source of law) • Enforceability – against whom can right be enforced? Can it be enforced generally against others, or just against specific persons?

Property is subdivided by: - Content of the rights based on nature of thing (subject matter, what we are talking about), e.g. goods or land? - Nature of right (do you have a right of possession or is your right something else, something less), e.g. ownership with indefinite right or just a lease, legal or equitable?

Real property vs personal property: Original basis of classification of real and personal property was the remedies you would get from it. Real action to claim title to land (real property). Judgment of court would be ‘yes you are the owner of the land’ and you can be put back in possession. Personal property = no right to get possession of the property itself, have claim for damages. No real action to entitle you to get it back if someone takes it. Personal action to damages which enforces your property rights.

R (Khatun) v Newham LBC [2004] EWCA Civ 55, [2005] QB 37

Local council providing social housing. Conditions the council was operating on were not very fair to the council tenants, they wanted to bring claim that there was a breach of their rights under European law. Claimants say the offers were unfair, wanted remedy. Did EC regulation apply to offer of lease? “The unfairness of a contractual term shall be assessed, taking into account the nature of the goods or services for which the contract was concluded.” Council said they were not offering land or goods, but rather relief. ‘Goods’ in European countries may include immovables. Court said this is a taxonomy problem. “In the context of a Europe-wide scheme of consumer protection, [distinctions in English property law] could be nothing but an embarrassing eccentricity.”

9 Possession

Possession talks about tangible things that can be physically controlled, e.g. land, goods, animals, cash money  not talking about intangibles like IP and property rights.

Two requirements: 1. Control (factual possession) 2. Intention to possess (animus possidendi)

Must coincide in order to have possession, e.g. see a coin and intend to pick it up, then pick it up. But could get intention after, e.g. not aware of sitting on a £5 note at first, but still have control of it.

Control

How do you control this object? Methods and level of control depend on the nature of the thing, e.g. size, location, mobility, and propensity for escape.  To control land, can put fence on it or lock the door. Don’t need absolute control, but need to exercise control of that space to control the land.  To control small things, keep them in other things, other spaces you control e.g. coins in purse.  Some things have tendency to escape when you control them (e.g. gas) so have to exercise a certain form of control.  To control satellite, control the controls.

Young v Hitchens (1844) 6 QB 606

You can try to get control of it. If you don’t actually get control of it, you don’t get possession. D rowed inside P’s net and caught fish. Fishing in a boat, sees a shoal and begins circling the fish. D goes into the opening where the fish get condensed and begins scooping up the fish. P sues D for conversion of the fish (tort of interfering with someone’s possession) Plaintiff loses because cannot show possession of the fish even though he intended to possess. Did not have sufficient control to amount to possession. Lord Denman CJ: “It does appear almost certain that the plaintiff would have had possession of the fish but for the act of the defendant: but it is quite certain that he had not possession.”

10 Popov v Hayashi , 18 Dec 2002 (California Superior Court)

Not binding on English law, just looking at what not to do. Baseball player Barry Bonds hits record shot, fans anticipated this and tried to catch it. P is just about to catch the ball, but then gets mobbed by the crowd. D was the first person to pick up the ball. Court decided P almost got the ball, but didn’t quite catch it. Conversion is a tort = wrongful interference with someone’s possession or right to possession. Popov never had possession but did he have right? But for the actions of the crowd, it was likely he would get the ball. In this case not even action of D, action of other people. McCarthy J: “Pre-possessory interest constitutes a qualified right to possession which can support a cause of action for conversion.” Many problems with pre-possessory interest. Judge ruled that P had pre-possessory interest but Hayashi had actual possession, decided to split the interest.

State of Ohio v Shaw (1902) 65 NE 875

People set nets to catch fish. Three men were charged with theft of fish from unattended nets in Lake Eerie. The nets had a funnel-like entrance through which the fish would swim. There was nothing preventing them from swimming out again, and in stormy weather, some fish would escape over the top of the nets.

Ds argues that you can only steal something that belongs to someone else, the owners of the net did not possess the fish. Court ruled the fishermen had sufficient control of the fish even though few of them can escape, so while in the net the fish were in the possession of the fishermen, who have a property right to them. Davis J: “To acquire a property right in animals ferae naturae [of a wild disposition], the pursuer must bring them into his power and control, and so maintain his control as to show that he does not intend to abandon them again to the world at large.”

11 Intention

JA Pye (Oxford) Ltd v Graham [2002] UKHL 30, [2003] 1 AC 419

There is a field owned by Pye, this company. Graham is a farmer in the neighbourhood who has been using the field, has a grazing licence. One year, owner refuses to renew the grazing licence to G. Needs to develop the land, gets advice that it is easier to get planning permission if it is not being used for farming. G continues to use the land to graze and cut hay despite no renewal. Always willing to pay for the fee of the new licence if asked. G claimed the right to be registered as owner of the land because he had possession for a long time. Possess something long enough, become the owner? Court decided G had possession of the land, 12 years of adverse possession (without permission). Lord Browne-Wilkinson: “There are two elements necessary for legal possession: 1) a sufficient degree of physical custody and control (‘factual possession’); 2) an intention to exercise such custody and control on one’s own behalf and for one’s own benefit (‘intention to possess’).” The field was surrounded by hedges and fences, G had key to the gate, so was controlling it (other people couldn’t use) and was using it over the course of the year to graze animals and fertilise plants. All you need is intention to possess for now in order to have possession, don’t need to have intention to own  G happy to pay licence fee, didn’t intend to own, didn’t expect to own.

12 Flack v National Crime Authority [1998] FCA 932, 156 ALR 501

Australian case Can possess something without knowing, if it is in your private space that you occupy and control.

Mrs Flack lives alone in the flat, has an adult son. Police knock on door, search the flat thoroughly, seize stuff that they thought was the proceeds of crime. Found $433,000 in cash in a closet, F was unaware of its existence. Suspected son was drug dealer who hid money without telling the mother, but couldn’t prove it belonged to the son. After a long while, F asks for the bag back. She had it first. They need to give it back to the person lawfully entitled to it. When the police seized the bag, they were in possession  intention + control Since the first time she laid eyes on the bag, it was in the police’s hands since the first time she laid eyes on it. Court decided she did have legal possession = control + intention to possess it F had possession of apartment, therefore controlled everything within that space. Intention + control needed to coincide. Court decided she did intend to control it, because she intended to control her apartment, and therefore intended to control everything in the space.

If someone hands you briefcase, you have possession of the case and its contents. In criminal law, need intention to possess the precise illegal thing.

Parker v British Airways Board [1982] QB 1004 (CA)

Found gold bracelet on the floor of airport lounge. Donaldson LJ: “There was no sufficient manifestation of any intention to exercise control over lost property before it was found…” In bank vault, bank’s bailment and responsibility to give to correct owner. Only limited number of members.

13 Interference with Possession

Intentional torts, can be committed by honest mistake. Can interfere with possession negligently.

Trespass (land or goods) Wrongful interference with someone’s possession of goods or land.  Unauthorised Wrongful = unauthorised  Direct interference e.g. Walk on your land is a direct interference Indirect interference like leaving coat in lecture theatre and then doors locked, but this is too indirect to be trespass.  Done voluntarily Trespass must be done voluntarily, but no need for intention to commit the trespass. Accidentally wandering onto someone’s land, didn’t know it was owned but it was voluntary action to walk onto the land. Even if you physically interfered, if someone else threw you that is not involuntary.

Nuisance (land) Wrongful interference with enjoyment of land.  Need not be physical interference Idea that you are not physically entering the space, interfering with someone’s enjoyment of their possession of the land. Typically deals with noise or smells.  Depends on the neighbourhood Depends on where you live, e.g. industrial area where lots of manufacturing is going on. Also depends on time of day, acceptable daytime vs 3am Is a plane trespassing flying over? If very low could trespass airspace.

Conversion (goods) Wrongful interference with possession or a right to possession of goods, aka trover. Can’t convert land, only done with tangible property/goods, e.g. documents and cheques.  Unauthorised  Can be direct or indirect interference e.g. Stealing someone’s car is direct. Reselling car is indirect interference of someone’s right to the car even though D never had possession of the car  Motor Dealers Credit Corp Ltd v Overland (Sydney) Ltd (1931) 31 SR(NSW) 516.  Intention to exercise dominion Damage someone’s car is a trespass, when it is more serious it is conversion Joyriding cases: Some cases say joyriding is conversion, interference with possession even though not permanently depriving, other cases say it is trespass (Schemmell v Pomeroy (1989) 50 SASR 450) South Australia, teenage boy took mum’s car and crashed it, between trespass and conversion.

14 Marcq v Christie, Manson & Woods Ltd [2003] EWCA Civ 731, [2004] QB 286

Famous 17th century painting was stolen, victim entered details into stolen art registry. Real owner finds out Christies auctioneer returned painting to the seller without selling it. Is it conversion for an auctioneer to offer a stolen painting for sale and return it unsold to the customer? Argument that Christies was a bailee and breached duties of bailment. Held Christies not guilty of conversion. Accepting possession of stolen goods for certain purposes is not conversion if done honestly. Honest, no idea the painting was stolen, did not sell it, only offered for sale.

Honesty is not normally a defence to conversion, doesn’t matter when you buy stolen goods if you have no reason to suspect. In Marcq, not actually exercising dominion over the chattels, Christies was an agent for the customer and offered it for sale. Did not sell it, that amount of action was not conversion.

Storing or transporting goods for apparent owner is not conversion if done honestly. Christies would have been liable if they sold the painting because then they exercise dominion over the good. Taking agency role to sell it, surely embarking on this was conversion. But conversion requires three things, last is threshold of interference that they have to pass, but they didn’t by just holding onto it and returning it. Selling goods as agent for the apparent owner can still be conversion even if done honestly.

Bailment

Temporary transfer of possession of tangible chattels  separation of ownership and possession. Only for goods, documents, cash etc., not for land (granting a lease). Bailee = person with actual possession Bailor = person with right to possession in future Bailor doesn’t have to be the owner, e.g. loan you something, you loan sub-bailment to another. There can be a chain of bailments (subbailments). - Cloakroom where you hang coat by yourself is probably not bailment, not handing over to someone else. - Hire-purchase is bailment  if you fail to finish making payments the hire purchase company can take the car back. Can have bailment even if you expect to never get the good back. But still bailment until title passes, haven’t given up all rights of possession. The bailor doesn’t have to be the owner.

If you find something and deliver it to the police for the purpose of locating the true owner, you thereby create a bailment. The police have possession, but you retain a right to possession that will continue until the item is returned to its true owner.

15 Sub-bailment = a bailee delivers the thing to a third person (the sub-bailee) for a limited purpose (e.g., by hiring a car and delivering it to a garage for repair). Bailor enforcing against sub-bailee probably have to go down the chain, but since they have legal ownership can take action through courts. But with some hire clauses, can take action against bailee if there is exclusion clause from sub-bailments.

Gilchrist Watt & Sanderson Pty Ltd v York Products Pty Ltd [1970] 1 WLR 1262 (PC)

Clocks being shipped, this is a bailment to the ship-owners, give them possession. German ship-owners headed to Australia, give the clocks to stevedores as sub-bailment. The managing person wasn’t there, so they put the clocks in a shed, went missing from the wharf. Clock’s owners sued stevedores even though no connection, absence of any contract between them. Liable for sub-bailment. Bailment can generate positive duties of care even in the absence of a contract with the bailor.

Lord Pearson: Duties of a finder “the word ‘bailee’ is derived from the French ‘bailler’ meaning to deliver or hand over, and there is no delivering or handing over to a finder. But there is a common element, because both in an ordinary bailment and in a ‘bailment by finding’ the obligation arises because the taking of possession in the circumstances involves an assumption of responsibility for the safe keeping of the goods.” Ordinary bailment = bailor gives goods to bailee If you found goods, at that moment law requires you to assume responsibility. Duty arises as nature of bailee, if didn’t take sufficient care.

Responses to breach of duty

Wrong = interfering with possession

Direct enforcement of right: - Can get order for possession in common law (historically called ‘action of ejectment’ for land to recover leased premises), don’t need equity. Court can order delivery of goods. - Injunction - Recaption = self help, if you can regain possession peacefully without committing crime

Damages: - Alternative to direct enforcement is payment of damages. - Damages is not about compensation for loss in this case, it is damages for the value of the goods. Doesn’t matter whether the claimant suffered any loss. - The measure of damages awarded for conversion is normally the value of the goods (or money or documents) converted and any further loss caused by that interference. This is true even if the claimant is not their owner.

16 The Winkfield (1902) P 42 (CA)

‘The Mexican’ carrying a lot of post being sent overseas, collided with ‘The Winkfield’ causing the loss of the Mexican and the mail on board. Measure of damages for wrongful interference with possession of goods? Postmaster-General makes claim in damages for the full value of the mail lost. Lots like he gets a windfall, because he suffered no loss whatsoever. Still wins. Court said bailee can sue for full value of the goods. Just between the parties, didn’t matter someone had better right of possession than the Postmaster-General, so he is able to sue for full value.

Bailor is not entitled to sue  Bailment was ongoing, no interference with right of possession. But if the bailee can’t sue then the wrongdoer gets away. Sometimes bailee is liable to bailor, leaves them in a bad place  wrongdoer not permitted to raise victim’s dealings with others as defence.

How safe would your title be if it was up to you to prove loss and to prove you had good title, would be very complex to trace. Can’t question claimant’s title, wrongful interference is end of story. Don’t have to prove you have the best right, just prove you have possession now.

Torts (Interference with Goods) Act 1977

Makes it possible and routine for court to make an order for delivery of goods. Abolished the other tort of detinue, which still exists in other common law jurisdiction. Detinue = bailment + failure to return the goods when the bailment comes to an end  wrongful retention of goods you acquire honestly. Detinue in Canada and Australia = conversion in UK. Conversion is claiming dominion, detinue is keeping/continuing failure to return the goods.

17 Problem Question

Riley and Penny own and live in one of twelve houses, all of which back onto a large, communal garden. The owners of the twelve houses all have the right (called an easement) to use and enjoy the garden.

Twenty years ago, Riley and Penny decided to build a tennis court in a corner of the communal garden. They paid to construct the court and a four-metre high chain-link fence around it with one gate, which was never locked. Riley and Penny did not consult their neighbours before constructing the tennis court, but did tell them that they were welcome to use it whenever they wished, so no one complained.

Riley and Penny are getting too old to play tennis, so they decided to replace the tennis court with a swimming pool. The neighbours are objecting to the change. Riley and Penny claim that the land now belongs to them because of the law of adverse possession.

Do Riley and Penny have possession of the tennis court? Why or why not?

Do not worry about the rules of adverse possession, but focus only on the issue of possession.

Easement = right to enjoyment but with rules and restrictions from dominant tenant all must follow. You are benefitting party from the right of way.

Easement can be extinguished if parties become co-owners.

JA Pye doing more to exclude, even paper owner did not have key.

Demonstrating claim to ownership and claim to possession is different. Potentially the owners didn’t mind, no one complained. Gate and fence clearly claim part of land.

Adverse possession is highly fact-dependent.

18 Relativity of Title

Title = Entitlement to do something, holding a right. Can also mean: - Ownership, who has title = who is the equivalent of owner  this is the best possible title, but a person can have title to something without being its owner. - Evidence of entitlement  proof of ownership or entitlement, e.g. registration, title deeds Possessory title = when someone has title because they took possession of that thing, derived from taking possession.

Armory v Delamirie (1722) 1 Str 506, 93 ER 664

Claimant is the chimney sweeper’s boy, someone who works for the chimney sweeper. While he is working, he finds a jewel. Goes to goldsmiths, gives to apprentice for appraisal. Apprentice pries out the jewels, makes offer to buy. Chimney sweeper boy said no, just wants it back, but the apprentice won’t give it back.

Was D (goldsmith) guilty of trover/conversion? At the time, D had possession, chimney sweep gave it to him willingly. A did not have possession of the jewel at the time of the conversion. D wrongly interfered to A’s right to the jewel. A had a better right to possession than D, even though A was not the owner of the jewel. Couldn’t appraise the gems because D already took them away  gap in the evidence Court awarded damages on the basis of what the jury thought was the maximum value of gemstones that could fit in there. No deduction for the fact that A isn’t the owner and his right to possession could end at any time, A gets the full market value. D made evidential impossibility, so assumption of the worst against D. Not making up punitive damages, know the size but not the worth/value  This evidential ploy is important. Courts hold negatively against the person who made the interference; the idea of returning property to the possessor is taken very seriously.

The importance of possession: - When possessing things, whether land, goods or cash money, the possession of something is a valuable property right  The use and possession of them is the value. - Possession is a source of rights to possession. We protect right to possession, people can’t interfere with possession of things, right of possession good against the world. - It is evidence of ownership. We assume that people has title and ownership to the things they possess. Don’t make people prove it, just assuming they hold title to their clothes, computers etc.

19 Relativity of title = Two people claiming over the same thing, court is asked to decide who between the two parties has the better right. Court doesn’t bother asking who in the world has the best right. Only asking who has a better right of possession. We don’t want these disputes to be long-running things, just deciding who wins between the two parties. Neither A nor D had the best right in the world. Both had possession and neither was true owner  each had right to possession enforceable against everyone else except someone with a better right. Simple rule: I had it first.

Costello v Derbyshire Constabulary [2001] EWCA Civ 381, [2001] 1 WLR 1437

C is knowingly in possession of a stolen car. He makes money by taking stolen cars and pulling them into pieces. Police have statutory authority to seize something if they suspect it is the proceeds of a crime. Ultimately did not proceed with case against C. C wants it back, P says no. C gets damages for full market value of the car, C had better right of possession. “The fact of possession of a chattel of itself gives to the possessor a possessory title and the possessor is entitled to rely on such title without reference to the circumstances in which such possession was obtained.” “In the case of competing claims to ownership … titles are relative and the issue falls to be determined by reference to the relative strengths of the two claims and the party with the better title (however frail it may be) is entitled to succeed”

Waverly Borough Council v Fletcher [1996] QB 334 (CA)

Ian Fletcher is in Farnham Park with a metal detector. Senses some metal, digs 9 inches below the ground in the park and finds medieval gold brooch. W is the owner of the park, but it is open to the public during the day. If F found the brooch just lying in the park, he probably would have won because it was a public park and he would be within his rights. W wins in this case because it is embedded in the soil. Some say the soil is part of the land. Some say F was trespassing because he was not authorised to dig in the ground, wrongdoer. But these don’t matter, from Costello doesn’t matter how they come into possession. F has right of possession against everyone in the world except someone with a better right. Council had possession of the brooch first. From Flack, have possession of the space of the apartment and possession of everything in the apartment. Although routinely invites members to the park, they are not invited to below the surface of the ground. Ex: Sometimes part of park can be fenced off, means council would have possession, part that the public are not invited to. Possession of land is right to possession of space above and below ground.

20 Adverse possession

The process of getting right to something because it has been in your possession for so long. Limitation Act 1980 limits the time a claimant can sue. Standard for tort is 6 years from the point you are entitled to bring the claim, after which, the case is barred. - One of the first things in potential claim is to work out when the clock started ticking so that you don’t miss the deadline. - As time goes on, evidence and memories, witnesses, documents become less reliable. - At some point, D should like to get on with their life and be free form the threat of a lawsuit. - Limitation Act important for property rights  gives certainty of title

Only person with better right than possessor is the owner, right to sue vanishes if you wait long enough. Possessor has right against everyone in the world except owner, but after limitation period that right to possession of owner is gone.

Adverse possessor does not get ownership transferred to them. Just continues to have the right of possession that they acquired from the day they took possession  owner’s right is erased. These rules have been changed for registered land under statute. After 10 years, possessor can apply. Registrar notifies the owner and they have a few years  safeguarding owner’s rights. In Pye, after long enough, owner’s rights are lost.

Essay Questions

Collins MR in The Winkfield [1902] P 42 (CA): “As against a wrongdoer, possession is title. The chattel that has been converted or damaged is deemed to be the chattel of the possessor and of no other, and therefore its loss or deterioration is his loss.” Discuss.

Make clear the case is about bailment and damages therein. Acknowledge the counter-arguments that might defeat your view. Talk about the different views of judges, what they argued. If you go on a tangent, can say that these are other considerations.

“The common law should abolish nemo dat and its exceptions and replace it with equity’s defence of bona fide purchase.” Discuss.

Law Commission recommendations. There to create law reform  show awareness of statute, cases, and Law Commission taking on board decisions and recommending new rules. Read summary + recommendations.

21 Ownership

Property rights to things can be lesser right than ownership. If a right to use a thing does not fit into one of the recognised categories of property, then it is almost always merely a personal right to use that thing. Remedies available often indicate what sort of right you have.

How do we go about protecting ownership?  Torts of interfering with possession or right to possession - Trespass - Conversion - Nuisance  Torts of interfering with ownership - Permanent damage to goods e.g. Might be able to sue when someone damages your ship while it is not in your possession, but must show that when the bailee's right to possession comes to an end the damage must still be there and not repaired. - Waste Worried that tenant will ruin the land. Law will restrain tenant in possession from committing waste. It would affect the owner's reversionary right to possession. - Slander of title It is wrong to make statements that one is not the owner of something where in fact they are.

Ownership vs possession

It is easy to separate ownership and possession, e.g. library book (possession without ownership). Difference between giving or lending a book: Act of delivery is the same, "here's the book!" But did you give gift or loan? No longer have possession, who is the owner? If created a bailment, receiver is not the owner, giver can get it back in future. The owner retains the future right,.

Ex: Hire purchase of a car Lease it for three years then pay final purchase price and become the owner at the end of the three years. No absolute right to keep it indefinitely during the repayments if there is a breach of the hire purchase terms, although both parties think you will keep it forever.

Waldron, The Right to Private Property (1986) “Society will uphold that individual’s decision as final when there is any dispute about how the object should be used.” “We must examine not just the way that resources are being used at this minute but how it was determined that that use, rather than some other possible pattern of use, came about.”

22 Honoré on Ownership

Ownership = best possible right you have to something “If ownership is provisionally defined as the greatest possible interest in a thing which a mature system of law recognises, then it follows that, since all mature systems admit the existence of ‘interests’ in ‘things’, all mature systems have, in a sense, a concept of ownership.” “Ownership, dominium, propriété, Eigentum and similar words stand not merely for the greatest interest in things in particular systems but for a type of interest with common features transcending particular systems.”

Standard Incidents of Ownership: Some are rights, some are features or duties 1. Right to possess Only applies to tangible things, although we can imagine an owner of an intangible. 2. Right to use e.g. right to read the book you own, wear the clothes. Some things don’t naturally have a use but have residue value. 3. Right to manage Say how something is used 4. Right to income Many things produce income, e.g. land produce, bank account interest 5. Right to capital Right to consume the thing, e.g. eat your sandwich Right to capital could include right to destroy. No one else has any interest in the thing, you as the owner have the right. 6. Right to security Freedom from interference, count on state to protect the rights they have from interference 7. Transmissibility Right to capital is a right to sell in a way. This is the right to transmit to someone after your death. Societies work different ways, will in common law + compulsory heirship in civil law, but transfer to someone else. 8. Absence of term Ownership is indefinite, not like can’t keep library book. Use and enjoy that thing for as long as it lives/exists e.g. ice cream 9. Prohibition of harmful use This incident can be criticised 10. Liability to execution If owner can’t pay debts, ownership can be taken away so your debts are paid 11. Incident of residuarity Even if you give someone else rights, still have right to get it back, e.g. the seller in hire purchase, even if the car will never come back if all goes well. Waldron: The owner retains a right to determine the final disposition of the thing.

Honoré’s list of standard incidents of ownership is not a definition of property, but a description of ownership.

23 ‘Bundle of rights’ theory

Not just one right, ownership is a collection of rights. Don’t always need all the sticks in the bundle in order for there to be ownership, but no one has said definitively which ones we do need in order for there to be ownership. US tends to treat Honoré’s list as definition of property. This is wrong to think about property as a ‘bundle of rights’. This theory has proved useful in idea where there is constitutional protection of property and the State misappropriates your property, can claim compensation  Payment for expropriation of property (i.e. compulsory acquisition, taking) Taking away of property by taking away one stick from the bundle so you can't use it anymore. Does regulation limiting use amount to taking of property sticks from the bundle of rights?

Belfast Corp v OD Cars Ltd [1960] AC 490

Owner of land wanted planning permission to build shops, but it was refused and he couldn't develop in the way he wanted. BC claims that this denial of planning permission was a wrongful taking. By restricting its use, has the government taken any rights from the owner’s bundle? Government of Ireland Act 1920 s 5: “In the exercise of their power to make laws under this Act neither the Parliament of Southern Ireland nor the Parliament of Northern Ireland shall … take any property without compensation.” Claim unsuccessful, compensation denied. Viscount Simonds: “Anyone using the English language … would agree that “property” is a word of very wide import, including intangible and tangible property. But he would surely deny that any one of those rights which in the aggregate constituted ownership of property could itself and by itself aptly be called “property” … English court says that the 'bundle of rights' doesn't fly here.

Alienability

Right to dispose of the thing Essential to property/ownership that you can transfer/transmit your rights. But it the right to alienate for value part of the definition of ownership?

Penner: Ownership includes the right to alienate by sharing or gift, but not the right to alienate for value. Leasing and selling is from power to make contracts coupled with ownership thanks to your freedom of contract jurisdiction, but not part of ownership on its own. Honoré: Ownership includes income (by hiring out for value) and capital (by selling for value). This is correct if only describing ownership.

24 To what extend can you be the owner of something which you cannot transfer at all? e.g. dangerous goods we allow people to own but restrict their power to sell/transfer/give away.

Duties of ownership

Are duties and liabilities inherent features of ownership? Honoré describes ownership to include a duty to prevent harm and liability to execution (debts).

 Duty to prevent harm

To what extent is the owner under the duty not to cause harm to the subject of the ownership? “An owner’s liberty to use and manage the thing owned as he chooses is … subject to the condition that uses harmful to other members of society are forbidden.” 1. Harm to others with the thing owned

In criminal law there are additional prohibitions on using certain things to harm others, e.g. gun, acid. Doesn’t really matter if you own the thing or not. General duty not to harm others extends to use of everything under my control. e.g. Occupier’s liability: Doesn't matter if you are the owner or not. Liable if someone is injured on the land while the land is under your possession. Careless driving: Doesn't matter if you own the car or not, just need to be in possession of a car. In some jurisdictions, owner of car still liable for injuries of that car when it is driven for someone else, for reasons of insurance.

2. Harm to the thing owned

Animals: no cruelty to domestic or farm animal in your care, can't allow it to suffer  ownership duty? Land: Statutory protection of land, because land goes on and on. Environmental effects of what you do on the land, e.g. fly tipping. Historic resources: Listed buildings have rules protecting and limited how they use, require owner to maintain. Endangered species: Concern of the rarity of the thing, also biodiversity concerns.

German Civil Code (BGB) article 903: Ownership of animals “The owner of a thing may, to the extent that a statute or third-party rights do not conflict with this, deal with the thing at his discretion and exclude others from every influence. The owner of an animal must, when exercising his powers, take into account the special provisions for the protection of animals.” Idea that unless regulated by law, can do what you like and tell others to keep away. Article that defines ownership includes provision to protect animals, brings it in as fundamental.

25 Backhouse v Judd [1925] SASR 16

South Australia case, horses starved to death. Didn't have possession of the horses at the time. Owner convicted under the Prevention of Cruelty to Animals Act 1908 (SA) “of negligently failing to supply ten horses with proper and sufficient food”. Act did not expressly impose duty to feed the horses. Owner appealed his conviction. Napier J: “It seems to me that the only satisfactory basis for the duty is that of ownership. There is nothing novel in the idea that property is a responsibility as well as a privilege. The law which confers and protects the right of property in any animal may well throw the burden of the responsibility for its care upon the owner as a public duty incidental to the ownership.” Notion that state will protect owner's rights from interference by others, but also owners have responsibility. Thinking ahead of time  environmental law.

Perry v Clissold (1906) 4 CLR 374, [1907] AC 73 (PC)

Example of relativity of title in law  substance over form. The concept of ownership can be affected by relativity of title in common law jurisdictions. Compulsory acquisition of land in New South Wales. Peacefully occupied land (Clissold was peaceful possessor) and treated like they were the owners, peaceful possession of vacant space, and true owner couldn’t be traced at all (paper title also uncertain). Clissold died and his estate laid a claim on the land. If nobody sought possession, it is his land. No one sought to prevent him. Also paid tax on it. A person in possession of land in the assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. It could hardly have been intended or contemplated that the Act should take advantage of the infirmity of anybody’s title in order to acquire his land for nothing.

 Liability to execution

Liability to execution = one of the incidents of ownership is that it can be taken away from you to pay your debts. Most societies do this. If people are unable to pay their debts, we force the sale of their assets, e.g. civil enforcement of judgments, bankruptcy. In modern systems, we have exempt assets that can’t be taken by civil enforcement or sold in bankruptcy, e.g. bed linen, cutlery, tools of the trade Even if liability to execution is the inherent nature of property, it is not necessarily ownership. Lots of things you have that have value and can be taken away and sold don’t have to be owned, less than ownership property rights, e.g. 10-year lease.

26 Tenure and Estates

Tenure = the (form of) right or title by which, or conditions under which, land or buildings are held

Relationship of tenure between the Crown and who we would regard as the landowner, who holds an estate. Formally, the Crown owns the land and private owners are tenants of the Crown. In substance, tenants are owners.

Tenure relationship used to be a form of government based on land owning. Feudalism = A system of administration in which goods and services flowed up the chain in exchange for a lord’s protection and permission to use the land. Crown allocated land out to tenants-in-chief for being faithful and good. Stuff was expected to be provided in exchange for holding the land  pledge loyalty but also give Crown income and soldiers. Vassals, peasants and serfs had no property claim, doing the grunt labour for tenants-in- demesne.

Subinfeudation = Creating feudal relationship with someone below them on the chain. Transfer by tenant (sell up and move) required lord’s approval and payment of a fine. Tenant would subinfeudate instead to accomplish the same thing. Problems created by subinfeudation: complexity, default by middlemen

Quia Emptores 1290 abolished subinfeudation, gradually the long tenure relationship chains shrunk. Permitted transfer without lord’s approval or payment of a fine Does not apply to leases or life estates – can still do this.

After the Tenures Abolition Act 1660, socage became the only tenure. It is fixed, once the land is granted the Crown can't keep changing the terms. Many socage tenures were for agricultural services. The services were fixed when land granted in exchange for fixed payments. Ex: Job to provide certain number of bushels of wheat every year. If you would rather outsource that, make a deal and ask lord to pay you money and you buy it. Lord would rather have the money than the wheat. Services exchanged for money payments at fair market value at the time, how much bushels were worth. After time with inflation, this money was no longer worth collecting. Today, if you hold the land of the Crown, have no services to perform in exchange for the land, and can freely alienate

27 Mabo v Queensland (no 2) [1992] HCA 23, 175 CLR 1

Murray Island (Mer) occupied by Meriam people. Crown acquired sovereignty over Mer in 1879. Change of sovereignty introduced English law of property, including tenure. Did Crown “ownership” destroy the claimant’s rights to occupy the land?

Sovereignty acquired in three main ways: Conquest, cession or occupation of terra nullius (land belonging to no one) Australia assumed to be terra nullius  unoccupied, or occupants did not have law of property.

Terra nullius assumption was false, the people living there had property rights to the land because they had property law. Change of sovereignty does not upset existing property rights (even if sovereignty acquired by occupation of terra nullius)  Even if those property rights are from a different system of law, they will be recognised in a special box. The Crown acquired: - Allodial title to land that was truly terra nullius Allodial = Crown really is in substance the owner. - Radical title to land subject to existing property rights Radical title = Crown takes the title subject to the existing property rights that were in place. As part of crown's sovereignty, gives crown the right to alienate the land (grant it out). But can't keep doing that inconsistently. If grant land twice accidentally, the power to grant the land was gone after the first one.

Radical title includes the power to alienate. It cannot be used repeatedly to create inconsistent rights. Native title exists without a Crown grant, so Crown retains power to create inconsistent rights.

Crown can acquire land compulsorily but must pay compensation and is subject to the Racial Discrimination Act 1975 (Cth). Said government can't discriminate on basis of race. Mabo says every time you extinguish native title without paying compensation you are in violation of the statute, treating Aboriginal people differently to others. The essence of the Crown's title isn't ownership substantially, but sovereignty over the land (except if the Crown is holding the land for its own use, in which it is full ownership).

RC Ellickson, ‘Property in Land’ (1993) 102 Yale LJ 1315

Advantages of perpetual land ownership: Low-transaction cost device for inducing a mortal landowner to conserve natural resources for future generations. Infinite planning horizon when considering how to use his parcel, and is spurred to install cost-justified permanent improvements and to avoid premature exploitation of resources, can then reap the capitalised value of its remaining net benefits when selling.

28 Estate = right to possess a space on the earth for a period of time If tenure is holding something granted by the Crown, a tenant is holding an estate in land. Physical changes to things often have no effect on property rights, even if they have a dramatic effect on the value of those rights.

Estates are measured in 4 dimensions: two horizontal (area), one vertical (volume), one temporal (time).

Volume

Estates intersecting the earth’s surface: Area on surface defined by plan, but upper and lower limits not clearly defined. Estates consisting of parts of buildings: - Leasehold - commonhold unit - Flying freehold Need rules for the people occupying the building together. Freehold doesn't have this system.

Above ground:

Bernstein v Skyviews [1978] QB 479

B claimed that S trespassed by taking aerial photographs above B’s land. “It may be a sound and practical rule to regard any incursion into the air space at a height which may interfere with the ordinary user of the land as a trespass rather than a nuisance.” Restrict the rights of an owner in the air space above his land to such height as is necessary for the ordinary use and enjoyment of his land and the structures upon it, and declaring that above that height he has no greater rights in the air space than any other member of the public. Civil Aviation Act 1943 authorises planes, to avoid this problem.

Didow v Alberta Power Ltd [1988] 5 WWR 606, 60 Alta LR (2d) 212 (CA)

Power poles on public land Crossbars and wires intruded six feet over the property line. Sued for trespass and won. Defendants argued the plaintiff would never use that space, but court said it was possible. “… the balancing criterion formulated by Griffiths J [in Bernstein v Skyviews] is a logical compromise to the rights of the landowner and the general public. It is a test I adopt. I view this test as saying a land owner is entitled to freedom from permanent structures which in any way impinge upon the actual or potential use and enjoyment of his land.” Difference between temporarily entering space and permanently intruding in the space.

29 Below ground:

Edwards v Sims 232 Ky 791, 24 SW2d 619 (Kentucky CA 1929)

Great Onyx Cave entrance on E’s land. He created a tourist attraction and charged money. One-third of the cave was 360 feet below L’s land, but no access to cave. He just didn't have the entrance, while E made profit. Yes, L does have right to possess this space, neighbour was trespassing. L suffered no loss, but was entitled to 1/3 profits. Logan J (dissenting): We should treat the space below earth the same as the sky above. “If he who owns the surface does not own and control the atmosphere above him, he does not own and control vacuity beneath the surface. He owns everything beneath the surface that he can subject to his profit or pleasure, but he owns nothing more.” How far down you go is defined differently, court rejects dissenting argument.

Bocardo SA v Star Energy UK Onshore Ltd [2010] UKSC 35, [2011] 1 AC 380 (HL)

S acquired three oil wells drilled diagonally under B’s land at depths below 800 feet. Well head was on land S acquired, but untapped petroleum was below B's land. Crown owns petroleum, not B. S had licence from Crown to search for and get petroleum, but no permission from B. Court held S guilty of trespass. By statute the Crown owns the petroleum, doesn't belong to the landowner. Taking the petroleum was not violation of B's rights, entering his land to get the petroleum was. Different from test for the sky, trespass just because he is there. “… the United States Supreme Court regarded the airspace as a public highway to which only the public had a just claim. The same cannot be said of the strata below the surface. … it is not helpful to try to make analogies between the rights of an owner of land with regard to the airspace above it and his rights with regard to the strata beneath the surface. Although modern technology has found new ways of making use of it in the public interest, there is no question of it having become a public highway.”

When you own an estate, you own the space. Doesn't matter what the estate is filled with, e.g. trees, stones, house. If you scoop out all the earth you still have exactly the same space, property rights haven't changed.

A lot of what is beneath the ground is owned by the Crown  gold + silver (Case of Mines), petroleum (Petroleum Act 1998) and coal (Coal Industry Act 1994).

30 Freehold and Leasehold Estates

Freehold estates measured in lives: fee simple, fee tail, life Fee simple is the biggest estate right, equivalent to ownership. Leasehold measures in definite periods of time: fixed term, periodic, at will

LPA 1925 s 1 Understand the principle involved in a statute. Put cases and statutes together. Law of Property Act is major shift in land law in England. Other types of estate still exist but can only be under an equitable trust.

Fee simple

Largest possible state known to English law + equivalent of ownership Fee = inheritable, simple = without restriction

Original concept of fee simple was the estate would last for as long as Fred had heirs. When there is no more, returned to Crown (escheat). Escheat can also happen as result of crime. Don’t Fred’s heirs have an interest? Common law says heirs have no interests whatsoever while Fred is still alive, presumptive heir may die before Fred so we don’t know until Fred is dead. The only one with rights to this land was Fred while he was alive, so free to transfer.

What if Fred transferred estate to Barney? Before transfer: Fred’s heirs have no rights while Fred lives, right to possession belongs solely to Fred. After transfer: right to possession belongs solely to Barney, estate measure by lives of Barney and his heirs.

“and his heirs” = words of limitation, describes duration of Fred’s estate. Tells you how long the estate lasts, not words of purchase (telling you who the purchaser is). Heirs only put there to define what Fred got, not who will receive the estate. LPA 1925 s 60(1): “A conveyance of freehold land to any person without words of limitation, or any equivalent expression, shall pass to the grantee the fee simple or other the whole interest which the grantor had power to convey in such land, unless a contrary intention appears in the conveyance.”

Escheat

Common law: Estate used to end if owner died without heirs. We have moved on from this. Wills Act 1837 s 3: Estates can be devised by will It used to not be allowed, automatically went to heir. This is a shift in the definition of how long estates last. If Fred died without heirs, estate won't come to an end if he left it to Barney. Administration of Estates Act 1925 ss 45, 46: Escheat for want of heirs is abolished

31 What if he has no heir and no will? Succession on intestacy  Can have total or partial intestacy, administration goes down a list looking for a relative of Fred. If no one else, estate “shall belong to the Crown … as bona vacantia” (ownerless goods) Bona vacantia = ownerless goods which would go to the Crown, treats land under same system as goods.

How do you have a tenure relationship if the Crown grants the estate and the Crown owns the estate? Fee simple estate is really indefinite now, goes on and on equivalent to ownership.

Fee tail

Feodum talliatum (cut-down fee) = Fee simple but chopped off a little bit When you want lineal descendants. Heirs of his body = can’t be nieces and nephews, only children, grandchildren etc. Right preserved by statute from early on, meant a descendant could get right to the land from anyone who bought it. Trusts of Land and Appointment of Trustees Act 1996, schedule 1, paragraph 5: Now cannot make any new fee tails, current ones can still exist in equity under a trust. Can use court action to get rid of fee tail estate if it is tying up the land unnecessarily.

Life estate

Grant to Wilma for life. Estate comes to an end when Wilma dies, right to possession returns to grantor What if Wilma transfers her life estate to Betty? Yes, she can sell her life estate. Estate still ends when Wilma dies, not measured by Betty's life. Betty has a life estate per autre vie (for the life of another). LPA 1925 s 1(3): Life estates are equitable interests held under trusts.

Leasehold estate

LPA 1925 s 1(b): Defined in statute as term of years absolute Term of years can be any term, doesn’t even have to be a full year.

Fixed term  You know on the day it is granted and when it would come to an end.

Periodic tenancy  If you have to know when a lease will end, how does renting on a month-to-month basis work? Landlord or tenant can extend the tenancy, a series of fixed term tenancies that automatically renew. End by giving notice. Can work out how long your right to possession goes because of rule to receive notice. Agricultural tenancies tend to be yearly.

32 Tenancy at will  tenant can be put into possession of the land, either party can decide at any time to end it, landlord has the right to immediate possession. The tenant is entitled to a reasonable amount of time to vacate the premises, not automatically a trespasser.

Where a fixed term tenancy comes to an end and tenant stays in possession with permission over-holding, creates a tenancy at will. But if continue to pay, can become periodic tenancy.

Uncertain Terms

Prudential Assurance Co Ltd v London Residuary Body [1991] UKHL 10, [1992] 2 AC 386

Lease for a term ‘until it is required by the Council for road widening’ HL decided the term was uncertain, cannot make a lease for until the road is needed to be widened. But here landlord can still give notice and kick them out at the end of the year. Possession for years + annual rent = yearly tenancy

Berrisford v Mexfield Housing Co-operative Ltd [2011] UKSC 52, [2012] 1 AC 955

Sold the land until B ceases to be member of co-op Said uncertain term, invalid lease means they can kick her out at any time. Supreme Court said it was contemplated she could stay there for life. LPA 1925, s 149(6): Lease for life = lease for 90 years fixed by statute, terminates early if the tenant dies. Need to have outside duration fixed for max amount of time.

Lease vs licence

Lease = estate, right to possession for defined term, possession with permission. Licence = right to use land without possession  can be for a defined term, e.g. lodger, hire of concert hall. - Lodger in a house occupied bedroom and sharing kitchen and bathroom facilities with the people who granted licence. Can't force co-habitation. - Hire concert hall to run a show, the hire comes with staff often so the person hiring the hall doesn't have possession, only licence. Licence is not estate, no right to possession against anyone. Has at best a contract granting them permission to be on the land.

Street v Mountford [1985] AC 809

Licence to occupy furnished rooms for £37 per week  Used the words licence throughout. Courts say that it doesn't matter what word was used. Must go deeper ad see what exactly was granted to this person. Did she have a right to possession of the land for a defined term? HL says yes, no one else could possess. Possession for defined term = periodic tenancy

33 Future interests

The estate’s right to possession period of time can arise in the future. Ex: From Henrietta to Isaac for life. Henrietta has fee simple. What happens when Isaac dies? Goes back to Henrietta. Henrietta will have a right to possession when Isaac dies. If Henrietta dies in the meantime, someone else has H's fee simple estate and will have right to possession when Isaac dies.

Reversion = Right to possession reverts to H, she carved out of her indefinite right to possession for I.

Remainder = Grant to I for life, remainder for J (everything left), H has then given away everything. I receives a life estate that is vested in possession (a right to possession now). When does J acquire the right to the estate? Not when I dies, but when H grants to I and J at the beginning. Remainders can be vested or contingent. J had contingent interest when H granted to I. Interest unconditionally, right to possession just postponed for I's life. If you don’t know who is going to be entitled to possession of the land at some future point, that right is contingent, you have to wait for things to happen to figure out who that person. Contingent remainders tie up the land, the law doesn’t like these.

Vested in interest vs vested in possession: Vested interest mean can still sell. Remainder not vested (in interest) unless identity of person taking remainder is known  We don’t know who gets it until the contingency is resolved.

Ex: Henrietta grants estate to Isaac for life, remainder to … a. Henrietta’s first child to graduate from university: If we know who this is, they have vested in interest. We don't know, there is potential for remainder to continue for very long time, e.g. if none of the children graduate for university. b. Isaac’s eldest surviving child c. Jana if she graduates from law school  As long as J is alive, this is contingent.

34 Rule against perpetuities

Can have contingent right to possession. Need to resolve that contingency and know what was going to happen within the perpetuity period. Common law limits tying up land and making land inalienable by saying future rights/contingencies cannot last too long  perpetuity period. Perpetuity = defined in terms of generations.

Perpetuity period definition: - Life in being = any person who is alive at the date that the transaction takes affect. People who count as a life in being = anyone alive at the date when the contingency remainder is created. To work out whether something satisfies the rule against perpetuities, try to find some relevant life in being. - Plus 21 years = time it would take for next generation reaching age of majority. - Gestation period (someone might die and leave someone pregnant)  grace period

Ex1: Grant to Tom for life, remainder to his first child to attain 21 years of age. Tom for life is fine, nothing contingent about that, life estate for duration of his life. If Tom already has a child over 21, there is no problem, the remainder is already vested and not contingent at all because we know who takes the remainder. If he doesn’t have any children over 21, we have a contingent remainder. Don’t know who would take after Tom’s death. They might all die before they reach their 21st birthday. Tom might not ever have children who reach 21, but common law doesn’t care if the remainder takes effect or not. This example satisfies rule against perpetuities. If Tom dies, leaving someone pregnant, when that child turns 21 they take the remainder within the common law perpetuity period.

Ex2: Grant to Lenore for life, remainder to her first child to attain 25 years of age. No problem if Lenore already has a child above age of 25. Otherwise, would violate the rule against perpetuities even if Lenore had healthy children aged 24. Lenore is life in being at the date of grant taking effect. But could leave someone pregnant, baby is not life in being.

Ex3: To my first daughter to marry If you already have a daughter who is married, there is no problem. Grant could remain contingent, she could marry after 21 years in life in being. Would be valid, could eventually marry in her own life. Would be life in being if in utero at the time.

Common law rule: If there is any theoretical possibility (practical possibilities didn’t matter) that that contingency could remain unresolved beyond the perpetuity period, it will be invalid/void from the outset.

35 Doesn’t rely on realistic possibilities  purely mathematical determination by law. Transactions and contingent remainders that look perfectly fine and likely to be satisfied in the appropriate time, could run afoul of the common law rule because of the theoretical, however unrealistic possibility that they might remain contingent too long. Common law rule could be a “trap for the unwary” and strike down transactions that look perfectly valid.

Ex: Grant to Ben for life, to his widow for life, and remainder to their surviving children. Problem is remainder could be completely invalid and violate the rule. Theoretical possibility that even if Ben is happily married his wife could die. Problem of the unborn widow – marry 19 years after grant takes effect to an 18year old who wasn’t a life in being at the time the grant takes effect. Contingent remainder becomes vested after wife dies. Widow might live 21 years after Ben.

Lucas v Hamn 364 P2d 685 (California 1961)

Lawyer set up ordinary-looking transaction, but one contingent remainder was void. Cost a lot of money for client so he sued the lawyer. Lawyer won on the argument that the common law rule was too difficult for the average lawyer to understand. Did not follow below the standard of the reasonable Californian lawyer. Megarry LJ said English lawyers are made of sterner stuff and are expected to understand the rule.

Perpetuities and Accumulations Act 2009

S 5: Changes perpetuity period, abolishes common law rule. “The perpetuity period is 125 years (and no other period)” from the date the grant takes effect. In the time, you can have contingent remainders. Inter vivos grant  date the grant takes effect Testamentary  the date the will takes effect. Picked 125 years to be competitive against other jurisdictions and keep England as a desirable place to set up trusts. It was the longest you could make without disadvantage.

S 7: The wait and see rule If something might violate the perpetuity period however defined, it was not void from the outset, perfectly valid. Ceases to be valid if events transpire that turn out it did violate. Saves most contingent remainders that might potentially violate the rule. If interest would be void at common law, valid until “it becomes established that vesting must occur (if at all) after the end of the perpetuity period”.

Revival trust would violate rule against perpetuities = Freeze your body after death and hope science one day revives you in the future. If you can afford that service and you do come back to life in a couple hundred years, want to have some money at that time, company says they will look after your assets until you are revived.

36 Security Interests

A way of exploiting property and keeping it is by using it as security for a loan.

Standing surety/guaranteeing a loan = Doesn’t always have to be the borrower’s property put up as collateral, can use another’s property if they are willing. Ex: A received money loaned from B, secured on the value of C’s painting. The only debtor is A, receives all the money. C doesn’t receive anything, takes all the risk. C is not a debtor to B. B cannot claim money from C, but can take the painting. C loses the painting, C becomes an unsecured creditor of A. If the sale of the painting fails to satisfy the debt, B cannot demand the difference from C because C is not the debtor, only A.

Possessory Security Rights

Lien

Lien is the right to keep possession of something given for another reason, the lender keeps possession of a thing until a debt is paid  question of bailment. Lienee = bailee Lienor = bailor who owes the debt to the lienee/bailee Ex: A leaves a car with B’s garage to repair. B repairs car and keeps possession until the bill is repaid. Not going to let A have the car because if he does his lien is gone and he is just an unsecured creditor. Very weak form of remedy, a self-help remedy more of a defence rather than cause of action in itself.  Depends on delivery of actual possession, talking about tangible goods here.  Bailee has acquired possession for a particular purpose, and retains possession.  Not enforceable by action, merely a defence to an action for recovery “you haven’t paid me”.  Not transmissible/marketable  inextricably bound up with the purpose for which the thing was deposited. B cannot transfer his possession of the car to somebody else, so it has no value except to the lienee.

Tappenden v Artus [1964] 2 QB 185 (CA)

The “artificer’s lien”, artificer = archaic word for artisan/tradesman A bailee can only exercise a lien if the bailment is lawful. Where the lienor is also a bailee, what is the position of the lienee?

T was used-car motor dealer, allowed A to use a van. While A was in possession of the van, it broke down. A took it to be repaired by the second defendant Rawley’s Garages. T didn’t know anything about this. A refused to pay for the repairs. T demanded the car back from the garage. Could the second defendant refuse and rely on his lien because he hadn’t been paid by A?

37 Did the bailee A have the bailor’s implied authority to deposit the van with Rawley? If he didn’t, T could get it back as he wouldn’t have agreed to the bailment. But the van broke down, legitimate reason why A gave possession to the garage. The use of the van included the implied authority to do all things reasonable incidental to its use. It was within A’s authority, therefore the lien was good. The garage did not have to give up possession until the repairs were paid for. If it was an unlawful bailment, e.g. paint the van A’s favourite colour, the lien wouldn’t work and the garage could not prevent T from getting it back.

Pledge

Lender takes possession of a thing in exchange for a loan, e.g. pawn broker. Involves delivery of (actual or constructive) possession of tangible goods to the lender/creditor (pledgee). Borrower is the bailor and pledgor. Sole reason for a pledge is to secure a loan, not for the performance of services or incidental to the thing itself. Because it is a possessory security, intangibles cannot be pledged  OGB v Alan Possession need not be physical, constructive possession = effected by a representation of the thing.

Problem with pledges: what if the thing is already in the possession of another bailee, a bailee third party?

A and B are bailor/bailee, A and C are pledgor/pledgee. How does C get the goods from B? Bailment triangle, solved by an action called attornment.

The bailee turns towards the new owners. A owns goods, bails to B who now have possession. A pledges the goods to C in return for a loan. C has a property right over those goods but doesn’t have possession. How does C get the goods from B? Attornment comes in here: B as A’s bailee has a duty to deliver up the goods for A on A’s demand. C wants the goods from B, if B formally acknowledges C’s title to the goods, then B is said to attorn to C and C can demand the goods from B. C must show a right of constructive possession.

Official Assignee of Madras v Mercantile Bank of India [1935] AC 53 (HL)

A owns shipment of groundnuts. Owner often does not have possession of big shipments of commodities, held in a big warehouse B. C cannot simply go to B and demand the goods, B must attorn to C.

38 In this case, appellants were creditors of the merchants, bought shipment of groundnuts which were meant to arrive in Madras. The merchants had receipts from the company entitling them to delivery. The receipts are not bills of lading. Bill of lading = gives constructive possession, representative of a thing possessed, represent because it is very big and bulky. C needs to show this to B. Merchants had become insolvent. Under common law, receipts not acceptable as showing possession of the goods. In the case it was allowed only because it was allowed in the local law. But HL held in common law only bill of lading sufficient. Don’t have to have physical possession of the goods themselves but can have something representing possession of goods.

North Western Bank v John Poynter, Son & McDonald [1895] AC 56 (HL)

Big bulky cargo 1600 tonnes of phosphorous rock. Page & Co pledged cargo to NWB by depositing the bill of lading with it  NWB is in constructive possession of the thing pledged. NWB gave possession of the bill back to Page so that Page could collect the cargo from the ship. Page then sold the cargo to Cross & Co., who had not yet paid for it. JP was another creditor of Page, who sought to claim the money due from Cross. NWB claimed the debt belonged to it as pledgee of the bill of lading, and so of the cargo, despite having returned the bill of lading to Page. Poynter says he was first unsecured creditor so gets first dibs, claimed that NWB was also an unsecured creditor because gave back possession. The arrangement looks like a trust, but it is a pledge. Says we give you back the bill of lading on trust for NWB. “In consideration of your undertaking to deal with the merchandise in the manner hereinafter specified, we transfer to you as trustees for us the bill of lading…for 1629 tons phosphate rock per Cyprus…. which we now hold as security for payment of the advance specified…” Bill of lading is symbolic and synonymous of the cargo itself. Pledgor (borrower) is still the owner of the asset. Same with lien, still the owner as long as they repay. Lord Herschell LC “There can be no doubt the pledgee might hand back to the pledgor as his agent for the purpose of sale, as was done in this case, the goods he had pledged, without in the slightest degree diminishing the full force and effect of his security.”

Bailor-bailee simply describes who owns the property and who has it now  Bailor gives a thing to bailee for a purpose, such as storage or service, e.g. car to repair. Lienor-lienee is still giving a thing for a purpose, only when arises when there is non- payment. Pledgor-pledgee is when bailor gives possession of thing to bailee in exchange for a loan.

39 Non-Possessory Security Rights

Mortgage of chattel

Lender takes a temporary transfer of a thing but not possession (remains with the borrower) in exchange for a loan. Keep possession of the property, but transfer of ownership to the lender subject to borrower’s equity of redemption when the loan is repaid. Mortuum vadium “dead pledge”: Title to property given to a lender as security for repayment of a loan, subject to a promise/covenant to retransfer the property when the borrower repaid the loan. If the borrower defaulted, the covenant was dead. The lender could therefore sell the property as his own and take all of the profit (foreclosure) even above the amount he had lent.

Mortgagor = borrower, the grantor of the mortgage Mortgagee = lender, the grantee of the mortgage e.g. bank Bank has the mortgage, you have the money. The mortgage is a burden on the ownership of the thing  borrower gives a mortgage to the bank. The mortgagee owns a reduced set of rights to the press subject to A’s equitable right to redeem his property and get it back on repayment.

Santley v Wilde [1899] 2 Ch 474

It is an equitable property right in the thing mortgaged. If ownership of the thing is transferred to the lender, can he treat it as his own? No, he owes a duty to the borrower. That means there are no oppressive terms that for instance prevent the borrower from redeeming the mortgaged thing. The mortgagee/lender take subject to equitable right. Lindley MR: “The right to redeem is not a personal right” it is a right in rem. If you grant a mortgage of the condition you do not redeem it, the law does not recognise that.

Mortgagor (borrower) might need the mortgagees’ consent for using the property. But the consent must not be unreasonably withheld  equity deems the borrower to be the true owner even though the ownership title has passed to the lender. Legal title to the asset belongs to the mortgagee, but equity recognises that it “really” still belongs to the mortgagor. Therefore lender cannot use it in any way he wants. Likewise, mortgagor can’t use it in any way he wants, e.g. destroy or sabotage it, because that would be to destroy the security and the property of the lender. Both parties have restricted rights to the thing.

Charge

Lender takes a proprietary right over the thing, which remains in the borrower’s possession and ownership, in exchange for a loan. Can be created impliedly by an enforceable agreement.

40 Grant of an interest over the debtor’s property, which gives the lender a right to sell the property in payment of a debt if the debtor defaults. Charge over the property, but ownership and possession remain with the chargor. If the chargee (lender) wants to force a sale of the asset over which he has a charge in order to satisfy the debt, he has to do so by judicial process, e.g. get a court order.

Swiss Bank Corp v Lloyds Bank Ltd [1982] AC 584 (HL)

Buckley LJ: “An equitable charge which is not an equitable mortgage is said to be created when property is expressly or constructively made liable, or specially appropriated, to the discharge of a debt or some other obligation, and confers on the chargee a right of realisation by judicial process, that is to say, by the appointment of a receiver or an order for sale.” Israeli Financial Trust want to borrow £2m from SBC to purchase shares in FIBI. But they need consent of Bank of England to do so. The consent required that: - the share income be used only to service the loan and - the proceeds of an eventual sale of FIBI shares be used only to repay the loan to SBC. Get the loan, bought the share, but then grants a charge over the shares to Lloyds. IFT went insolvent. Who had a charge over the shares? SBC or Lloyds? Did the consent requirements of the BoE amount to the granting of a charge? If that were the case, SBC would take priority because its charge arose earlier. All depends on how you construe the agreement. Court said no, there was no positive (enforceable) obligation on IFT to create a charge over the shares in favour of SBC, only a restriction on how to use them, so no equitable charge. A charge won’t just arise, needs to be granted.

Illingworth v Houldsworth [1904] AC 355 (HL)

Lord McNaughten: A specific (fixed) charge is one what fastens on property that can be ascertained and defined. A floating charge is ambulatory and shifting, hovering over and floating with the property it is intended to affect, until some event occurs or some act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp. This is common with shops. A shop might use its stock as security and create a charge in favour of a lender (bank). They have a floating charge over assets. Ex: Wine shop Floating charge is existent but not fixed on particular goods. Bottles of wine come into and leave the shop. The owner of the shop has the right to sell the goods which are the subject of the security. This is unusual but is the only way they could possibly repay the loan. If the borrower defaults, the floating charge crystallises and comes down and settles to grasp anything that happens to be in the stock at the time. May not be a particular bottle of vintage wine but grabs any bottle of wine in the shop at the time. Floating charge = agreement where the charger/borrower can deal with the assets freely because the floating charge doesn’t crystallise until later. 41 If they are not allowed to deal with the goods, e.g. charge over printing press means they can’t sell or lease it out, it is a fixed charge. Re Cosslett explains distinction.

Re Cosslett (Contractors) Ltd [1998] Ch 495

Millet LJ at 508-510 (CA): “The essence of a floating charge is that it is a charge, not on any particular asset, but on a fluctuating body of assets which remain under the management and control of the chargor, and which the chargor has the right to withdraw from the security despite the existence of the charge. The essence of a fixed charge is that the charge is on a particular asset or class of assets which the chargor cannot deal with free from the charge without the consent of the chargee.”

42 Fixtures and Mixtures

Often physical changes to tangible things (e.g. land, goods, documents) just affect the value, not the property right, e.g. drop your phone and it gets damaged, not worth as much anymore but still have same property rights. Ex: Book dropped in water doesn’t affect property rights, exact same right to possession. Different if book destroyed by fire and burns up, don’t have a book so no right of possession. Build new house on an empty lot, fee simple freehold estate right to possess space on the earth is exact same as before, just worth more now.

Destruction

Property right cannot survive if the subject matter no longer exists. Destruction of the subject matter of the property right can generate other personal rights: If you wrongfully destroy something of mine, the act of destruction could create right to sue or claim against insurance company for compensation. If house and contents were destroyed by fire, goods are gone but fee simple estate still exists, just worth a lot less. Owner of animal still owns it when it is killed.

Specification

= Creation of a new thing (nova species) New things made naturally or manually: Apple tree bear apples, cat have kittens, goods manufactured When is a new thing made? - Wheat ground into flour - Cloth made into a shirt - Clay shaped into bricks  law says still clay until you fire it, only new thing when baked into brick, not enough to just shape How to tell – ordinary person would give it a different name Can it be returned to its previous form? (clay can be put back until it is fired) Is it practical to do so? If the cost of restoring it is out of proportion, would not be practical. If the law tells you it is a new thing, any property rights are new property rights, not continuing.

Law has default rules to deal with some cases: - Owner of the animal or land owns the produce from it, e.g. milk, eggs. - Owner of the mother animal owns the offspring  easier to know who’s animal from the mother. - Crops growing on land default belongs to the owner of the land. - Manufacturer of a new thing owns the thing that was made.

Default rules can be varied by consent, e.g. cloth delivered to friend to make curtains, service arrangement, automobile assembled by team of employees on assembly line, owned by the company they work for.

43 Problems where the material is used to make the new thing without consent. Owner of material should own the product? But use your paint and canvas to create original artwork? Chambers says in situation of bona fide purchaser buying stolen goods, should pay for conversion of the materials, but still own what was created.

Creation and destruction of things rarely affects property rights to land. Right to possession of space on the earth continues regardless of what happens to the stuff within that space, unless the physical change actually changes one of the three physical dimensions of that state (not time) If lease of office space on 17th floor of building which was destroyed by earthquake, lease for 30 years. Any use to say entitled to that space floating? Cases say destruction of the building can be the end of the lease  space is defined by the walls and ceiling.

Accretion and erosion

Southern Centre of Theosophy Inc v South Australia [1981] UKPC 41, [1982] AC 706

Changes to shoreline can affect property rights by changing dimensions of the estate only if the estate is defined relative to that shoreline. Will matter to the property rights if one of the boundaries of the estate is the shoreline.

Fixtures

Occurs where you have goods that get attached to land. The goods no longer exist in law, lose their separate identity and become part of the estate. What happens when you build a house on land? Bring onto the land the materials to construct the house, e.g. bricks, pipes, came as goods but now part of the freeholds estate they are attached to. What about mobile home moved onto land  good/chattel or part of the land? Statue set up in garden part of the estate or still goods?

Two aspects to the test whether something is a fixture/part of the land or still goods:

 Degree of annexation  is it attached to the land, and how firmly? How are the goods attached to the land? Starts with presumption  goods resting on the land by own weight, not attached and can be picked up are still goods. If attached to land, even slightly e.g. nailed or screwed down, it is a fixture. The greater the attachment, the more likely the thing is a fixture.

 Object of annexation  apparent, objective purpose of the attachment. Why did they put this here? Is it possible to remove this again? If the removal involves its destruction, it is a fixture. If it can be removed practically, we examine the apparent purpose of bringing the goods onto the land. Did you put it there to improve the land or to make better use of the goods? It is viewed objectively  Melluish v BMI (No 3) Ltd [1996] AC 454 .

44 Ex: Garden statue case Resting by its own weight, can be fixture or good depending on the objective. Is it so we can enjoy the statue (very expensive, focus of the garden to present) or so we can enjoy the garden (decoration that fit in with the landscaping)?

Blackburn J in Holland v Hodgson: Stones resting on the land, not attached. If they are in a pile, not fixtures because not to improve the land, just need somewhere to store the stones so still goods. But if stacked into dry wall, carefully placed to form a wall, meant to improve the land and create a boundary, obvious to someone looking.

Hellawell v Eastwood (1851) 6 Ex 295 machines had been fixed to the ground in order to make them ‘steadier and more capable of convenient use as chattels, not fixtures

Exam tip: Why are we asking whether this is a fixture or not? If you are the landowner, free to take the stuff away and change the fixtures, the fact that it is a fixture doesn’t matter. It matters in the allocation of property rights. When A agrees to sell house to B, it would be smart to itemise what comes with the house and what doesn’t. If we don’t do that, resort to law of fixtures. Ex: Wood belonging to A is used to build a fence on B’s land? If it is a fixture, it is part of B’s estate, the wood no longer exists as goods you have property rights to. Could sue for conversion, but can’t get it back. Ex: A is dead, estate being distributed and B gets land, C gets goods.

Elitestone Ltd v Morris [1997] UKHL 15, [1997] 1 WLR 687

Mr Morris purchases a bungalow in 1971 for £250. Sale of goods as far as he was concerned, not purchase of land. M paid £3 annual licence fee to the freeholder to be able to use the land. Elitestone purchases the freehold of the land in 1989 and raises the licence fee to £1,000. M refused to pay. Was the bungalow goods/chattel or did it become part of the land as fixture? Goes up to HL. This matters because if the bungalow was a fixture it belonged to Elitestone and M was a tenant. Then it would be protected tenancy and they wouldn’t be able to raise his rent or kick him out. Was the bungalow attached to the land? Degree of annexation  plumbed in for electricity and water etc. Attached for improvement of the land or better use of the bungalow? A mobile unit or canal boat is attached in a way when parked/moored and attached for the better use of the boat so it doesn’t float away. Here decided it was for the better use of the land, M wins. Lord Lloyd thinks we should have a third category  goods, fixtures, things which are just “part and parcel of the land itself” Are these goods or are they part of the estate? If it is part of the estate, further things don’t matter.

45 Tenant’s fixtures have different rules. Law recognises separate category  tenant’s fixtures are fixtures you are entitled to remove when the lease comes to an end. Tenant’s fixture becomes attached to the leasehold estate rather than the freehold estate. These are distinguished from permanent or landlord’s fixtures, which the tenant is not entitled to remove. The wrongful removal of a fixture by the tenant during the lease is not trespass (since the tenant has possession of the land), but waste. Ex: Coffee shop, lease commercial space and up to you to install fittings and equipment. Permanent expensive things but also fixtures. If the removal of the fixture would destroy it or cause damages to the premises, agreement between the parties could determine what is done. Landlord’s fixtures are fixed into the premises by the tenant but become part of the structure itself, e.g. new doors and windows  Boswell v Crucible Steel Co [1925] 1 KB 119

Accession

Problem of goods attached to other goods, not to land. Who owns the composite? Is separation practical? Unlike fixtures, often it is completely practical. Can it be done without damage to either chattel? If the answer is yes, then they are still separate. Australian case  person buys truck on hire purchase (bailee) and then buy an engine for the truck on another hire purchase and install it, involving a lot of work. Did the engine lose its identity and become part of the truck? No, court says you can take the engine back out.

Need to work out which is the accessory and which is principal. One of the chattels ceases to exist, gets lost in law and merges into the other chattel. Ex: Milk added to cup of tea, tea is the principal and milk is the accessory. Embroidery on shirt adding a lot of value to it. Never have to ask these questions in fixtures, land is always the principal.

McKeown v Cavalier Yachts Pty Ltd (1988) 13 NSWLR 303

P paid $20k to D1 to build a yacht in P’s empty hull. D1 goes bust, sells all its assets to D2. D2 did not realise it didn’t get title to P’s hull (nemo dat) and builds a yacht in P’s hull by mistake. P’s hull was worth $1,777, D2’s work worth $24,409 Not practical to remove the improvements. Which was the principal chattel? Court decided the hull was because started with the hull. Adding accessory to the principal when building the yacht in the hull piece by piece.

Mixtures

Occurs when indistinguishable goods get mixed together, e.g. oil, wheat, flour As long as we know how much each contributed to the mixture contributions and no goods are lost/damaged, no problem if the indistinguishable goods are intermingled. Can just un- mix and still walk away with the same quantity and quality of stuff.

46 Mixture by consent happens a lot in commercial law, worked out already how to divvy it up through agreement between the parties. Where there is consent, assume parties are tenants in common of the mixture in proportion to the value of their contributions, e.g. oil of higher grade mixed with oil of lower grade. Assume that we intended to be tenants in common in the proportion of the value of the contribution. Problem if the contribution is uncertain, or if some of the goods are lost, consumed, damaged or destroyed. Who is entitled to the mixture? If goods in the mixture are damaged or destroyed, the contributors bear the loss in proportion to their contributions.

Where goods are mixed without consent of all the owners, each contributor is entitled to take from the mixture an amount of goods equal to her or his contribution, subject to two exceptions. Legal rules depend on two things: 1. Has there been any wrongdoing? 2. What types of goods were mixed?

Wrongful Mixtures The law makes presumptions against wrongdoers. We don’t know how much was mixed or who owns what, if you caused the problem then you have to go to the back of the queue and presumption against you  Armory v Delamirie presumed against the wrongdoer. Court will make all assumptions adverse to the wrongdoer in favour of the other people. Don’t know the facts so assume the worst against the wrongdoer. If a contributor wrongly caused the mixture, he or she is subordinated to the other contributors and cannot take goods from the mixture until the others have received their full shares. Ex: A’s underground storage tank holds 25,000 litres, contains unknown quantity of fuel. B’s tanker truck holds 5,000 litres, contains unknown quantity of fuel. Contents of truck added to the tank without A’s consent. Now measured that there is 8,000 litres in the tank. Depends who is the wrongdoer. Whoever wrongfully added the fuel will have presumption made against them. If B is wrongdoer, B loses all oil and A owns all the fuel. If A is wrongdoer, assume truck is full and B had 5,000 litres. If third party did it, no presumption against either party. Some vandal, then just have to share pro rata (proportional).

Type of Goods Mixed What is the nature of the property rights to the mixture before it is divided among the contributors? (a) common ownership, with the contributors owning the mixture together as tenants in common, or (b) continuing ownership, with the contributors continuing to own the goods they contributed to the mixture, even though those goods cannot be identified.

47 Roman law says depends on the nature of the goods that were mixed, distinguished between - Confusion fluid mixtures (oil, honey, wine, molten wax) = common ownership - Commixtio granular mixtures (wheat, gravel, bales of hay) = continuing ownership If our petrol gets mixed together it is likely that every drop contains petrol from both sources. If our rice gets mixed together, you can pick up a grain and know that it used to belong to just one of us.

Argument 1: Peter Birks, in “Mixtures” in Norman Palmer and Ewan McKendrick (eds), Interests in Goods (2nd ed, London 1998) 227 at 234: “With the advance of science we know that there is no absolute line to draw between the two kinds of mixture. At the atomic level the particles retain their integrity in every case, though the higher the physics the less certain it is which model should prevail. At a more humdrum domestic level even a substance such as talcum powder clouds the distinction between units which do and units which do not retain their integrity.”

The problem is not that mixed goods have lost their integrity. Whether liquid or solid, they are easily divided into smaller portions without changing their quality or nature. The difficulty to which the law responds is the inability to identify the owners of those goods. This is equally true of molecules of petrol and grains of rice. Since fluid and granular mixtures create the same problems, they should be dealt with in the same manner. It is generally accepted that a fluid mixture creates common ownership (Indian Oil Corp Ltd v Greenstone Shipping Co SA [1988] QB 345 ) and there are some cases that suggest that a granular mixture should do the same.

Spence v Union Marine Insurance Co Ltd (1868) LR 3 CP 427

A ship carrying bales of cotton was wrecked near Florida. Although most of the bales were recovered, the majority had lost the marks that indicated who owned which bales. Bovill CJ applied the rules that governed fluid mixtures to the mixture of indistinguishable cotton bales (at 437): “[W]hen goods of different owners become by accident so mixed together as to be indistinguishable, the owners of the goods so mixed become tenants in common of the whole, in the proportions which they have severally contributed to it.”

Same principle was applied in Australian cases to a mixture of cattle (Big Top Hereford Pty Ltd v Thomas [2006]) and a mixture of scaffolding (Hill v Reglon Pty Ltd [2007])

Argument 2: Lionel Smith argued in The Law of Tracing (Oxford 1997) at 74-75, that the correct response to all mixtures without consent is not common ownership, but continuing ownership. No meaningful distinction between fluid and granular mixtures. The rights of the contributors differ from those of an ordinary co-tenant. Tenants in common are not normally entitled to take a portion of the shared goods without the consent of the other tenants or authorisation of a court. However, an involuntary contributor to a mixture has that right.

48 Peter Birks said that this problem could be solved by adjusting the law relating to common ownership to allow the contributors to end their co-tenancy without agreement. Common ownership could then become the normal response to all mixtures of goods without consent (“Mixtures” at 248-49): “The position that the law will ultimately take is reasonably predictable. Involuntary co- ownership will be the consequence of all mixtures without regard to the nature of the substance mixed, provided only that the units have ceased to be identifiable: the penal rule will only be invoked where and to the extent that it is necessary to break an evidential deadlock brought about by the wrongdoer; and special rules for unilateral partition will be worked out for all cases of involuntary co-ownership.”

Problem Question

Fergus had a patio in his front garden which was made of paving stones.

One night, all the paving stones were removed from the garden by a thief. The thief later sold the stones to Colin, who had no idea they were stolen.

Colin was a builder and landscape gardener. He used the stones to lay a patio in Georgina’s garden. The stones were laid on a bed of sand and not cemented together.

Georgina then sold the land to Primrose and transferred legal title into her name. Fergus discovered what happened and would like to recover the stones or their value.

Discuss the claims that Fergus might have against Colin, Georgina, and Primrose.

Fergus v Colin

Colin purchased the paving stones from a thief, who stole it from Fergus  purchaser was unaware that it was stolen. However, nemo dat quod non habet (you cannot give what you do not have), the transaction is void ab initio  defence of bona fide purchaser is not available. Colin cannot retain good title to the paving stones. Applying Armory v Delamirie, even though Colin had good possessory title, notwithstanding the wrongdoing involved (Costello v Chief Constable of Derbyshire), his interest is defeated, as Fergus is the true owner. Failure of Colin for not enquiring as to good title? If I had a bike, and I was selling you, you could ask for a receipt. Depends on what industry knowledge and insight he has.

Fergus v Georgina

Colin used the stones to law a patio in Georgina’s garden. Stones were laid on a bed of sand, not cemented together. Is this a fixture? If yes, then Fergus’ paving stones lose their separate identity and become part of Georgina’s estate. Apply the two-stage test, as shown in Hellawell v Eastwood (1851). 49 1. What’s the extent of the attachment? Not attached to such a large extent. It is laid on a bed of sand, and is not cemented together. This means that it can be removed without causing property damage to such a large extent.

2. Why is it attached? The result depends on why the stones were attached (Holland v Hodgson). In this case, the stones were laid out as a patio, then the court can consider this to be vital to the enjoyment of the land, even if the degree of attachment isn’t high. In the facts of this case, it appears that the stones aren’t attached just to make a convenient use of the chattel (Hellawell v Eastwood)

Fergus v Primrose

Assuming the paving stones are a fixture, then it goes with the estate that Primrose purchased Because it is a part of the estate, the paving stones lost their separate identity This is an exception to nemo dat – if it’s a fixture, it carries with the new estate She bought it, so it goes with the title.

What remedy can Fergus obtain?

I would advise Fergus to pursue a claim in the tort of conversion against Colin, for paving the stones for Georgina’s garden. Torts (Interference with Goods) Act 1977 s 2: An action lies in conversion “for loss or destruction of goods which a bailee has allowed to happen in breach of his duty to his bailor” In this case, his goods have been destroyed, as it lost its identity following the fixture. Under s 3(2), the remedy that Fergus can pursue includes: (a) an order for delivery of the goods, and for payment of any consequential damages, or (b) an order for delivery of the goods, but giving the defendant the alternative of paying damages by reference to the value of the goods, together in either alternative with payment of any consequential damages, or (c) damages. (a) and (b) isn’t possible, and so Fergus should obtain damages. Armory v Delamirie, because the goods are destroyed, and because of the evidentiary gap, the judge is entitled to make adverse presumptions against the defendant as to the value. Even though Colin acted honestly and in good faith, this is not a general defence under the tort of conversion  Marcq v Christies [2003]. Fergus should pursue a claim against Colin, because: - He purchased the stones from the thief - He paved the stones - Because of him, the stones became a fixture - Because it is a fixture, it became a part of the estate of Georgina, and subsequently Primrose

50 Sale of Goods

Transfer of property right (legal title) to goods. Three main ways:  Delivery  change of possession  Deed  not just any old written document, must purport to be a deed  Contract

Contracts are a source of rights (may create property), property is a kind of right (that may be created by contract). Contracts can create rights in personam (e.g. debt, compensation for negligence) or rights in rem.

Contract as promise to pass title: Typically what happens in a land contract. Civil law contract is not the event for title to pass, need to do something else. Ex: Contract to promise to transfer house to you, you pay purchase price. The contract doesn’t make the title pass, need to fulfil the contractual promise and make a separate act of transfer for title to actually be transferred. Specific performance has an effect on these types of contracts  could acquire equitable interest if not legal title.

Contract as transfer: Contracts can sometimes have a proprietary effect and cause legal title to pass from seller to buyer by making it, e.g. sale of goods. In common law, simply making the contract causes title to pass (only for goods).

Sale of Goods Act 1979

PST Energy 7 Shipping LLC v OW Bunker Malta Ltd [2016] UKSC 23

What contract is a contract of sale to which the statute applies? Fuel was supplied to a ship owner subject to a retention of title clause, which meant that title to the fuel would not pass to the ship owner until it was paid for in full. However, the ship owner was entitled to use the fuel to propel the ship before paying the purchase price. The Supreme Court held that this was not a contract of sale because the seller did not “transfer the property in goods to the buyer” per SGA 1979 s 2. The fuel still belonged to the seller as it was being consumed.

S 16 Goods must be ascertained Fundamental property law  title cannot pass unless you know what things you are talking about. You must be able to point at exactly which item (e.g. product’s specific details on Amazon).

51 S 17 Property passes when intended to pass. Assuming we have ascertained the goods, the next step is intention. What did seller/buyer intend for passing the title? No special form required for sale of goods contract, so often rely on s 17. 17(2): Look at the terms of the contract, conduct of the parties and reasonable circumstances that they must have intended.

Wardar’s (Import & Export) Co Ltd v W Norwood & Sons Ltd [1968] 2 QB 663 (CA)

D has 1500 cartons of frozen ox kidneys, contracted to sell 600 to P. Stacking into refrigerated trucks, takes four hours on an unseasonably warm day. Carrier arrives at 8am, takes his time and doesn’t start the refrigerator truck. No longer suitable for use anymore, not fit for purpose. When did title pass form D to P? We know there was a sale of unascertained goods. At the beginning, don’t know which of the 1500 cartons is theirs. Held title passed in the morning when the kidneys were still frozen. Once stacked on the pavement, they were appropriated to the contract. The carrier, as the buyer’s agent, completed the sale.

Re Goldcorp Exchange Ltd [1994] UKPC 3, [1995] 1 AC 74

Contracts structured where we sell you gold ingots, then we keep safe in our warehouse. Receive certificate of ownership rather than the metal. Company becomes insolvent. Bank was creditor, had equitable charge over all the company’s assets including the gold = security interest. Bank wins, almost all the customers lose because none of the gold was allocated to them specifically. The company was in clear breach of contract to customers. Sale of unascertained goods because they didn’t know what goods they were talking about, so title did not pass to the buyers. Privy Council distinguishes two species of unascertained goods: - “generic goods” = buying from description generically, have not identified a particular source of the product which is owned by the seller. - “goods sold ex-bulk” = identified a particular source, selling you some of the bulk. In Wardar’s, bought 600 of those cases from that bulk of 1500. “A priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates.” This is the “very nature of things”. It’s impossible for an immediate transfer of goods if the goods are not known, the intention cannot be realised.

The customers tried multiple arguments in court to claim redress but failed at every step. - If title didn’t pass, treat as declaration of trust? Still certainty of subject matter problem. - Fiduciary obligation, a promise they relied on? Rejected because contract at arms length between seller and buyer, breach of contract does not mean breach of fiduciary obligation. - Unfair for seller to not fulfil promises, will court make seller a trustee under remedial constructive trust? Court says no.

52 - Property rights to recover purchase price? Argue total failure of consideration because goods were not delivered, rescind contract and get money back. Court rejects this, they exchanged money for the promise. Also, seller would have needed to hold the money separately, here can no longer identify the exact money.

S 20A Sale from a bulk Problem in Re London Wine Co (Shippers) Ltd [1986] PCC 121, Re Stapylton Fletcher Ltd [1995] 1 All ER 192 Bought wine to be stored by merchant, but no allocation. Title can’t pass until we know exactly which we bought specifically. This section was invented to solve the sale from a bulk problem, as a direct response to the wine merchant cases. If there is a sale of specified quantity of unascertained goods from identified bulk and buyer pays all/part of the purchase price, although the particular products have not been pointed out, it creates tenancy in common with buyer and seller of the entire bulk of the goods. Every single case is owned partly by the seller and a proportion by the buyer.

S 18 Rules for ascertaining intention Sets out default rules for working out what the parties intended. Rule 1: Where there is an unconditional contract for the sale of specific goods in a deliverable state the property in the goods passes to the buyer when the contract is made, even if the time of payment or the time of delivery, or both, are postponed. Rule 4: Sometimes people make contracts where they deliver goods to a potential buyer and give them a period of time to decide if they want to buy. Delivery on approval/sale or return arrangement is common in wholesale world. Ownership doesn’t pass until the buyer agrees they will buy the goods  signifies expressly or by conduct. Parties can also set out time limit expiry, otherwise expiration of a reasonable time. Prior to that we have a bailment. Rule 5: Future goods = seller doesn’t have yet or haven’t made, don’t exist yet. Sale by description = agreed to buy goods of a certain description. Title doesn’t pass until the goods are in a deliverable state.

Atari Corp v Electronics Boutiquestores [1998] QB 539 (CA)

Atari sold video games and things to a chain of shops on a ‘sale or return’. There was a deadline set, before the deadline the buyer said they would like to return the rest that was not sold. The ‘sale or return’ wasn’t all or nothing, could accept as many as you want and return the rest.  Makes sense for retailer, less risk because can return what they couldn’t sell. Fighting about valid rejection, seller wants to say they didn’t reject properly. Judgment explains that this is a bailment coupled with option to purchase. When the buyer notified the seller that they were returning some of the goods, they did not identify exactly which of the stock they were returning. Sufficient just to say don’t want them because the contract did not have any other extra conditions for the return. It is no problem as long as the notice has sufficient description so that we can work out exactly which goods within the necessary time frame.

53 S 21 Void contract of sale If a contract for the sale of goods is void, title will not pass from seller to buyer. If the buyer obtains possession of the goods, the buyer thereby acquires a right to possession enforceable generally against others, but the buyer does not acquire the seller’s title. If the buyer then sells the goods to a third person, the third person obtains only what the buyer had to sell, which is a right to possession subject to the seller’s better right  nemo dat quod non habet (no one can give what he does not have) Since the seller has retained a better right to possession, the seller can sue the third person for conversion.

S 23 Voidable contract of sale If the contract of sale is not void but voidable, the seller’s title does pass to the buyer. The seller can rescind the contract and thereby recover title, but that right will be lost if the buyer sells the goods to an honest person.

S 41 Unpaid seller’s lien Lien = security interest that arises by operation of law, arises by itself without you choosing to create it. If you have the sale of specific goods in a deliverable state, title already passes to the buyer even though payment hasn’t been made and seller is still in possession. Seller has a common law lien (right to retain possession until the goods have been paid for) in the following situations: a) where the goods have been sold without any stipulation as to credit  “I’m not delivering until you pay me”. b) where the goods have been sold on credit but the term of credit has expired c) where the buyer becomes insolvent  doesn’t have to give to the insolvency creditors because don’t have to deliver until paid.

S 52 Specific performance Most contracts for the sale of goods are not specifically enforceable because an award of damages will provide a satisfactory remedy: the buyer can obtain the goods from another seller. Specific performance of the contract is available if the goods are not readily available elsewhere. If a contract for the sale of goods is specifically enforceable, then it can generate equitable property rights for the buyer  Re Wait [1927] 1 Ch 606 (CA)

S 4 No special formalities are required to make a contract for sale of goods.

54 Problem Question

Monty’s prize-winning greyhound had four puppies, which he named Bossy, Cassie, Ditzy, and Elvie. Monty rang his friend Waylon to tell him the good news and said, “I know you always wanted a puppy, so I am giving Bossy to you.”

Monty then advertised three greyhound puppies for sale for £600 each. Lisa rang Monty and agreed to buy to Cassie. She said she would pay when she picked Cassie up next week. Todd went to see the puppies, but could not decide between Ditzy and Elvie. He paid £600 to Monty and said he would decide when he came to pick it up next week.

That evening, Monty answered a knock at the door to discover a masked gunman demanding puppies. Monty had no choice but to deliver all four puppies to the robber, who then drove to a nearby town and sold them to Nelson’s Pet Shop for £400. Monty was distraught and drowned in the bathtub after taking medication to help him sleep.

Selma is the executrix of Monty’s estate and the sole beneficiary of his will. She hates dogs, but wants the puppies for their fur. Nelson claims the puppies are his, saying he had no idea they were stolen when he bought them. Waylon wants Bossy, Lisa wants Cassie, and Todd has decided he wants Ditzy.

Who is entitled to the puppies?

Waylon: Re Cole gift requires delivery. Equity doesn’t assist a volunteer in receipt of a gift. Has the gift passed in possession?

Lisa: Under s 18 rule 1, title can pass from conduct of the parties without payment or delivery. Yes ascertainable, intention.

Todd: Re Goldcorp goods ascertainable, know the exact source. Unique characteristics of each puppy. S 20A for unascertainable goods from a bulk, evidence points that it is more ascertainable.

Nelson: Is he a bona fide purchaser? Would be protected if there is a voidable transaction (fraud, duress, undue influence) Equity not there to overturn common law. If find that Nelson had good title, he can keep the puppies the other people didn’t have better title to.

55 Creation and Transfer

What gives rise to legal or equitable rights? - Consent  people want transfer to happen - Wrongs  arise as a response to wrongdoing - Unjust enrichment - Other events (catch-all)

Consent Event transfers rights by consent  contracts, gifts, express trusts Wills – if someone dies and valid will effectively disposes assets, it is transfer by consent and giving effect to their intentions

Wrongs - Breach of contract gives rise to rights. Most common response is the right to damages  this right is created by the wrong, not created by the consent of creating the contract. - Torts (civil wrongs) give rise to damages. - Equitable wrongs: breach of trust, fiduciary duty, confidence - Breach of statutory duty will give rise to corresponding rights and duties.

Unjust Enrichment - Mistake  B must repay because B is unjustly enriched at A’s expense, A is entitled to restitution. - Entering transactions under duress or undue influence can be rescinded, can recover payments or property transferred. - Failure of consideration (frustration in contracts), where there is failure in the reason/basis of the transaction. - Overpaid tax  Tax levied turns out to be invalid or in violation of EU law, government is unjustly enriched and must pay back with interest.

Other events that create rights - Statutes between government + citizen (e.g. taxation) and citizen + citizen. - Judgments  when you sue and get judgment, the judgment replaces the underlying cause of action that lead to the judgment as a ‘judgment debt’ - Detrimental reliance (important in family property and proprietary estoppel) = If you rely on an expectation of acquiring an interest in land, you may actually acquire it. Physical changes to things can have an affect on property rights, causing rights to things to be transferred or destroyed: specification = creation of new things, fixtures = attaching goods to land, mixtures = mixing goods together

Distinction between creation vs transfer Ex: Lease  Creation of a new right: Grant of a lease as a freeholder using a deed, this gives rise to a new property right (leasehold estate) that did not exist before.  Transfer of an existing right: Assignment by tenant can transfer existing leasehold estate to another person. Different formalities to creation required.

56 Ex: Trust  Creation of a new right: Declaration of trust on assets for someone’s benefit, created new equitable right for the beneficiary.  Transfer of an existing right: Assignment by beneficiary, do what is necessary to transfer their rights in that trust to another person.

Finding/theft vs delivery: Ex: You find a watch and pick it up. Merely by taking possession, you acquire right to possession good against the world except a person with a better right. The loser clearly has the better right, so if you two come together the owner can get their watch back. The loser still has the same right to possession they always did, hasn’t transferred that right to possess to the finder. Finder’s possession = acquired new right which didn’t exist before. Same would be true if they just stole it from that person. Delivery = If the owner of the watch wanted to give, sell or transfer it to you, they are transferring their existing right to possession over to you and giving it up. You are acquiring an existing right.

Creation or transfer by consent requires two steps: 1. Intention to create/transfer the property right 2. Action necessary to give effect to that intention Ex: Gift of a book, hand it over  There has been a delivery, given up possession and get possession. If gift, transferred right to possession to you. If loan, bailment is created. This depends on intention. In civil law, what they are thinking at the time is decided on the balance of probabilities (if it is likely, based on the circumstantial evidence).

To create/transfer legal property rights: Law requires particular action to give effect to intention depends on the kinds of assets we are dealing with. Four main ways  delivery, document, contract, registration - Cash: Title is transferred by delivery (hand it over). - Documents: Physical paper, transfer by delivery. - Goods: Tangible personal property except cash and documents o delivery is the most common transfer method. o deed (special document purporting to be a deed, signed in presence of witness) o contract (just making the contract causes title to pass, before money and delivery) o registration (airplanes, ships have registers to protect title). Registration does not transfer title to the goods, but protects the title conferred by the document that is registered. - Land  Title to land used to be transferred by delivery (ceremony), then deeds were the normal way, now registration is the event causing title to pass. - Intangibles  Shares + intellectual property often rely on registration of documents, cannot transfer by delivery because cannot possess something that is intangible.

57 Delivery

An act of delivery (at some point the delivery is made) is not required. Just requires a change of possession to transfer title. Not good enough to just put you into possession, transferor must also give up possession. This can be a problem where two people share a home, and both have possession of all the things in the home. To be effective, the act must be combined with intention to transfer. This intention can be formed a long time before or after the act.

Re Stoneham [1919] 1 Ch 149

You do not need an act of delivery. Grandson was living in grandfather’s house, had possession of the house as a tenant. Furnished house, had possession of the furniture as a bailee. At one time, grandfather said grandson can keep the furniture  intention to give Grandfather dies, executors argue there was no effective gift because no act of delivery. Courts said no, grandson already in possession at the time grandfather formed intention to make a gift. The two fell together. Forming + expressing intention transformed bailment (bailee) into a gift (donee/new owner).

Thomas v Times Book Company [1966] 1 WLR 911

Dylan Thomas was a famous poet who came to London to meet with BBC producers. He was commissioned to write play ‘Under Milk Wood’, which took him 10 years. Lost the original manuscript at some pub in Soho. Dylan said to his producer Cleverton, “If you can find it, you can keep it”. Cleverton finds the manuscript the next day. Dylan dies a couple of weeks later. Few years later, Cleverdon sells the manuscript to the Times Book Company. Caitlyn Thomas is executrix and beneficiary to Dylan’s estate. Said there was no completed gift, and manuscript is hers. The two parties at court were not parties to the original transaction. Court held the gift was effective, TBC wins. Dylan formed the intention to give but was unable to make a delivery because he lost but, but still has right to possession. Person at the pub had possession and hands over to Cleverdon. Donee obtains possession the next day and the gift is complete.

What if Dylan died before the manuscript was found? 1) If Dylan dies, he is no longer a legal person, is a former person, so cannot hold rights or have title. Rights to his stuff transfers to executors. If Dylan is already dead when Cleverton finds the book, Caitlyn already has title at the time and the gift can’t be completed from Dylan. 2) What you need for completed gift is intention to give combined with donee getting possession. If Cleverton found the manuscript and Dylan was already dead, Dylan no longer intends to make a gift so it would fail.

58 Re Cole [1964] Ch 175 (CA)

July 1945 husband leased and expensively furnished mansion at Hendon. December 1945 brings wife to the mansion for the first time and says to her “It’s all yours”. 1961 husband becomes bankrupt, title to his stuff is transferred by operation of law to his trustee in bankruptcy. Who owned the furniture in 1961? Was there an effective gift? CA held no effective gift. Accepted from the evidence that he intended to give, she lived in the house so had possession of the stuff, but he did not give up possession (no delivery). Result would have been different if at some point he went out of possession of the house/furniture before the bankruptcy, e.g. if he moved out.

Day v Harris [2014] Ch 211 (CA)

This concerned a famous movie music composer, had dementia at later point in life June 1976 Father sold house and moved into a smaller flat Had all this stuff, so delivered bunch of boxes completely unannounced to his daughter’s house in Highgate. She puts them into loft/storage space. Sends postcard to younger brother in Cambridge: “All the books, pictures, sculptures etc. are for you and Katherine to share and keep, or sell if you like! Dad” Has there been a gift or merely bailment of these valuable items, including physical music manuscripts? Katherine currently has possession, is she storing them for the father? Gift or bailment of the manuscripts? “etc” included the manuscripts Lloyd LJ, at [67]: If you want to make a gift of chattel/goods/documents… “A chattel may be given by one of three methods: a deed of gift, a declaration of trust, or delivery. … With delivery, something is needed to show the basis of the delivery to be a gift, but this may be relatively informal…” In this case, only delivery. We are trying to work out his intention from the evidence we have, which is primarily what was written on the postcard. Lloyd LJ, at [69]: “If the governing intention is that of a single party, the deliverer of the goods, the issue depends on the intention of that party, and again not his subjective intention but rather his intention objectively ascertained from his words and conducts.” We can only base it on evidence of manifestation of intention. Lloyd LJ, at [71]: “The recipient can refuse to take it, or if it arrives without prior arrangement he can reject or send it back when he becomes aware of it. But otherwise his intention is not relevant. … Given the fact of delivery and the absence of rejection by Miss Arnold after delivery, if Sir Malcolm’s intention (objectively assessed) was to make a gift of the contents, then ownership passed by way of gift on delivery.” Do you need to have acceptance to make a completed gift? Whose intention matters? A gift is a unilateral action, all we care about is intention of the donor. Donee can disclaim the gift, doesn’t have to accept. Chambers thinks title passes to the donee, then donee can disclaim title and it will revest in the donor.

59 Formalities

Depending on the transaction, have to observe certain formalities: - Testamentary dispositions = transfers that take place on death - Interests in land = usually require certain types of documents and registration, careful about creating/transferring interests in land - Assignments = assign beneficiaries interest in trust, or assign creditors to be paid - Others, e.g. guarantees require certain form.

Testamentary Dispositions

Any disposition that takes effect/operates on the death of that person making it, e.g. by valid will’s execution. Contrast with inter vivos position  during life/between living persons Ex: Will has no effect when you are still alive, free to change your will at any time even though you have jumped through this formalities exercise. No legal effect until death.

A testamentary disposition does not occur on the death of a joint tenant. Surviving joint tenant takes the whole, and the dead person’s interest ceases to exist on death. Surviving joint tenant has exactly what they did before, just no longer encumbered by the dead person’s interest. You acquire the joint tenancy, which includes the right of survivorship, back when you bought the house together.

The end of a life estate is not a testamentary disposition. Ex: Trust created during life, A acquires life estate and B acquires remainder interest. A enjoys possession of the land while alive, when A dies B enjoys possession of the remainder. Now B’s vested interest is freed from A’s life interest. B’s rights were acquired ages ago.

Codicil = amends a will, tweak the estate plan a little. Executor (appointed by the will) or administrator (appointed by the court) is the personal representatives of the deceased person, all assets are transferred to them. They distribute the estate according to law and transfer assets to the beneficiaries.

Wills Act 1837 dictates how we make a will. S 9 Form of a valid will: - In writing - Signed by testator or at their direction - Must have two witnesses present at the same time to watch the testator sign  Person making disposition is dead, so having witnesses is important. S 21 Alterations to the will must follow the same formalities.

Testamentary dispositions all depend on whether there are enough assets to go around. Need to have enough for creditors first. If there is not enough to go around and we have to pay the creditors, may have to ask for it back.

60 The law allows the following dispositions to take effect on death even though doesn’t comply with Wills Act, technically not testamentary dispositions because done outside of will even though they take effect on death:  Gift made in contemplation of death (donationes mortis causa) when there is risk of death, e.g. going into operation, combat. During life, give someone control of the asset, but gift conditional upon death. If the donor lives, need to give it back. These are valid notwithstanding done outside the will, no witnesses.  Secret trusts (constructive trusts) are valid even though the terms of the trust don’t comply with the Wills Act.  Mutual wills are mirror image wills between spouses usually, mutually agree what happens when the survivor dies. Have a contract which courts will give effect to by imposing constructive trusts if necessarily.  Intestacy = died without will Administration of Estates Act gives list of what happens to the stuff. These dispositions take effect on death. If at the end of the day no-one to give it to, goes to Crown as bona vacantia (ownerless goods).

Interests in Land

Law of Property Act 1925 S 51 The only way to transfer legal title to land is through a conveyance by grant. S 52 This grant/conveyance is made by a deed, a special kind of document. S 53 To create or dispose of interest in land you need signed writing (can have equitable interests, not just what is in deed) S 54(2) Exception: Short leases of up to 3 years can be made without formalities, just need delivery of possession to the intended tenant at market rent. Nothing in the foregoing provisions of this Part of this Act shall affect the creation by parol of leases taking effect in possession for a term not exceeding three years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without taking a fine. - Can be created informally, takes effect at the time we put this tenant in possession. - Can be fixed term or periodic  three years not too long if you come across it on the property you bought. - Best rent = market rent would be payable during the term of the lease, this is not a fine (upfront payment).

Land Registration Act 2002 S 27 Certain dispositions have to be registered to be effective at law (can be effective at equity but no legal effect until registered).

61 Deeds

Only requires form  deed≠contract, doesn’t require consideration like a contract. To be a deed, used to have to be “signed, sealed, and delivered”, and the delivery of the deed caused legal title to pass. Law of Property (Miscellaneous Provisions) Act 1989 modified this method. S 1 Execution of deeds by an individual, how to have a valid deed: - Document must express that it is intended to be a deed - Seal no longer required, no form of material either - Must be signed in the presence of one witness who sees the signature + acknowledges  because deed = inter vivos transaction - Not effective until delivery of the deed

Fitzkriston LLP v Panayi [2008] EWCA Civ 283

Land is sold to C, who wants to evict one of the tenants, but tenant doesn’t want to leave. Tenant doesn’t have deed, only a copy of a really informal document which is not a written contract sufficient for an equitable lease. He wants the tenancy for one year at a rent of £4,000 per annum, and statutory protection by the Landlord and Tenant Act 1954. As a protected tenant, he would be entitled to renewals and protection from market increases in rent. Informal lease sufficient for s 54(2) exception since it does not exceed 3 years? Market rent would be “something in the region of £12,000”. Tenant only paid £4,000, which is not “best rent”. Therefore, tenant’s claim fails, landlord entitled to possession.

Registration

Land Registration Act 2002 S 27(1) The disposition does not operate at law if registration requirements are not met. The proper execution of the appropriate document will create an equitable interest. The whole thing is not void but will not be effective at law until it is registered. Statute provides a list of dispositions which must be registered to have effect at law:  Transfer of registered estate (freehold or leasehold)  Grant of a lease (different from transfer, this is creating a new estate): o For a fixed term of more than seven years e.g. A 5 year lease with only a deed and no registration is perfectly legal; leases up to 3 years don’t need anything at all  don’t want to clog up Registry with short leases. o Where you are only entitled to possession in the future, more than three months after the grant. o Discontinuous possession e.g. vacation home  Grant or transfer of a legal charge (i.e. mortgage assigned by bank to someone else)  creating a brand new legal charge requires registration  Grant or reservation of a legal easement, need to register to create. But easements can also arise through prescription (long use).

62 Assignments

We require more formalities for the transfer/assignment of rights even though creating them can be done informally (e.g. trust or debt can be created informally) because once you introduce a third party into the agreement, need assurance/proof that paying off the money to the third party means you’re okay.

Law of Property Act 1925 tells us certain formalities are required for certain assignments. S 136 Creditor assigning a debt requires express notice in writing to be given to the debtor. Ex: A promise to pay B £10k, B wants to assign/transfer to debt collector or use as security. S 53(1)(c) Transfer of equitable interest If you are beneficiary of a trust and want to assign/transfer your interest in a trust to someone, must do that in writing, not just informally. Ss 52(1), 53(1) Transfer of interests in land Transferring legal title requires deed, any legal or equitable interest needs writing.

Crago v Julian [1991] EWCA Civ 4, [1992] 1 WLR 372

Flat rented out to Mr Julian on weekly tenancy. Matrimonial home, lives there with wife and children. On divorce, Mr Julian moves out. In divorce settlement, agreed that he would transfer interest in the flat to her, but no formal steps taken. After kids grow up and move away, she is still there. Mrs Julian asked landlord to change the name on the tenancy to her name. Statutorily protected tenancy, she could not be evicted or have the rent raised. Landlord saw opportunity, refused to accept any more rent and brought proceedings to kick her out. Notwithstanding it was the family home for decades, landlord was successful. Tenancy could only be assigned by deed  s 54(2) Creation of tenancies by parol is valid for the creation but the transfer must be by deed.

Vandervell v Inland Revenue [1966] UKHL 3, [1967] 2 AC 291

Assignment of beneficiary’s interest under the trust and resulting trust. Mr Vandervell wants to make a gift to the Royal College of Surgeons, £150k, in a tax- advantageous way. Transfer shares to college, have dividends declared on those shares for several years, then have his trustee company exercise an option so the shares can be used for his kids. The shares he wants to use for this transaction are owned by the bank, who holds the shares in trust for him. Instructs bank to transfer the shares to the college, execute a transfer and the college gets registered with the company as the owner of the shares. IR argues V had equitable interest in these shares under the trust and now he doesn’t. Disposed of his shares and didn’t comply with s 53(1)c because didn’t sign a document. HL rejects this argument. S 53(1)c applies where there has been a transfer by a beneficiary of an interest under a trust to somewhere else. It talks about a “disposition of an equitable interest” which is construed as just a transfer from one person to another, not destroying.

63 This is different from a transfer of legal title that has the effect of extinguishing an equitable interest. College acquired legal title to the shares, did not hold them on trust for anybody, held for their own benefit, so no equitable interest. When V told bank to transfer the shares to the college, his equitable interest in the shares ceased to exist. The college did not acquire his interest, they acquired legal title for their own benefit. This is not holding in trust, just holding for your own benefit, no separate equitable interest.

Contracts for sale of land

Law of Property (Miscellaneous Provisions) Act 1989 S 2 Requirements for contracts: - Contract must be made in writing and signed by all parties - One document incorporating all the terms - Exchange of contracts (one signed by purchaser, one by vendor), allows incorporation of another document by reference to it

Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 (CA)

Guy wants to buy old lady’s land. Plan shows the acres he wants to buy. She signs the letter and the plan. Purchaser only signs the plan, not the letter. Undervalued land, executor resists. No contract, only offer, purchaser did not undertake any promises to do anything. Option to purchase requires consideration, there is none flowing from the purchaser. Court holds that what they did not satisfy s 2, contract was void. If there had been a contract, it would be the letter, which wasn’t signed by both parties. The plan and letter cannot be construed as one document, they are two separate documents. The plan was only incorporated by reference. Letter addressed to purchaser not enough to mean signature. S 2 needs to be interpreted just like a reasonable person could understand what they have to do without having to consult a lawyer. “Sign by” is simple.

64 Conveyancing

A contract to transfer land is not valid unless it complies with the formalities set out in the Law of Property (Miscellaneous Provisions) Act 1989 s 2.

Enforcing contracts:  Normal remedy is damages for breach. Measured as substitute for performance (position you would have been in if I performed my promise) or compensation for consequential loss.  When damages are inadequate, can get o Injunction restraining breach of contract o Specific performance.

Most contracts for the sale of land are specifically enforceable, which in itself gives rise to equitable rights during the course of the transaction. The purchaser can compel the vendor to transfer title and doesn’t not have to settle for damages for non-performance. This is because land is unique.

This is an equitable remedy and its availability can have a proprietary effect in equity. A purchaser with a right to specific performance of a contract for the sale of land has an equitable interest in that land, which arises when the contract is made. The purchaser has the power to obtain title, and that power can be regarded as a form of property.

Equitable interests in land: How do equitable remedies produce equitable interests? Ex: Restrictive covenants become an equitable interest in the land because can be enforced by an injunction restraining you from using your land contrary to the promise. This is enforceable against successors in title  property right to land. A specifically enforceable contract of sale is similar, the buyer can compel the seller to carry out the contract. This can be enforced against successors in title, so it becomes an equitable interest in land.

If a land contract is specifically enforceable, it has a proprietary effect. Legal lease/mortgage etc. requires deed + registration, but get the promised interest in equity.

Buyer has a beneficial interest in the land, trust arises by operation of law.

65 If you get an equitable lease, the interest in the land is a tenancy relationship with the landlord, not a beneficial relationship. Equity simulates what you would have received if the contract was performed and the lease granted.

Option to purchase

Rather than making a contract to agree to sell the land, make a contract which gives you the option to purchase the land, with no obligation to buy. Seller makes an offer the purchaser is free to accept. The seller is not free to revoke the offer except according to the terms in the option contract.

An option creates an equitable interest in land because the purchaser has the power to take title of the property. If the purchaser exercises the option, there will be a specifically enforceable contract of sale. This is an equitable interest/property right in the land.

Once the contract of sale is actually created, there will be a trust. This is because the ownership of the land is divided between the seller and the purchaser, and there is shared beneficial ownership in the land once the specifically enforceable contract is created. Indicator of beneficial ownership = risk of loss and hope of gain. beneficial ownership is shared by the parties because both parties can enforce the contract against the other. - Purchaser is bound to buy under contract, but under the option the purchaser can still walk away. - Prior to the completion date, the seller has a beneficial interest  right to possession for their own benefit + right to be paid the purchase price.

Mountford v Scott [1975] Ch 258

D granted to P option for 6 months to purchase house for £10,000. Consideration for the option contract was £1. D regrets giving the option and wants to back out of the deal, but P exercises the option and is entitled to specific performance of the contract of the sale. D argues that you only get specific performance if you give substantial, valuable consideration. But P is not seeking specific performance of the option contract, all he had to do was accept the offer. The contract of sale which arises was specifically enforceable. The moment the option was granted, P had a power to obtain title = equitable interest in the land.

Right of pre-emption

The owner is not obliged to sell, but if they choose to sell they have a duty to first offer to the person who holds the right of first refusal. Unlike an option to purchase, this is not a property right.

66 - The prospective purchaser does not have the power to obtain title until the owner offers to sell to them, in which case they then have an option to purchase. Can become a property right. - Owner is not required to sell

Land Registration Act 2002 s 115 says if you are dealing with registered land, a right of pre- emption gives you an equitable interest in the land from the outset. Like a restrictive covenant, which is an equitable interest, it restricts what the owner can do with the land.

Pritchard v Briggs [1980] Ch 338 (CA)

Option to purchase = continuing offer to sell the land, which may at any moment be converted into a contract by acceptance of the offer. Positive obligation on the vendor to keep the offer open during the agreed period. The purchaser gets an equitable interest in the land. Right of pre-emption = confers no immediate right upon the purchaser. Negative obligation on the vendor not to sell the land to anyone else without giving the purchaser the opportunity of purchasing in preference of any other buyer. It is not an offer, doesn’t impose any obligation on the owner of the land to sell. The right is contractual, no equitable interest is created.

Conveyances

Land transaction requires a separate conveyance, the contract will not cause title to pass. Need to do certain things to make the conveyance happen, the land contract itself is only a promise to pass title. Liens over land do not give the secured party a right to possession. They are equitable security interests over the land, doesn’t matter who has possession.

Transfer of legal title to land

Originally, conveyance of legal title was by delivery, through a ceremony called livery of seisin. The passing of title is the feoffment. The charter of feoffment was document evidence that it occurred.

Bargain and sale was a popular conveyancing practice. Execute contract of sale, and then the seller would hold the estate to the use of the buyer. Statute of Uses 1535 executed all passive uses of freehold land, the beneficiary of that use became the legal owner. Title transferred upon creation of the contract. Statute of Enrolments 1536 says the use will not be executed until the use in enrolled. This only applied to freehold land, not leases.

Law of Property Act 1925 S 51(1) we can no longer use delivery/feoffment or bargain and sale. S 52(1) must be done by grant, which is made by deed.

67 Requirements to make a valid deed by an individual is under LPMPA 1989 s 1. Land Registration Act 2002 s 91 sets up the idea of electronic conveyancing, we don’t need to use paper documents for there to be legal effect.

68 Registration

Land Registration Act 2002 S 27 Registration is required to create or transfer a legal estate/interest in land. Documents can create an equitable interest, but no legal interest until they are registered. The event of registration causes title to pass, not the execution of the document.

We want to manage the risk  a purchaser of the land needs to know if there are any adverse interests in the land, e.g. tenants with an interest in the land. The risk is small with a lease of <7 years, don’t have to wait so long to get possession. Also, you can inspect the land before you buy and figure it out. If possession is in future or there is discontinuous possession, an inspection won’t reveal the existence of the tenant, which is why these leases need to be registered.

Unpaid vendor’s lien

A vendor has an equitable lien on the land if they convey title to the purchaser and have not yet got paid everything owed to them. The lien secures the purchaser’s obligation to pay the balance of the purchase price. It is an interest in land and arises by operation of law, not an equitable charge the parties choose to create. Remedies = apply for an order from the court for the sale of the property to satisfy the debt.

Purchaser’s lien

A purchaser has an equitable lien on the land if they have paid some or all of the purchase price in advance of receiving title through the conveyance. This secures their right to a refund if the sale cannot be completed, e.g. vendor doesn’t have good title. This lien secures the vendor’s obligation to make that refund.

Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415

Father sold house to son for £70k. Son paid £19k, still owed £51k. Father remained in occupation of the house. Son transferred house to company, the company mortgaged it to the bank and defaulted on the loan. Bank exercised its remedies and obtained order for possession of the house. Father said he has unpaid vendor’s lien, successful at court  He had an equitable security interest that arose by operation of law. Competition between two property rights (bank’s mortgage vs father’s equitable lien), the father wins because his occupation is in priority over mortgage.

69 Nature of the lien Millett LJ at 419-20 (CA): “As soon as a binding contract for sale of land is entered into, the vendor has a lien on the property for the purchase money and a right to remain in possession of the property until payment is made. The lien does not arise on completion but on exchange of contracts. It is discharged on completion to the extent that the purchase money is paid.” Chambers finds this difficult  the vendor has a lien on their own land? Pending completion, the vendor has legal title and right to possess the land  best possible property right you can have, equivalent to ownership.

“Even if the vendor executes an outright conveyance of the legal estate in favour of the purchaser and delivers the title deeds to him, he still retains an equitable lien on the property to secure the payment of any part of the purchase money which remains unpaid. The lien is not excluded by the fact that the conveyance contains an express receipt for the purchase money.” The lien exists as long as there is any part of the purchase money owed to the vendor. However, if the conveyance represents payment in full, in a priority dispute the vendor can be estopped against a subsequent person.

“The lien arises by operation of law and independently of the agreement between the parties. It does not depend in any way upon the parties’ subjective intentions. It is excluded where its retention would be inconsistent with the provisions of the contract for sale or with the true nature of the transaction as disclosed by the documents.” Even if the parties did not intend to create the lien, it happens anyway. It is possible to waive the lien.

Typical Conveyance of Land

1. Make an agreement subject to contract There is no contract, only have a non-binding agreement. 2. Exchange of contracts happens near the end, very close to conveyance. When dealing with residential conveyancing, often at the end find out one side has backed out or vendor wants more money. In other jurisdictions, have a binding contract at the outset with conditions. At auction, as soon as hammer falls there is a binding contract in Scotland. 3. Payment of deposit and the balance of purchase price (usually raised by mortgage financing). 4. Transfer of title when everything is paid  normally don’t have to worry about vendor’s lien.

70 Problem Question

Cecilia owned a bookshop at 10 Corner Lane. She had a registered long lease of the premises and also had an option to lease the premises next door at 12 Corner Lane when the current lease of no 12 expires in a few years.

Cecilia decided to sell the bookshop to Joe. She signed the following written document:

“I agree to sell my bookshop to Joe for £100,000, including my lease of 10 Corner Lane and all the books in the shop, except the rare books in the locked case and any 50 hardcover books that I choose to keep for myself. I grant Joe an option to purchase any or all of the rare books in the locked case for 50% of the listed price of each book. I assign my option to lease no 12 Corner Lane to Joe.”

Joe did not sign the document.

Cecilia died suddenly and her niece, Kathleen, is entitled to her entire estate. Kathleen wants to keep the bookshop, the books, and the option to lease 12 Corner Lane, if she can, even if it means paying damages for breach of contract to Joe.

Advise Kathleen.

Cecilia had a legal leasehold estate. Option to purchase/lease/acquire an interest = equitable interest in land is present. Written document suggests formalities point.

Is it a priority dispute? It’s between Joe and Kathleen. 1. Work out what rights if any that Joe has. Issue of creation/transfer of rights. He acquired rights from his dealings with Cecilia. 2. Kathleen acquired her rights somehow under will or testacy, but didn’t pay anything for it. So no priority rules that are going to give Kathleen priority over Joe. She acquired anything she got as a gift, can’t beat Joe if he acquired rights previously. So really an issue of creation and transfer of property rights to Joe.

“Lease of 10 Corner Lane” = leasehold estate, legal right to possession of land for a period of time. Letter would not transfer this estate, only way to do that is through registration. But is there a valid contract? If Joe has a specifically enforceable contract, he has an equitable interest in the land and Cecilia would have been holding the land on constructive trust for Joe. The trust would survive Cecilia’s death. But there is no valid contract because a valid contract for the sale of land must be signed by both parties, and Joe did not sign it. Also looks like an offer, Joe has not provided consideration.

71 He does not get any interest in the lease of 10 Corner Lane.

All the books in the shop = sale of goods problem Title passes when the parties intend When do they intend? Look at the terms of the contract, but if it is not specified we have default rules. If you have specific goods in a deliverable state, title passes when the contract is made even if delivery and payment come later. No formalities needed for sale of goods, so could possibly have valid contract for sale of goods. But specific goods, need to know what you are talking about. Problem with hardcover books, we don’t know which books are going to Joe so title can’t pass  Re Goldcorp Not sale from a bulk, each book is different. Title of the softcover books could pass to Joe. That is certain.

“Option to purchase” Know which books we are talking about Know that contract for sale of goods doesn’t require formalities Know that they are rare books, can’t get damages and buy on the market Seems that the contract is specifically enforceable. If so, does Joe get an equitable interest in the books because he has an option to purchase any or all of them for ½ price. If he exercises the option, can give rise to specifically enforceable right to purchase.

Assigning option to lease Option to lease = equitable interest What formalities are needed to transfer an equitable interest? Writing signed by the transferor (s 53(1)(c) of the Law of Property Act 1925). Not talking about a contract here, asking is this a valid assignment? Joe could argue there is a valid assignment which complies with formalities. Then Joe now holds the option to lease. Failure to comply with Law of Property Miscellaneous Provisions Act 1989 s 2 (which deals with contracts) means there is no valid contract to acquire no 10, but the transfer is different. Looks like assignment in writing.

72 Priorities at Common Law

Property supports multiple rights. Rules of priority decide disputes over chattels. Type of competing rights decides which set of rules to use. 1. Older rights stronger than newer rights, because shouldn’t take away your vested interest without your consent? 2. Nature of rights: legal property rights stronger than equitable property rights. We can figure out whether it is legal or equitable by its creation, e.g. lease can only be made legal if it is registered. 3. Registered property right takes priority over unregistered property right, e.g. registered charge at Company House. Common law and equitable priority rules do not apply to registered land. Priority in land is settled by registration.

Bishopsgate Motor Finance Corp v Transport Brakes Ltd [1949] 1 KB 322

Denning LJ: “In the development of our law, two principles have striven for mastery. The first is for the protection of property: no one can give a better title than he himself possesses. The second is for the protection of commercial transactions: the person who takes in good faith and for value without notice should get a good title.”

Static security protects the owner  legal system protects private property, we shall not be deprived of our property arbitrarily, ensuring a stable civil society. Dynamic security protects the interests of purchasers  want to be sure that when you buy something, you can assume the person selling it to you has the right to sell it to you, to encourage buoyant market economy. A dispute between two innocent parties, where the fraudster seller has disappeared, requires making a choice between which to protect. This is a matter of policy. Where is it reasonable for the risk to fall?

Recording ownership is one of the way priority questions are settled. Larger value items are normally recorded on a register. But in cases involving cars, registration may not necessarily protect A.

Legal v legal: nemo dat rule

Nemo dat quod non habet = no one can give what he or she does not have This is the starting point for resolving dispute between competing legal property rights, not equitable property rights.

Sale of Goods Act 1979 s 21(1) Nemo dat codified C will always lose if A didn't do anything and B just stole from him to sell to C. Ex: B is a thief who steals A’s bicycle and sells it to B. A wins no matter how honestly B bought it for. Theft does not destroy A’s right to possession.

73 Thief obtains a possession good against everyone in the world except A  Thief can only sell this right to B, cannot sell A’s right to C. Legal property rights are the strongest rights we have. It would be different if A gave possession of the bike to an agent who exceeded their rights and sold the bicycle to C, then A should be the one who bears the responsibility. If A successfully sues C for conversion, C can then be entitled to damages from the thief by suing on contract. However, the thief is usually a rogue who will run off and be untraceable. A and C are both innocent, but C is left to suffer in this situation.

Exceptions to nemo dat

Where A did something of his own accord that put his goods in risk (doesn't have to have done it knowingly, law just looks at the behaviour), nemo dat may be set aside in favour of an exception and C will win. Specific exceptions protect honest buyers, but there is no general defence of being a bona fide purchaser at common law (only protects equitable rights).

Two categories of exceptions: Only works if no knowledge of the older right a) Nature of the rights involved, some legal property rights are weaker/less durable than others: - Money used as currency (thief steals cash money and uses as currency, shopkeeper gets good title) - Negotiable instruments, e.g. cheques, bills of lading - Power to rescind a contract of sale, e.g. car has been sold induced by fraudulent mistake, have the power to get car back but if exercise the power after honest buyer, lose the right.

b) Sometimes owner is partly responsible for buyer’s mistake, so buyer should win. Owner partly responsible, partly to blame for the misunderstanding - Seller in possession, buy something and leave with seller, seller sells the same goods to someone else. You chose to leave your seller in possession, put in position that looks like seller owns it, second buyer would win. - Hire purchase, chose to put you in possession and if you sell it on to someone else, the other person gets it. - Apparent agency, even if agent exceeds authority, you bear the loss, not the person dealing with the agent. - Estoppel – if you represent to buyer that they will get good title, you will be estopped from claiming otherwise.

1. Seller in possession

SGA 1979 s 74 Where A, having sold goods to B already, continues in possession of them (or of documents of title e.g. bill of lading), a disposition to C in good faith and without notice of the previous sale has the same effect as if the earlier buyer B consented to the sale.

74 Ex: A sells car to B, B didn’t take car away and A still in possession of the car. A then sells it to C. B has claim for damages from A, but cannot claim car from C, who gets good title even though A doesn’t have title.

Worcester Works Finance Ltd v Cooden Engineering Co [1927] 1 QB 21 (CA)

C is a dealer who has car. G is a fraudster, buys car in exchange for a bad cheque. C finds out the cheque is bad. Before he could void the transaction, too late because G has already sold the car to W (a hire purchase company). W hires car out on hire purchase to M. M is also a fraudster, in collusion with G. This whole time, G has possession of the car  W doesn’t take possession and M doesn’t want the car anyway. C says give us back the car or we'll sue you for bad cheque. G gives back the car. W tries to claim that G is liable in conversion for dealing with their property which he didn’t have title to. Was G a seller in possession when he gave the car back to C? Possession under the Act means possession in any capacity. Doesn’t matter that G was in possession unlawfully because he was not the hiree M. He sold to W but was still in possession of the car. Giving the car back to C was a disposition because he got consideration  C gave promise not to go after G for fraud. C got good title under SGA 1979 s 24.

If the rogue seller sells the goods in a business setting, B is a buyer in possession so the sale to C is good if conducted in the ordinary course of business. C receives a voidable cheque, but was too late because title already passed to W.

Lord Denning: There must be a continuity in the possession. If there is a substantial break in continuity the Act does not apply, e.g. if M took possession of the car and gave it back to G.

The seller does not need to be in possession of the goods in his capacity as seller. Ex: B buys a pony from A, but the pony remains with A, who comtinues in possession as trainer. A then sells it to C, who is unaware that the pony belongs to A. C gets the pony. S 24 is protecting in cases of dealers, where someone looks like they should normally be in the business of selling such things.

2. Buyer* in possession

SGA 1979 s 25 Sale to C is good even though the seller does not own the item. Where a person, having bought or agreed to buy goods, obtains possession of the goods, any disposition to a buyer in good faith without notice of the owner’s rights has the same effect as if that person were a mercantile agent of the owner. (overlap with Factors Act 1889 s 9) Ex: Goods have been sold under a voidable transaction after A publicised an intention to rescind, then B still sells to C. C gets good title.

75 *intended buyer or buyer under a voidable transaction

Newton’s of Wembley v Williams [1965] 1 QB 560 (CA)

N sells a car to A (fraudster) in return for a bad cheque. Ownership doesn’t pass until the cheque clears. When it doesn’t, N puts out a stop notice and tries unsuccessfully to trace the car. 1965 B buys car in car market, pays £550 in £5 notes. Took the car and sold to the defendant W. N argues they voided the sale to A before the sale to B, so title never passed. W argues on the basis of the Factors Act 1889 ss 2, 9. N says A is not a mercantile agent. Court holds A obtained possession of the car with the consent of the claimants. Although he was not a mercantile agent, the section treats him as if he were. A sold the car in the ordinary course of business, car market was sufficient. A was not a mercantile agent, but this doesn’t matter because SGA 1979 s 25 uses a legal fiction and treats him as though he were.

Factors Act 1889 S 9 “as if that person were a mercantile agent” S 2 Mercantile agent = someone acting in the ordinary course of business and in possession with consent of the owner. This means within business hours at a proper place of business. C needs to buy from someone who looks like a mercantile in order to be protected.

3. Sale under voidable title

SGA 1979 s 23 A purchaser in good faith takes good title from a seller who has obtained the goods under a voidable (but not yet avoided) title. Stealing or a forged cheque is always void from the start, never had any validity, so title never passes to B  nemo dat If cheque is real, just not enough money in the account and it bounces, the transaction is voidable. It is up to the injured party to take steps to void the transaction. This doesn’t work retrospectively, anything that happens up to the point they void the transaction will be valid. Application of nemo dat: Before the transaction is voided, B has good title to pass to C.

Car & Universal Finance Co Ltd v Caldwell [1965] 1 QB 525

Does communication need to be given to the fraudulent party? Caldwell sells car to Norris. N pays by cheque and leaves another (stolen) car as security. Bank refuses to honour the cheque, C goes to police. N sells the car to Motobella car company, who knew he was a thief. C&U buy the car from M in good faith. C&U argue that C never communicated his intention to rescind the deal to N, so didn’t void it in time.

76 Court held that if the party to a contract made it impossible for another party to communicate intention to rescind, then contacting the police was sufficient to void the transaction in good time. Purchase from M was not saved by the Factors Act 1889 because M wasn’t in possession with the consent of the owner. N was not the owner, transaction with him was voided.

4. Sale by mercantile agent

Factors Act 1889 s 2 Factor = mercantile agent, has the authority to buy and sell tangible goods which they have possession of. Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, any sale, pledge, or other disposition of the goods, made by him when acting in the ordinary course of business of a mercantile agent, shall, subject to the provisions of this Act, be as valid as if he were expressly authorised by the owner of the goods to make the same; If sell a car to a fraudster and the transaction is not yet voided, he has the seller’s consent so any purchaser from the fraudster will be protected.

Oppenheimer v Attenborough [1908] 1 KB 221

O gives possession of diamonds to broker X to show to a prospective purchaser. X pledges the diamonds to pawnbrokers A in exchange for a loan for his own benefit. O tries to claim the diamonds from A, argued X had no authority to use it for his own benefit as a pledge for a loan. A knows that diamond brokers do not normally have authority to pledge property they traded in. However, it is common practice among brokers in other trades, so thought it may be okay. Court held that the Factors Act 1889 puts the risk on the owner by sanctioning all acts of the agent done in the course of business, even if they were not authorised by the owner. Buckley LJ at 229: “The object of the Act, as regards sale, and as regards pledges, was that a person who, with the consent of the owner, is in possession of goods as a mercantile agent shall have the same rights of dealing with them as if he were himself the owner. […] the question whether or not the pledgee believed that the person dealing with him had the character of a mercantile agent is not relevant. He deals with the pledgor because the pledgor has possession of the goods.” 230-1: Ordinary course of business test is general, doesn’t depend on the specific type of business. “acting in such a way as a mercantile agent acting in the ordinary course of business of a mercantile agent would act"; that is to say, within business hours, at a proper place of business, and in other respects in the ordinary way in which a mercantile agent would act, so that there is nothing to lead the pledgee to suppose that anything wrong is being done, or to give him notice that the disposition is one which the mercantile agent had no authority to make.” Don't need to ask if he has authority to do a specific act with the goods in his possession.

77 Ex: A leaves his vintage guitar with his friend B, a musical instrument dealer, for B to sell in his shop. B has A’s authority to sell the guitar for no less than £2,000. B sells it to C for £1,000. Factors Act 1889 s 2 The sale to C is good despite B’s lack of authority to sell it at that price. B is liable to A for the full amount, however A cannot get the guitar back. B’s authority is not relevant to C, C can depend on the setting and that the mercantile agent has the consent of the owner.

5. Car under hire-purchase

Hire Purchase Act 1964 s 27 Only about sale of a car to a private buyer under hire purchase. Hirers under a hire purchase are not buyers in possession but take possession as bailees with an option to purchase at the end of the bailment period. Private purchaser C in good faith without notice of the HP arrangement can rely on the “apparent ownership” of hirer B who looks like the owner. A dealer, as a professional, is expected to check the providence of the car, so the exception doesn’t apply to them. We look at the conduct of the hire purchase company A. A consented to B’s possession  the risk falls on A because A has allowed B to look like the owner of the property. Nemo dat applies in the case of theft because A did not allow B to have possession.

GE Capital Bank Ltd v Rushton [2005] EWCA Civ 1556

Bank authorised T&T company to buy cars on HP. T&T get into financial trouble, so they sell seven cars they have on HP to Rushton. Rushton sells one car to Jenking. Bank wants all the cars back. Rushton not protected by Hire Purchase Act 1964 s 27 because he sold one of them, which makes him a dealer, so not protected. If he just kept for his own use he would have been protected.

6. Estoppel

SGA 1979 s 21(1) Codified equitable principle about the behaviour of A. Nemo dat applies “unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell.” If A represents that B is the owner of the object, A cannot go back on that representation and C wins.

Henderson & Co v Williams [1895] 1 QB 521 (CA)

78 G&Co were sugar merchants who stored their sugar in W’s warehouse. G&Co induced by fraud to sell 150 bags of sugar to Fletcher (a fraudster). F resold the sugar to H&Co, who had no idea. H&Co relied on W’s representation. W mistakenly reassured H&Co that F had good title because at the time did not know he was a fraudster. W thought they attorned to F, holding on behalf of F who must be the owner, but he wasn’t. W then finds out F was a fraudster, so refuses to give the sugar to H&Co. H&Co brought claim of conversion against W. CA held that W was estopped from denying his own declaration. Could not now deny after already made the representation that F was the owner, must stand by that. Lord Halsbury at 225: “The question here is whether the true owner of the goods has so invested the person dealing with them with the indicia of property as that when an innocent person enters into a negotiation with the person to whom these things have been entrusted with the indicia of property the true owner of the goods cannot afterwards complain that there was no authority to make such a bargain.”

Farquharson Brothers & Co v King & Co [1902] AC 325

F = wood timber merchants, stored timber with SCD as their bailee. F’s agent Capon had a fraudulent side line trading under the assumed name ‘Brown’. He uses the true name Capon to sign a document transferring timber to a man named Brown. As Brown, he sold it to K&Co. Could F get the timber back? F never entrusted an agent named Brown, only entrusted Capon. Here the exception for estoppel couldn’t arise against F because they never did anything wrong. F had never represented to K that “Brown” was its agent.

7. Negligence

A may have a duty of care to someone in C's position. If they are negligent, C wins.

Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890

Finance company Moorgate supplied car to McLorg on HP. Moorgate failed to register the HP arrangement. It is not mandatory to register. McLorg offered to sell the car to Twitchings. T asked HP authority if it was on HP, the authority had no record of it so T though there was no HP.

79 Were Moorgate negligent in not registering? Court held not negligence, no duty to register. The registration scheme was voluntary, not compulsory. Twitchings was a dealer, so sale to them was not within HPA 1964 s 27 exception.

8. Money as currency

Nemo dat doesn’t apply to money because its value is not as an object, but as currency.

Ex: Thief steals £20 note, buys coffee and gets £17.50 change. Vendor gets good title to the note, the victim cannot come to claim it from him. The victim’s right is destroyed by this transaction. What does the thief get? Good title to the coffee and the change. Some may argue thief holding the coffee and change in trust for the victim.

Miller v Race (1758) 1 Burrow 452

Lord Mansfield at 457: “It has been quaintly said, “that the reason why money cannot be followed is, because it has no ear-mark:” but this is not true. The true reason is, upon account of the currency of it: it cannot be recovered after it has passed in currency. So, in case of money stolen, the true owner cannot recover it, after it has been paid away fairly and honestly upon a valuable and bona fide consideration.” C keeps the cash, despite having received it from a thief because it is not like ordinary objects, currency is exception. True owner cannot recover stolen money after it has been paid away fairly and honestly upon a valuable and bona fide consideration.

80 Priorities in Equity

Equitable vs equitable: first in time rule

First in time (default rule) = presumption at the outset is that the earlier right is better. It doesn’t matter if the person with the later interest had notice of the first. Where the equities are equal, you don’t apply the doctrine of notice. The equities must be equal for the FIT rule to prevail.

Accords with nemo dat, the earlier right is a vested property right and the courts will not interfere with it without reason  Static security protects the vested property right.

Exceptions

1. Where the earlier owner is at fault.

Where equities are equal but the earlier owner A is at fault in some way, e.g. hides their interest to deceive, then the second encumbrancer B takes priority.

Rice v Rice (1854) 2 Drew 73

Michael Rice bought legal title to land from his relative George Rice. Michael took the title deeds and paid some of the purchase price, but not all of it  George gets unpaid vendor’s lien over the property for the remaining purchase money. Michael wanted a mortgage, needed the property to look as if it had no encumbrances on it. George gave Michael a declaration that there was nothing owing  denied himself his own equitable security interest. Grants equitable mortgage to Eed & Knight. Equitable mortgage came after the unpaid vendor’s lien in time. Michael then disappears. E&K have unpaid mortgage. But George denied his own equity, so it disappears and priority changes, unpaid vendor’s lien postponed to after the mortgage. The court takes into consideration the conduct of the parties and all the circumstances to determine who has the better equity.

Exception: If the later right is a gift, the earlier right takes priority even where the owner is at fault, because equity will not assist a volunteer. Won’t matter if the older right was a gift and the owner behaved badly and hid his interest. A gift is a windfall, you are not any worse off if you lose a gift, therefore a donee is not worse off because there is a prior encumbrance on the property that defeats his gift.

81 2. Where the equities are not equal, and the earlier one is a “mere equity”.

If A’s equity is a “mere” or inchoate equity and B’s equity is not, and B is a purchaser in good faith for value without notice, B takes priority. If A’s equity is a mere equity and B’s is not, but B has notice, A takes priority. Weaker equity falls in the face of a stronger equity as long as the owner of the stronger equity didn’t know about the earlier, weaker one. Later equitable interest must be acquired for value in good faith and without notice of the mere equity.

Inchoate equity = e.g. If the first equity arises from a claim for estoppel, it is weaker because it is not fully realised, don’t know if the court will award you a proprietary right in the form of a charge, or damages. “Mere” equity = e.g. right to rescind a contract for undue influence or misrepresentation, right to rectify a document Not clear at the outset that these equities will result in a personal or property right, depends on the discretion of the court. They are inchoate/incomplete, and weaker than other kinds of equities.

3. Where earlier interest is a foating charge and the later interest is a fixed charge.

If A’s equity is a floating charge, and B’s is a fixed charge, B takes priority. Floating charge = crystallises in event of insolvency, doesn’t come into life until later on. Fixed charge = know from the beginning what the subject matter is.

82 Equitable vs legal: bona fide purchaser

In general, legal rights more durable/stronger than equitable rights, so this is a dispute between unequal interests. Difficult to discover all rights to a property. Purchasers may discover too late that the property is encumbered by an earlier right which would limit their use. Equitable charge will disappear if the legal charge is obtained by someone who has no notice and who is a purchaser having given value for the thing.

Pilcher v Rawlins (1871-2) LR 7 Ch App 259

Trustee of a family trust William uses the Pilcher family trust money to lend on security of R’s land, gets charge/mortgage on R’s land. W gives trust money to R. W holds land on trust subject to R’s equity of redemption (old mortgage system). They collude in a fraud because R wants to borrow more money. They make R look like the owner and hide the first mortgage so R can raise more money. R is not bona fide purchaser, knows about the trust. S&L don’t know about this, lends £10,000 to R secured on the land, and R pays W part of the mortgage he first borrows. W re-conveys the legal estate to R since he satisfied the first mortgage. R later executes a real legal mortgage to S&L. W received the money from R now for the original loan, doesn’t hold the trust money for the beneficiaries – breach of trust not paying the money back. A beneficiary James Pilcher sues R, S&L and W, asserts beneficial interest against property. S&L had no constructive notice of the trust as they did not know about the conveyance to W on the first mortgage, it was hidden from them. Doctrine of notice  legal title S&L had vs beneficiary interest of the Pilcher trust JP couldn’t follow the property into S&L’s hands. JP’s interest in the property is destroyed by transfer of legal title to S&L because the latter had no notice. James LJ at 268 recognises defence for the bona fide purchaser without notice.

Purchaser can receive legal title, because the trustee has it to give. Unlike a theft situation where the thief had no legal title to give. This is exception to nemo dat, because in addition to getting legal title they also get beneficial title. Beneficiary has the weaker title because they took the risk by choosing to give someone else legal title of the property to manage it. Whether the purchaser is bound by the beneficiary’s right depends on whether he is a bona fide purchaser for value without notice.

83 Requirement 1: bona fide Good faith = don’t have notice, no unconscionable behaviour or fraud. Good faith is implicit in notice. Can’t have good faith with notice at the same time.

Midland Bank v Green [1981] AC 513 (HL)

Interest concerned was a registerable charge to purchase. A father owned a farm, granted his son an option to purchase. Had falling out, father knew son has not yet registered his option to purchase under the Land Charges Act 1972. Wanted to defeat the son’s option  by selling to a purchaser for valuable consideration, the purchaser can take free of the option, thus destroying it. Sold the land (worth £40k) to his wife for £500. Not deemed to be in bad faith. Court decides that the mother takes free of the option even though she knew about it and the whole purpose of the transaction was to defeat the son’s option. Gave consideration and value, even though not market value. Doctrine of notice doesn’t apply to her because there is a register. Lord Wilberforce says good faith could be a separate idea from notice.

Requirement 2: purchaser Receives legal title by means of a grant, whether by gift or sale. Somebody who received legal title by the act of a private party, not one who receives by operation of law (inheritance, court order etc.) Includes a mortgagee lending money in return for an interest.

Requirement 3: for value May be money or money’s worth, anything that is worth something. Value requirement simply means can’t be donee of a gift; they take the gift subject to all existing interests. It doesn’t need to be full value  Midland Bank v Green

Requirement 4: without notice

 Actual notice = knowledge, something you actually in fact know Land Register constitutes actual knowledge.

 Constructive notice = what you ought to have known in the circumstances Knowledge that they would have found out if they conducted the enquiries reasonable in the circumstances.

Hunt v Luck [1901] 1 Ch 45

Not allowed to say don’t know because didn’t look. A purchaser is deemed to have constructive knowledge of something which he would have found out had he conducted the enquiries expected of a reasonable person in the circumstance. Prevents buyers from turning a blind eye, refusing to inspect property to claim they didn’t know about existing interests.

84 Joseph v Lyons (1884) 15 QBD 280

Manning gives Joseph equitable charge over some jewellery. Joseph registers the bill of sale  registered his equitable charge (non-compulsory form of register) Manning pledges the same jewellery to Lyons, who has a legal charge. This is the later right, who takes priority? J brings action for conversion against Lyons, demands the jewellery. Was the registration constructive notice? No because it was not reasonable in the circumstances for L (a pawnbroker) to check the register every time he accepted a pledge. Under no duty to look, deemed to have no notice. Where it is not reasonable to carry out a search, they don’t have notice. If court decided it was reasonable for him to look, he would have been bound by constructive notice. Cotton LJ at 285: If he did in fact conduct a search, he would have actual notice when he finds the bill of notice.

Extent of the search: Failure to search is not a form of negligence  there is no duty to search. Question is whether it is reasonable to conduct a search. Conducting a search doesn’t change the nature of the thing, decide if they want to buy it with the burden or not. Even if they conduct a search and don’t find it, they are still burdened. Searching changes nothing. If there is a discoverable interest, the buyer will be bound, whether or not she searched and whether or not she has actually discovered it in a search. When is an interest deemed to be discoverable? What is a reasonable inspection/enquiry?

Kingsnorth Finance v Tizard [1984] 1 WLR 783

Interests under a trust are not registerable rights, so they are the only remnant of doctrine of notice in land law. Tizard separated from his wife. Wife kept belongings at the house, came often to look after the children. She had beneficial interest but no legal title in the house. He wanted to represent to bank that he had all the title, hid away her things and lied. The mortgage representative saw evidence of the children, but T said he wasn’t married. Bank was still bound by the wife’s beneficial interest. It is unclear what else the court expected of the representative, what they were expecting him to make of clues is uncertain. It was not reasonable to only ask T, because it was in his interest to hide the wife. Cannot rely on the answer of anyone other than the right holder. It is only if the right holder herself denied her own right, that you can say you had no notice.

It is not enough to enquire of the legal owner, because he has a motivation to hide the beneficial interest of his wife. The bank has to direct its enquiries to the person who may hold a right “inconsistent” with the title of registered proprietor and to gain her consent.

85  Imputed knowledge of agent = treat principle as though they have the same notice as their agent Anything the agent discovers, actual or constructive, will be imputed to the principle.

Independent Trustee Services Ltd v GP Noble Trustees Ltd [2012] EWCA Civ 195

In divorce proceedings, settled under consent order that Mr Morris pays Mrs Morris £1.4m if she does not pursue him for ancillary relief. Later she suspected that he was richer than he was letting on and tries to go back for more. Applies to have the order set aside. Opens up the order. Then discovered that the money he paid to her had been misappropriated from the Independent Trustee Services Ltd, by GP Noble and Mr Morris who were fraudsters working in cahoots. She knew about the dirty money now. ITS claimed against Mr M, GP Noble and Mrs M. At the time she received the money, she was a bona fide purchase for value without notice at first. No longer because killed off consideration of promise and knew about the fraud. Didn’t get more money and lost the £1.4m she already had.

(And an inspection is reasonable in the circumstances.)

 The right can’t be asserted against you later.

Kingsnorth v Tizard

86 1) Work out what property rights exist, identified the sorts of rights you are talking about and how they are created + transferred. 2) Work out which one is older, which one is newer.

87 Problem Question

After reading The Life-Changing Magic of Tidying, Charlie decided to get rid of his possessions that no longer brought him joy (and make some money in the process).

The first to go was his collection of self-help books, which he took to Mike Teevee’s vintage bookshop, with instructions that Mike should not sell the books individually but only as a set.

Charlie then agreed to sell his scooter for £500 to his friend Veruca, who had always had her eye on it. She took it away with her, promising to pay Charlie next month.

Charlie then sold his unused gym equipment to Miss Trunchbull. She gave him a cheque for £1,500 and took the equipment away.

Charlie advertised his 1970s Scalextrix set on the local newsagent’s noticeboard for £150. A certain Mr Wonka turned up to have a look and asked Charlie if he might have any spare batteries to go with it. Charlie went to find some and when he returned, Mr Wonka and the Scalextrix were gone.

Charlie discovered the following: a. Mike sold two of the self-help books individually to Danny and George. Charlie wants them to return the books to restore the collection. b. Veruca sold the scooter to Matilda and spent the proceeds. Charlie wants the scooter back from Matilda. c. Miss Trunchbull’s cheque bounced. Charlie reported the fraud to the police, but discovered that Miss Trunchbull had already sold the equipment to Mr Fox. d. His Scalextrix set was sold on eBay for £200 to Bogtrotter. Charlie contacted Bogtrotter to demand its return.

Advise Charlie.

Mike

Mike is mercantile agent for Charlie (Factors Act 1889 s 2) Offered authority to Mike to act on his behalf. Even though it came with instructions, Charlie did not do anything to intervene or stop the transaction or do anything to try. Danny and George can use bona fide purchaser defence Imputes degree of responsibility on Mike, made the sale in his ordinary course of business Charlie has claim against Mike because of their legal relationship, he breached contractual obligation.

88 Veruca

Sale of Goods Act 1979 s 25. Buyer in possession after sale. Charlie may say the transaction was void, nemo dat rule If voidable, need to rescind with Veruca before she sells it on Was the promise to pay fraud? If so, can claim transaction was void altogether and legal title never left him. He chose to take the risk to let her buy and take it away before giving him money. Matilda would have to prove she didn’t have notice, then can use bona fide purchaser defence. If not, title of the scooter would still remain with Charlie.

Trunchbull

Car v Universal Finance Reporting to police does make a voidable transaction void Newton’s of Wembley and Worcester similar facts Mr Fox could claim bona fide purchaser, we need to look for proof If Trunchbull was also honest purchaser, Charlie just needs to claim breach of contract and try to get money back

Bogtrotter

Nemo dat because it is thief, Charlie did not intend for it to go Better explained and contextualised by S 21 of the Sale of Goods Act 1979, buyer acquires no better title than the seller has. The process in which it was sold, could eBay be held liable for their negligence in selling something that was stolen? (pawnshop, shouldn’t have to look at the providence of every listed item) Charlie’s failure to report the theft

89 Easements

Positive easement = right to make use of or do something on someone else’s land, e.g. right of way is actively doing something on someone’s land.

Negative easement = right to receive benefit of something from someone else’s land. Ex: Right to light = right to receive uninterrupted flow of sunlight across someone’s land. The landowner can’t do anything that interferes with the light’s travel, burden not to build tall structure which blocks it. The right itself is not that neighbour can’t build on their land, that is just a result of this right.

Phipps v Pears

There is no easement to be protected from the weather. Such a right would be stopping the neighbour from doing something on his own land, which would be a negative easement. The court is wary of creating any new negative easements.

No right to a view. No right to wind and air coming in an undefined channel. The only solution is to get the neighbour to make a covenant with you that he will not build as to block your view etc.

Easements are appurtenant = the right is attached to the land. Right not enjoyed by the person but enjoyed by the land  Contrast with right ‘in gross’, where there is no dominant land. Easements are property rights in rem, enforceable generally against the world. Contrast with licence: not enforceable in rem, can only go after other agreeing party for breach of contract.

You don’t get easements just because you own land, they have to be granted to you  special right. Leakey: You have natural right to support for your land, but special rights are above and beyond your natural rights (i.e. tort), something that you have to acquire above the simple fact that you own something, e.g. contract.

Approaching easements questions

1. Is the right that is being claimed capable of being an easement? (Think about substantive requirements of an easements) 2. Has the easement been properly created? (Requirements for express, implied and prescription) 3. What is the exact scope of the easements? What does it allow me to do and what can’t I do? Has this been exceeded? (Exceeding scope = committing a trespass or nuisance, will incur liability)

90 CHARACTERISTICS OF AN EASEMENT

Q1: Is the right that is being claimed capable of being an easement?

Statutory requirements:

Law of Property Act 1925 S 1(1) lists the two legal estates that can exist in land. S 1(2) lists all the other interests and rights that exist in land which can be legal. S 1(3) If you grant something which is not in the earlier lists, it is not legal, equitable only.

S 1(2)(a): Easements must be “equivalent to an estate in fee simple absolute in possession or a term of years absolute”  right/privilege must be for a specific period/duration or in perpetuity. The easement either must be perpetual or exist for a certain duration. If it doesn’t meet this requirement, it won’t be a legal easement. At best it will be an equitable easement, or something else entirely, e.g. licence. Ex: A has a right of way to cross a track on B’s land up to the point when B needs the track for his own purpose  legal easement. No certain duration, A doesn’t know when IBwill need the track for his own purposes.

Common law requirements:

Lord Evershed MR in Re Ellenborough Park (1956, CA) : 1. There must be a dominant and servient tenement. 2. The easement must accommodate the dominant tenement. 3. Dominant and servient owners must be separate persons  the two parcels of land can’t be owned by the same person. 4. A right over land cannot amount to an easement unless it is capable of forming the subject matter of a grant.

Requirement 1: Must have a DT and ST

Dominant tenement = benefitted land Servient tenement = burdened land

Easements are pertinent rights = the benefit and the burden of the right will attach to the estates in the two parcels of land. It is the land that has the benefit and burden of an easement, not a person. If it was a person, then that right would be in gross. Therefore, we can’t have easements that exist in gross.

Contrast with licence  personal right held by person. In gross right, e.g. profits in gross  Where X holds the benefit of the land personally and it has nothing to do with his land, X can continue to use that right after selling on his property, because he holds the right personally. Easements and licences are both defences to trespass.

91 Requirement 2: Easement must accommodate DT

Evershed MR: The right must be “reasonable necessary for the better enjoyment of that tenement”. If ownership changes, the new land owner benefits. Ex: A right of way for the purpose of access will benefit the land, can’t enjoy the land if you can’t access it.

o It does not accommodate the land if it is a right that only the present landowner can enjoy. o Propinquity DT and ST must be close to one another. Wouldn’t make sense if the parcels of land were very far apart, how could one really benefit the other? Geographical nexus = reasonably close, doesn’t need a common boundary. Bailey v Stevens: “You can’t have a right of way over land in Kent that is impertinent to land in Northumbria.” o Business use Can have an easement that aids some business use of the land. If the sole use of the land is for a business, an easement which directly or indirectly benefits that business will be of benefit to the land. Moody v Steggles: Can the owners of the DT attach advertising signs to the ST, does that accommodate the DT? Yes, provided that the sole use of the DT is for those business purposes and that easement gives a direct or indirect benefit. o Recreation Can you have an easement for this purpose? Re Ellenborough Park: Residents surrounding a local green space wanted to use it for recreational purposes. Provisionally yes, can have an easement for the purposes of recreation provided the right gives a utility or benefit to the DT, must deliver some tangible benefit. If it is a mere right of amusement, the answer is no. Regency Villas v Diamond Resorts: The right to use a tennis court, golf course, ornamental park. Outdoor facilities do give a benefit and utility to the DT. This accords with modern expectations. No easement for the use of indoor space, the billiards room and the TV room.

Requirement 3: DT and ST owners must be different persons

 Easements are third party rights, cannot have an easement over your own land.  Doctrine of merger: If the DT and ST come into the ownership of the same person, the easement is extinguished (ceases to exist) because there is no need for the additional right anymore.  If the land is then again subdivided, the easement doesn’t automatically revive. Will only revive if you grant it again and actively bring it back into being.

92 Requirement 4: “Capable of forming the subject matter of a grant”

- Easements cannot impose a positive burden on the servient owner. Ex: N has right of way over R’s land, R has no obligation to make sure the track is clear + safe for N to use. Only obligation is not to obstruct N’s use (otherwise would be tort of nuisance). Exception: fencing  Crow v Wood

- Clear and certain Must be something you can write down in a grant with sufficient clarity and certainty so that everyone knows what it is  Must be something capable of definition, capable of being understood.

- Hunter v Canary Wharf (2007, HL) Dispute about TV signals, HL says the residents of the Isle of Dogs did not have an easement against the builders because this would be a new negative easement. Closest analogy is right to a view, and there was no easement for that here. Lord Hoffman: Court’s general approach is anti-negative easement. Negative easements = right to light, water, support. Beyond these, we won’t recognise any new negative easements. Any new positive easements which we do recognise need to be analogous to those easements we already recognise.

- Ouster principle: Cannot oust the ST owner. The easement must not be so extensive that it amounts to exclusive possession  Easements are not possessory rights.

Batchelor v Marlow (2001, CA)

6 car parking spaces. Right being claimed is the right to park 6 cars in these 6 spaces, Monday to Friday during business hours.

Tuckey LJ: reasonable use test  does the servient owner still have a reasonable use of their land? No, ST owner doesn’t retain a reasonable use of his land because he doesn’t have the ability to park his car there when he wants. Falls foul of the ouster principle here, so this is not an easement.

“Illusory rights” = the servient owner’s ownership of the land is a mere illusion, can’t use the land for what he wants. To test whether the rights are an illusion, ask if there has been a significant drop in the financial value of the property.

93 Moncrieff v Jamieson (2007, HL)

About a parking right which was ancillary to a right of way. Lord Scott: Does the servient owner retain possession and control? This test has a lower threshold and wider scope.

Most cases post-2007 still apply the Batchelor test  Kettel v Bloomfeld [2012] As long as owner can retain some, trivial use, it can be an easement.

Law Commission, Making Land Work: Easements, Covenants and Profits à Prendre (Law Com No 327): Traditional approach is looking at the ouster problem through the lens of the servient owner  Copeland v Greenhalf (1952) . We should start looking through the lens of the dominant owner, what can the dominant owner do on the land? Recommendation that a right to use another’s land in a way that prevents that other from making any reasonable use of it will not for that reason fail to be an easement. Two land owners should be allowed to contract for a particular right if they know what they are doing and what rights they are giving up and contracting away.

However, this is a proprietary right  doesn’t just bind contracting parties, but also all successors in title, so there need to be greater safeguards and limitations on the freedom to contract away your rights.

CREATION OF AN EASEMENT

Q2: Has the easement been properly created?

Express easements:

1. Express grant (one person grants rights to another) requires: o Deed (creating/transferring a property right)  requirements are in LP(MP)A 1989 s 1. o Registration (this transaction needs to be registered)  LRA 2002 s 27(2)(d)

2. Express reservation (N transfers land to R but retains some rights for herself, e.g. reserve the right to walk across the track on R’s land for N herself) requires: a. Express reservations must be clear and unambiguous. Must clearly word the reservation in the conveyance, make it clear to the transferee what rights the transferor is reserving for himself. The courts are cautious and very suspect about reservations, so must be clear what rights you are reserving, otherwise the court will construe ambiguities against the person claiming the benefit of the reservation. b. Registration is required. c. It all happens in one action at the same time (no need for a re-grant anymore LPA 1925 s 65)

94 Implied easements:

Must be implied into a conveyance. An implied grant or reservation of an easement requires a conveyance into which that easement is implied. Not enough to look into a particular set of facts and decide it would be useful for there to be an easement  There must be a conveyance in place, otherwise no easement.

Adealon Int Corp Pty Ltd v Merton LBC (2007)

Parcel of land, public highway runs around the bottom edge. The landowner sells the land of the other three sides, preventing himself from getting any way to access the land. Intended to get planning permission to open up an access way to the public highway. Doesn’t get the planning permission, can’t access the land. Claims there is an implied reservation when he sold off the lands around the edge of his, otherwise he simply can’t access his land. Reserved the right to continue accessing his parcel.

Court says no, it was his own fault, should have gotten planning permission first. If he really wanted those rights, he should have put it in the conveyance. Can only get a licence from the landowners who surround his land.

Reservation = transferred land away but retained some rights for themselves. Courts are generally suspicious of reservations and take very strict approach towards implied reservations. Generally not the way forward in a problem question.

Thesiger LJ in Wheeldon v Burrows: “If the grantor intends to reserve any right over the tenement granted, it is his duty to reserve [rights] expressly in the grant… The rule is subject to certain exceptions. One of those exceptions is the well-known exception which attaches to cases of what are called ways of necessity; and I do not dispute for a moment that there may be, and probably are, certain other exceptions.”

There are certain exceptions, but if you want a reservation you should be doing it expressly, not relying on implication.

Implied grant or reservation of an easement

o As it is implied, it is not written down anywhere. Therefore, we read the conveyance as if the easement was always there but won’t actually see it. o Registration: Only the conveyance itself needs to be registered. Property right not registered, only the wider conveyance.

95 Note: Implied legal easements and prescriptive easements are overriding interests (not equitable easements)  LRA 2002 Schedule 3 para 3

We’re only impliedly granting rights here. Does an easement arise on the basis of the past use of the land? The recognition of the creation of an implied easement is generally concerned with the future use of the land.

Four ways of doing this:

1. Necessity

Is the easement necessary for the future use of the land? Must be necessary, convenience or preference is not enough. Intended to cover situations where the land is ‘landlocked’ = cannot access your land without crossing someone else’s first. “Fried egg” easement  must cross the egg whites to get to the yolk, absolutely necessary. A landowner has no automatic or natural right of access to his own land by way of his neighbour’s land, must acquire a special right

Union Lighterage Co v London Graving Dock Co (1902) This necessity must exist at the time of the conveyance or must have been foreseeable by the servient owner at the time of the conveyance.

2. Common intention

Was the easement in the common contemplation of the parties with regards to the future use of the land? Both parties to the conveyance must believe/have a common intention that the land will be used in a particular way, but in order for that use to take place there needs to be an easement. The easement arises to give effect to the manner in which both parties intended the land to be used.

Wong v Beaumont Property Trust (1965)

Basement of the property let out with the intention it is used as a Chinese restaurant. In the lease, there is a covenant saying the tenant must do all that it can to reduce the transmission of smells emitted through the building. This gives rise to an easement to attach ventilation shafts to the outside of the building on both the tenant and the landlord’s portion of the building.

The easement gives effect to the common intention that it is used as a restaurant and the smells from the restaurant be reduced.

96 3. The rule in Wheeldon v Burrows

Joe owns a parcel of land. House on one side and public highway on the other. To get to the public highway, Joe walks across his land from the house to the road. This is not an easement, just Joe using his land in whatever way he sees fit.

One of the requirements for an easement (from Re Ellenborough Park) is that the DT and the ST must be owned by different people. As soon as the land falls into the ownership of one person, easements are superfluous and senseless because you can use your land as you want because it’s yours. That is what Joe is doing.

This is a quasi-easement  This use of the land could be an easement but for the fact that it is owned by one person. If the land was subdivided and the two parcels of land fell into separate ownership, this use would look like an easement (cross the burdened land to get to the road).

Scenario: Conveyance of the DT  Rupert now has the easement. The changing circumstance creates the easement out of the use that Joe was making of the land all along.

- This rule only works for grants = You must be conveying the dominant parcel of land. Doesn’t work when you convey the servient land (that would be a reservation).

- Prior use (Joe’s use of his land) must be: o continuous and apparent, and o necessary for the reasonable enjoyment of the land

‘Continuous’ is difficult because only negative easements are in use 24/7.

Lewison LJ in Wood v Waddington (2015) : The word ‘continuous’ is superfluous, doesn’t add anything to the test. What you are really looking for is an ‘apparent’ easement, this includes a right of way  clear visible signs on the ground that this right is being exercised, e.g. well-trodden path.

97 4. LPA 1925 s 62

This section has a metamorphic effect  it upgrades a previously personal right into a proprietary right. A licence is upgraded to an easement if the circumstances are right. If you have a licence on a servient land and then own the dominant land, it gets upgraded to an easement. Ex: N owns the freehold titles to two plots of land, plot A and plot B, which are neighbouring. N grants R a lease over plot B, now R is the tenant. At the same time, N grants R a licence to use a track on N’s land (plot A) so that he can access plot B with ease. Not necessary, just more convenient for him. Later, N sells the freehold title to plot B to R (this is the conveyance). They incorporate the licence into that conveyance, and it is upgraded to an easement. Must have two parties right at the outset (prior diversity of ownership/occupation).

Wood v Waddington (2015)

Facts: Mr Crook owns the entirety of the land. Two transactions: - 1998 Crook divides the land into two parcels. Conveys one to Lord and Lady Sharman, the other to Mr Waddington. - 2009 The Sharmans sold their land to the Woods. The Woods claim that they have a right to cross the tracks on Waddington’s land. This relies on there being a s 62 easement implied into the 1998 conveyance when Crook divided the land and conveyed to the Sharmans. Ordinarily, we would say there couldn’t be a s 62 easement in the 1998 conveyance because there was no prior diversity of occupation at that time, the land was just owned and used by Crook. Argued that Crook doesn’t need a licence to cross his own land, so there is no licence to upgrade. No easement in the 1998 conveyance to transfer in 2009.

CA held that prior diversity of occupation was not necessary. All you need is continuous and apparent use (to be understood in the same way as the Wheldon test).

S 62 only applies to legal conveyances, not equitable conveyances. Rule in Wheldon v Burrows will apply to equitable conveyances.

In situation where you have exchanged contracts but yet to complete, exchanging your s 2 LP(MP)A contracts generates equitable rights. Could have an equitable right under Wheldon rule but not under s 62.

Law Commission Report proposes to remove the metamorphic effect of s 62, should not upgrade personal rights into proprietary rights.

98 PRESCRIPTION

Another method of creation of easements. If you do something for long enough in the correct way, you can acquire a right to continue doing that thing. Controversial because you are just making use of someone else’s land and then acquiring a right even though the owner of the land probably doesn’t want it.

Justifications: - If you do something for a long time and nobody stops you, fairly reasonable indication that no one strongly objects to the use. - Land is a finite resource, if you’re making valuable use of the land and no one is stopping you, it can be argued that you are making the best use, or a use that can co- exist with the uses other people wish to make.

Coventry v Lawrence: Can get a prescriptive right to do something that would otherwise amount to an actionable nuisance.

Three species of prescription: 1. Statutory prescription  Prescription Act 1832 2. Common law prescription 3. Prescription under the doctrine of ‘lost modern grant’ Prescription claims mostly use the lost modern grant doctrine.

1. Prescription Act 1832

S 2 differentiates between rights to light and other types of prescriptive easements. - A light claim under the Act requires 20 years enjoyment. - All other claims require 20 years or 40 years, the only difference is the strength of the right you acquire (its defeasibility). Can acquire the right after 20 years. Once you have 40 years use, right is pretty much indefeasible, except for a few exceptional circumstances.

A big issue with the Act is that you must bring your claim as soon as the use stops. Ex: A uses B’s land for 20 years. Today, someone objects to that use. You need to start proceedings and bringing claim immediately, otherwise can’t use the Act. You may not realise you have a claim until further down the line.

The Act allows for one-year interruption in your use.

Judiciary critical of the act. Neuberger LJ in London Tara Hotel Ltd v Kensington Close Hotel Ltd (2011): “The law has been complicated rather than assisted by the notoriously ill-drafted Prescription Act 1832, whose survival on the statute book for over 175 years provides some support for the adage that only the good die young.”

99 2. Common law

Used to have to prove that the use you are making of the land goes back to time in memorial (1189 CE)  an old medieval limitation period brought in every time there is a change of king. Must prove that the use (e.g. right of way) was in existence since 1189.

Now we have a presumption that if you have been doing it for 20 years, it goes back to 1189. This is a rebuttable presumption  if you can show that it doesn’t go back to 1189, you can’t use common law prescription.

This comes up a lot in right to light cases. Ex: Church claims they have a right to light to the stained-glass window. If the church is built after 1189, can’t use common law prescription.

Lin Shellfish case: unusually the common law prescription does work.

3. Lost modern grant

“If you do something for long enough in the correct way, you can acquire a right to continue doing that thing.”

This doctrine is a legal fiction  we’ll pretend that someone granted you the right to do this. Doesn’t matter if it can be shown that no one actually granted you the right.

Doing something in the correct way = use ‘as of right’ ‘As of right’ = peaceful trespasser can take advantage of lost modern grant:  Nec vi (without force) No forceful/contentious use, e.g. busting through locks, climbing fences/gates, ignoring exclusionary signs.  Nec clam (without secrecy) Can’t just use in the middle of the night so no one could know you’re doing it, can’t hide from the landowner if he is looking to see if someone is using the land.  Nec precario (without permission) As soon as you are granted a right to use the land, prescription claim comes to an end. Must be trespassing peacefully. Easiest way to defeat a prescription claim is to grant someone a licence. Best thing for landowner apart from prohibitory signs is to grant a licence (personal right, freely revocable). If you take advantage of lost modern grant and meet all the criteria, you end up with an easement (proprietary right stuck with you).

‘For long enough’ qualifying period = 20 years This can be a period of any 20 years. Unlike 1832 Act where the claim must be brought immediately when the 20 year period ends, with lost modern grant can rely today on a 20 year period from 1990-2010.

100 SCOPE OF AN EASEMENT

Q3: What is the right and what does it allow us to do? How do we know if the scope has been exceeded?

Can the right of way that plot A enjoys be used to access plot B?

Right of way granted for the benefit of plot A. Owner of plot A then acquires plot B. Can the owner of plot A + B use that same right of way that they have been using to access plot A to access plot B, whether by using the right of way to get on to plot A from where they travel on to plot B, or the right of way serves plot B directly?

This depends on whether the benefit to plot B can be described as an ancillary benefit: - If plot B only enjoys an ancillary benefit, yes the right of way can be used to access plot A and plot B. - If plot B is in substance becoming a new DT, no it is not permissible.

Ancillary benefit = minor benefit related to the benefit enjoyed by the DT.

Harris v Flower (1904)

Facts: Factory is built across two plots of land. There is a right of way servicing the first plot, which the owners and their guests use to access the factory. When they are inside, they can go to the other side of the factory, which is on the second plot. Going on the second plot means that in effect the right of way is being used to access the second plot.

Ratio: Is it an acceptable use of the right of way of the first plot to go across to the second plot? Court held no, in effect they are using the right of way for more than an ancillary benefit, creates a new DT.

Gore v Naheed [2017] upholds the rule in Harris v Flower.

Macepark Ltd v Sargeant (No 2) (2003)

Facts: Macepark is a hotel with conference facilities near a race circuit. Sargeant grants M a lease of a parcel of land, and a right of way from the public highway allowing M and its guests to access the leased land. M then contracts with neighbour’s land to build a road across their land in order to connect M and its guests with the race circuit. This means that people can come off the public highway, use the right of way granted by S to M to access M’s land, and pass straight through neighbour’s land to the race circuit.

101 Consequence: The right of way granted by S to M and its guests becomes a through-road to the race circuit.

Ratio: Is this a permissible use of the right of way S granted to M that was previously in existence, which was just to allow access to M’s land? Court held no, not an acceptable use because wasn’t an ancillary benefit.

That right of way was providing a clear and substantial benefit to land other than the DT (M’s land) to the extent that the other land (race circuit, neighbour’s land) effectively becomes a DT. The race circuit and the neighbour’s land now enjoyed clear and substantial benefits while not being the DT: - The neighbour’s land is suddenly really accessible with the new road  can access it from M’s land as well (a different, additional angle). - Race circuit’s land also increases in financial value because of direct access to the race circuit. This is essentially creating two new DT, which exceeds the scope.

Ascertaining scope in an express grant or reservation:

Starting point = the wording of the grant/reservation itself. When interpreting the grant, usual rules of contractual interpretation applies  what the parties believed the contract to mean is objectively construed, what was in the contemplation of the parties at the time they made the contract.

McAdams Homes Ltd v Robinson (2004)

Case about water drainage. The right claimed was a prescripted right or implied easement.

Ex: A has a right of way to cross B’s land on foot. Never in the contemplation of the parties that it would be anything other than on foot. A and friend start riding motorcycle over it. This exceeds scope of the easement: o increased frequency (not just A, also A’s friend) o changed the character/nature of the use (now using a vehicle to cross the right of way, not just on foot)

Neuberger LJ: Excessive use test “It would only be if the redevelopment of the site represented a radical change in its character and it would lead to a substantial increase in the burden, that the dominant owner's right to enjoy the easement of passage of water through the pipe would be suspended or lost.” The frequency of use being increased in and of itself is not enough (unless it is wildly

102 excessive), probably need more. The burden must increase, i.e. the way in which the land is being used is changing.

If the wording of the grant is ambiguous/unclear or if you are dealing with an implied easement, you need to apply other rules to work out if what you are doing is within the scope.

LAW COMMISSION REFORM

Proposal to just have one statutory scheme governing prescription  no more of the three species, just one scheme for prescription which is 20 years use as of right (reflects lost modern grant but in a statutory code).

Proposition that there is one statutory scheme governing implied easements  No more necessity, common intention, Wheldon v Burrows complications, just allows easements that are necessary for the reasonable use of the land (retains current core requirements but more accessible).

Remove the metamorphic of effect of LPA 1925 s 62  no more upgrading personal rights to proprietary rights, because of the consequences of proprietary rights e.g. bind successors in title and third parties. Shouldn’t override intentions and reasons for making a personal right in the first place.

Abandonment after 20 years of non-use (radical proposal)  If you can acquire something by using it for 20 years, we should be able to take it away from you if you don’t use it for 20 years. At the moment, it is very difficult to abandon an easement (period of non-use, no matter how long, is not enough for abandonment).

Proposal that there should be express provision for easements e.g. parking easements  We’re still holding true to ouster principle, but without allowing easements that amount to exclusive possession. We should start looking through the lens of the dominant owners rather than the servient owner. People should be able to contract away their rights and create these easements.

PROFITS À PRENDRE

The right to take something from someone else’s land, e.g. turf, wood, fish, graze animals Mason v Clarke [1955]

Subcategories of profits:  ‘Several/sole’ excludes the landowner. Ex: Right to take fish (piscary) from my land  if it is sole then I cannot take any fish from my land, only you.  ‘In common’ means landowner can take fish too.

103 Can be appurtenant or exist in gross.

A person can hold the benefit of a profit regardless of whether they have land that right attaches to, aka no dominant land. Burden is attached only to the servient land. Consequence = in gross profit gets its own title number in the land registry, like freeholds etc.

Created the same way as an easement, with the exception of Wheeldon v Burrows which doesn’t apply to profits.

If Law Commission proposals are accepted, there will be no more profits in common law. Recommend that profits should, for the future, be able to be created only by express grant or reservation or by statute.

Problem Question

Portia owned two adjacent detached houses (Rose Cottage and Lilac Cottage) and a plot of open land behind them. She occupied Rose Cottage and rented Lilac Cottage out to tenants. The land enjoys two points of access to the public highway: a small mud path leading from the front door of Rose Cottage and a paved private road across the open land behind the houses. Both Portia and her tenants used only the paved road and, over the years, the mud path became overgrown with brambles and very difficult to navigate.

(a) In 2014, Portia renewed her tenants’ lease of Lilac Cottage. A few weeks later, she quarrelled with them and told them they were no longer allowed to use the private road over the open land to access the public highway. Advise the tenants. How, if at all, would your advice differ if there was an alternative route for the tenants to access the public highway from Lilac Cottage?

(b) In 2015, Portia sold Rose Cottage to Bassanio, who finds it very difficult to access his front door using the overgrown mud path. He has been told that clearing the path and rendering it safe to use would be very expensive. He would like to make use of the access road over the open land, but Portia is refusing to allow him to do this.

Advise Bassanio.

Wheldon v Burrows quasi-easements issue, extinguish the easement temporarily while P owned both plots. Wood v Waddington apparent use on well-trodden path

104 Lilac Cottage

Open land owned by P. Only point of access to public highway is a paved private road across the open land = right of way over P’s open land? P no longer allows the tenants to use the private road, takes away right of way. Lilac Cottage is now landlocked/unable to access the public highway.

Necessity point Implied easement  how else can they get to the house

- What if there was an alternative route? Aka Lilac Cottage not landlocked.

P’s defence: in all arrangements she had an implied reservation, the right to decide if she can grant the use of the road or not. Adelon International Corporation v Merton LBC

Rose Cottage

Access to the land via small mud path overgrown with brambles and difficult to navigate. Clearing path + making it safe is expensive. Wants right of way over P’s open land, use private road. P says no. P is not duty-bound to maintain the path, doesn’t matter if it is not convenient. B must take the expense and pay for the upkeep.

105 Property Law Notes

Part 2 out of 2

[1 pages]

Contents:

Land Registration: Registration Priority Rules for Land Protected Interests Overreaching Rectification and Indemnity

Co-Ownership – Severance

Mortgages

Leases: Nature and Creation of Leases Leasehold Covenants Termination

Freehold Covenants

Mac Numbers file: List of property statutes to memorise

1 Registration

There are some problems with priority rules, particularly when dealing with land. Ex: A wants to buy land from B. B is selling his house. A wants to get good title, want to know that they purchased the land and get a fee simple estate. 1. Nemo dat : The title A gets is no better than the title B has  must do extensive search into chain of title is expensive. 2. Bona fide purchase : Do for value and good faith, take free of older equitable interests except what you have notice about. But may be stuck with constructive notice (reasonable person would have discovered if they did the right searches), so might have to do extensive searches for equitable interests. 3. First in time : If you are taking an equitable interest in the land, you are subject to any older equitable interest out there because of first in time rule, whether you had notice or not.

Deeds registration

First system introduced, makes discovering property rights easier. But wasn’t the perfect solution of the problem:  This is a register of documents. The system doesn’t guarantee the document is valid. Helps find and locate but doesn’t solve nemo dat problem.  Some property rights arise without the execution of a document, it is not possible for those to be registered.  Organised by the name of the person who owned the land. How do you find the document with the interest you are looking for if people move, sell or die?

Charges Registration

Land Charges Act 1972, register applies only to unregistered land, a stop-gap to deal with problems of lack of registration until all the land went into the deeds registration system. Allows for the registration of a limited number of charges (interests in land), e.g. specifically enforceable contract of sale. Not a register of documents, but a register of the charges. Organised according to the name of the landowner as well.

Title Registration

Note whether a case takes place under the 2002 Act or the 1925 Act. Land Registration Act 2002 1. Organised the register by parcels of land 2. Need a good system of accurate surveys for this. England lacks that. 3. Registering titles/rights to land, not registering documents. The act of putting something on the Register causes the right to arise, not the execution of the document. 4. Some unregistered rights (e.g. equitable interests) are protected by the system whether a document was created or not.

2 Title by Registration

If you want to create legal title (grant a lease, legal charge, easement) or transfer an existing title (fee simple or leasehold estate), this is accomplished by registration, the event which causes title to pass or be created  this is a fundamental feature of the LRA and registered land.

LRA 2002 s 27 “If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met.” Tells us which transactions need to be registered to take effect at all. If they are not registered, they can take effect by equity but not law. Even if executed deed, until it is registered it does not operate at law, will only be an equitable interest.

LRA 2002 s 58 Even if at common law the deed would not have been valid because the document is a forgery, invalidly executed or the person doesn’t have title, registration of the document will create the interest/property right that it purports to be producing. Register of title, not register of document: - A register of documents is used to protect title, not to create or transfer it. The documents do the work and registration protects the priority of the rights they generate. - For a register of title, registration is the main event that creates or transfers legal title. Some cases refer to this as “statutory magic”. This avoids the complexities of the nemo dat problem. Even if you register with a defective instrument (forged or faulty in some way), it will still have legal effect and cause the title to be transferred/created. It is a necessary, albeit undesirable and unintended consequence, if you want to reform the system and get rid of the tedious searches. Otherwise still have to investigate chain of title in order to ensure valid document.

The system is broadly based on three principles: • Mirror principle = the registry must reflect the state of affairs of the property/title • Curtain principle = some equitable interests may remain hidden, e.g. LRA 2002 s 33 trust interests are kept “behind the curtain” • Insurance principle = State guarantees the legal effect, compensation from the state in cases where loss is caused by the operation of the system (indemnity)

Bona fide purchase vs registration Exam tip: Defence of bona fide purchase does not apply to land.

Bona fide purchase: - Only applies when there is competition between older equitable interest and newer legal interest.

3 - Only works if you have good faith, get legal title, give value (not a donee) and do not have notice of the older right. Registration: - Concerned with competition between older unregistered interest and newer registered interest. - Need to get registered title, otherwise this won’t help you. - Must be for value, can’t help donee. - Don’t care about good faith, not relevant under LRA 2002. - Question is not whether you had notice of the older unregistered interest, but whether that interest is protected. Statute provides protection for certain interests.

Midland Bank Trust Co Ltd v Green [1980] UKHL 7, [1981] AC 513

Under a title registration system, notice of interests must be irrelevant. Then knowledge has to be irrelevant too. But there’s a line in which there is a difference between knowledge (knowing you are defeating their interest) vs fraud. Chambers thinks the mother and father went too far, colluded solely to defeat the son’s interest is going into fraud territory. However, it was not a trust for the son. If the son was a trust beneficiary, it would clearly be fraud. It’s okay to know there is a trust and it will be destroyed on registration, but it is not okay to be involved in someone’s breach of trust  that is dishonest. But the LRA 2002 does not have a clause dealing with fraud. Chambers argues that dishonestly participating in a scheme knowing you are destroying someone’s interest against their wishes, in breach of trust, is fraud. Knowledge and notice is irrelevant.

Prior unprotected interests Those who create interests are always bound by them, even if those who later acquire registered interests in the same property are not. Ex: A mortgaged her house to B, who failed to register the charge. A then leased it to C for five years (not a registrable disposition, but treated as if it was, so that it takes priority over earlier unprotected interests). C is not bound by the charge, but of course, A is. If A defaults, B may not seek possession against C until C’s lease has ended. The disposition to C does not destroy B’s interest, but takes priority over it. The charge is unenforceable in any way that might disrupt C’s interest. If instead of leasing the premises, A sold the fee simple to C, that would destroy B’s charge. B will still have a personal claim against A, but B’s security would be destroyed by the operation of section 29(1).

4 Problem Question

Andre is the registered proprietor of Greenacre, comprising a house, in which he and his wife Anna live, and a small cottage.

He creates an option to purchase Greenacre in favour of his daughter Sonia, who occupies the cottage. Sonia takes no further steps.

Andre then falls into financial trouble and borrows money from Yuri, a family friend, in exchange for a mortgage over Blackacre. Yuri knows about Sonia’s interest.

Andre defaults on the loan, and Yuri seeks to possess Greenacre with a view to selling it.

Advise Sonia.

A (freeholder)  Y (mortgage)  S (option to purchase) A grants interest (option to purchase) to Sonia.

S 2(4)(iv) Contract, expressing future intention It’s a class C charge under the Land Charges Act, so she needs to register it. If you don’t register the contract it will be void against the purchaser.

We don’t know if Sonia has a lease in the cottage or how she occupies it. If S had a 7+ years leasehold and it wasn’t registered

Millbank v Green Distinction to be made between knowledge and fraud. Yuri didn’t make a dodgy transaction seeking to obtain something she didn’t. Knowledge that she is there doesn’t carry much.

James Penner says whole idea of land transactions is to convey in a clean clear method. This system lives up to Honore’s idea of ownership not involving money, just money or money’s worth in the legislation.

Argue Sainsbury’s v Olympia Homes in Sonia’s favour? Otherwise, could be regarded as a minor interest if her attempt to get the contract recognised is defeated.

5 Priority Rules for Land

S 28 Basic rule: First in time 1) Except as provided by sections 29 and 30, the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge. 2) It makes no difference whether the interest or disposition is registered. Doesn’t matter if the right is legal or equitable, registered or unregistered, the starting point is that the older interest has priority over the newer interest. The statute is wiping the slate clean, starting point is that the older interest beats the newer interest unless there is a reason in the statute to change the order.

S 29 Effect of registered dispositions (1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration. If you make a registrable disposition (transfer or grant) of your estate for valuable consideration, and you get registration, then you take priority over older interests, unless those older interests are protected.

“Registrable disposition”: S 27 tells us which dispositions are registerable:  Transfer of your estate (whether freehold or leasehold)  Grant of a lease for more than 7 years  other leases also matter, e.g. take effect in the future, intermittent  Express grant or reservation of an easement  Some easements arise by prescription (not created intentionally, arise by operation of law)  Grant of legal charge, i.e. mortgage

“Valuable consideration”: S 132 Valuable consideration does not include marriage consideration or a nominal consideration in money. Need to be more than nominal. Marriage consideration is for making marriage settlements. Also, cannot be the donee of a gift.

“Completion of the disposition by registration”: Ex: A wants to lease land to B for 10 years. A executes the relevant document (deed) but it won’t be effective at law until it is registered = completion by registration.

S 29 can change the order of the priorities if the older interest is not protected. We must work out how we know if an interest’s priority is protected. (2) For the purposes of subsection (1), the priority of an interest is protected – a) In any case, if the interest – i. Is a registered charge or the subject of a notice in the register, ii. Falls within any of the paragraphs of Schedule 3 …

- If it’s on the register and registered, then you cannot get priority over it, will be in order of registration.

6 - Certain unregistered interests can be protected if they are the subject of a notice in the register  can put a notice on the register to let people know you have an unregistered interest. - Schedule 3 lists protected interests.

(4) Where the grant of a leasehold estate in land out of a registered estate does not involve registrable disposition, this section has effect as if – a) the grant involved such a disposition, and b) the disposition were registered at the time of the grant. Lease for more than 7 years is registrable, doesn’t take effect at law unless you register it. If you have a lease that you don’t have to register, e.g. for <7 years, it is not a registrable disposition so takes effect at law with just a deed. The lease will be treated as if it is registered from the day it is granted. This non-registrable lease gets priority over older unprotected interests by treating it as registered. Ex: When I grant you the five-year lease of my house, you get the legal leasehold estate once I have executed and delivered the deed, no need to register. The statute treats it for priority purposes as if it is a registered disposition. That could give you priority over older interests if you take it for valuable consideration, and some newer interests.

The holder of an earlier interest may protect her interest against that of a future disponee in one of three ways: - by registration (if it is a registrable disposition according to s 27(2)), - by entry of a notice in the register (s 32), or - if it is an “overriding interest” which comes under Schedule 3. If the interest falls outside of these categories, the disponee will not be bound by it.

Barclays Bank plc v Zaroovabli [1997] Ch 321

May 1988 Mr and Mrs Z granted charge to B over their land. A term of the charge was that they were not allowed to grant leases without the mortgagee B’s permission. August 1988 Zs did it anyway and granted lease to Mrs P without B’s permission. Although it was a short 6-month tenancy with renewal, P had a protected tenancy under the Rent Act 1977, meaning she would have a right to stay and control rent increases. Can’t get her out or raise rent. B later wants to take steps to enforce the mortgage, realised the bank never registered the charge because of a slip-up. August 1994 B registered charge, then take proceedings. Want to take P out, value of property would be much higher without her as a sitting tenant with low rent. P wins, B loses. This case was under the LRA 1925, but still same effect. Granted charge to B, then granted lease to P. S 28 would tell us that B wins because they are first in time. However, we know from s 29(4) that the lease to P is not registrable, so we will treat it as a registrable disposition for the purposes of the section.

7 Priority of a registered interest over an earlier one is established at the date of registration. Therefore, under s 29 P would take priority over B’s charge. The lease was not an interest affecting the estate immediately before the disposition, but had arisen in the interim between the charge’s creation and its registration. When B registers later, it doesn’t help them under s 29, because earlier lease to P is protected.

Abbey National Building Society v Cann [1990] UKHL 3, [1991] AC 56

George Cann purchased leasehold estate for £34,000. To finance this, he granted charge to Abbey National for £25,000 mortgage. The rest of the purchase price is a down payment coming primarily from his mother Daisy. Idea is that George isn’t going to live there, Daisy and her partner are. The purchase happens on 13 August. On that day, they start to move Daisy’s things in. Daisy moves in on 18 August. 13 September AN registers the charge. Now AN wants to enforce the mortgage but Daisy claims she has an equitable interest in the house. HL doesn’t explain why she has the interest, but presumably this is because she contributed to the purchase price so she has an interest under a resulting trust.

HL decides that AN’s charge has priority over Daisy’s equitable interest. Gives three different reasons, any one is sufficient: 1. She was not in occupation when the charge was granted. If she has an equitable interest in the land, it would be protected under the 1925 Act if she is in actual occupation when the disposition is made. HL decide that she is not, even though some of her furniture was there. Didn’t move in until the 18th, so not protected. The relevant time is when the disposition is made, i.e. when the documents are signed and the money is advanced, not when registration occurs later. When registration occurs in September, she is in occupation. 2. She consented to the charge. It was understood when she was putting up the down payment that George was going to get a mortgage, no way he was going to buy it without the help of a loan. Where there is a trust in existence and the trustees have the power to do these things, as long as it is not in breach of trust then it is authorised. If George was holding in trust for Daisy and this was an authorised thing he was doing, then it’s just tough for Daisy. 3. The charge was deemed to be older. HL says they will treat the charge as if it is older than Daisy’s interest. Lord Oliver decides that essentially if you’re buying land and need a mortgage to buy it, the mortgage will be treated as an integral part of the purchase. Couldn’t have bought the house without the mortgage. Essentially, the judge says the bank has a PMSI. Chambers has an issue with this reason  It is a fiction that we could treat the mortgage as if it is happening upfront. For a mortgage to be granted, George must get legal title in order to grant the charge. He can’t grant something he doesn’t have,

8 even under the registration statute he doesn’t have it until he is the registered owner. Can’t charge his estate until he gets it. When does Daisy’s interest arise? Chamber thinks it happens the same time as George gets the title. If George is holding in resulting trust for Daisy because of her contribution, that trust cannot arise until George has title. Daisy and AN’s interest appear to arise simultaneously. Chambers would put Daisy’s first in this case because it arises by operation of law, so the moment George gets title, he still has to grant the charge to AN whereas Daisy’s interest happens automatically. Where a secured loan is required for the acquisition of a legal estate in land, that loan will take priority over the interests of other parties acquiring rights at the same time. In Southern Pacific Mortgages Ltd v Scott [2015] AC 385 , the Supreme Court affirmed this approach.

Halifax plc v Curry Popeck (a firm) [2008] EWHC 1692 (Ch), [2009] P & CR DG3

John and Tracy Whale are fraudsters. They were the registered proprietors of a bungalow. There is a strip of land at the edge of the bungalow which has a separate registered title. They go to Halifax to get a mortgage on the bungalow. After appraisal, Halifax agrees to give them a mortgage. They grant Halifax a charge over the little strip of land, not the bungalow. Court is willing to decided that even though Halifax only got a legal charge over the little strip, they acquired an equitable security interest over the bungalow  The source of this interest is the specifically enforceable contract to grant the charge, or could also achieve by estoppel. John and Tracy transferred the land to John Sinclair (really John Whale, only an alias). Transfer document sent to the Land Registry shows a consideration of £200,000. RBS gets a charging order, giving it an equitable charge on the bungalow. Now we have two equitable security interests in the same piece of land. Halifax clearly first and RBS second. If applying s 28, Halifax takes priority. But RBS argued that there has been a registered disposition of the estate in between  Selling to John Sinclair, so John Sinclair should take free of Halifax’s equitable interest by virtue of s 29, and Halifax’s equitable interest is cleaned off for RBS This argument is rejected by Norris J. Burden of proof is on RBS, the party who wants to use s 29 as their defence. Notwithstanding that the prices were listed in the documents, they were a sham and no money changed hands (John paying himself). Halifax has priority over RBS. This means that the house will be sold, Halifax can pay itself what it is owed from the sale proceeds. Money left over will go to RBS.

Judges also talk about a “fraudulent enterprise”. From Midland Bank v Green, one of the things missing from the LRA s 29 is a fraud exception. Fraud should not affect the priorities that are in place.

9 Protected Interests

S 29(2) List of protected interests The priority of an interest is protected if the interest - Is a registered charge - Is the subject of a notice in the register - Falls within … Schedule 3

S 132 Registered charge: Charge = any mortgage, charge or lien for securing money or money’s worth. This is a security interest in land. Registered charge = a charge the title to which is entered in the register. Any dealing with the land will be subject to this.

S 32(3) Notice in the register: The fact that an interest is the subject of a notice does not necessarily mean that the interest is valid, but does mean that the priority of the interest, if valid, is protected for the purposes of sections 29 and 30. Notice = something you can lodge in the registration system as a way of protecting an unregistered interest. Lodging/filing a notice is no guarantee that you have that interest, not like registration  does not turn that interest into a registered interest or tell you whether you have the interest. But if you do have the interest, then the notice will protect it. Subsequent registered interests acquired for valuable consideration will not take priority, because your unregistered interest is protected by the notice. However, cannot take priority over older interests (s 28). Registering a notice is not the same as registering an interest. Minor interests: restrictive covenants, options to purchase, rights of pre-emption etc.

S 33 Excluded interests that cannot be protected by a notice in the register: a) An interest under a trust of land  beneficiary of a trust of registered land can’t file a notice to protect interest. b) A leasehold estate in land which is granted for a term of three years or less and doesn’t need to be registered  Leasehold interests are protected elsewhere in s 29 and Schedule 3. c) A restrictive leasehold covenant made between a lessor and lessee relating to the demised premises (restrictions on what tenants can and can’t do with the leased property)  different from the restrictive freehold covenants between neighbouring landowners which can be protected with notice.

S 40(2) Restrictions A restriction may … prohibit the making of an entry in respect of any disposition, or a disposition of a kind specified in the restriction … indefinitely, for a period specified in the restriction, or until the occurrence of an event so specified. A restriction is different from a notice  Doesn’t give the advantage of being a protected interest.

10 If you have a restriction on the Register, the Registrar will just not register anything else contrary to the restriction  this alerts the purchaser to an equitable interest in the land. Can file a restriction with respect to a trust.

Schedule 3 Unregistered interests which override registered dispositions Protected interests under s 29: 1. Leasehold estates in land 2. Interests of persons in actual occupation 3. Easements and profits à prendre

Para 1 Leasehold estates:

A leasehold estate in land granted for a term not exceeding seven years from the date of the grant, except for – 1) A lease the grant of which falls within section 4(1)(d), (e) or (f): (d) = A lease that is going to take effect in possession >3 months in the future. (e) or (f) = Different kinds of leases in the Housing Act. 2) A lease the grant of which constitutes a registrable disposition (s 27).

Para 2 Persons in actual occupation:

An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for – 1. An interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonable have been expected to do so. 2. An interest which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and … of which the person to whom the disposition is made does not have actual knowledge at that time. If someone is in actual occupation of the land and they also have an unregistered interest in the land, the interest can be protected. We are protecting your interest, not protecting occupation. You must have an interest to be protected in the first place, occupation is the fact which triggers the protection of whatever interest you happen to have for the purposes of s 29. This protected any interest, including those which should have been registered but weren’t. 1. Won’t protect you if someone asked you what your interest in the land was and you failed to disclose. Had the chance to explain what you had and failed to do so. 2. Would it have been obvious from a reasonably careful inspection that you were in occupation? If yes, your interest is protected, if no then it is not. 3. Did they have actual knowledge? If the person acquiring the registered interest knows you have the interest, then the interest is protected. “Discoverable on reasonable inspection” is not doctrine of notice, there is no obligation to inspect. The occupier must not have consented to the disposition, e.g. agreed to take out mortgage.

11 National Provincial Bank Ltd v Ainsworth [1965] UKHL 1, [1965] AC 1175

Husband owned a house where he lived with his wife and four children. Typical arrangement when buying the house would put it in the man’s name alone. The husband “deserted his wife” in 1957. Couple separated. Husband is in financial trouble with his business, couldn’t keep up with family support payments. His company needed to borrow money, so he transferred the house to his company in 1959. Company mortgaged house to the bank, and then couldn’t pay the debt. Bank sought possession of house in 1962, Mrs Ainsworth tries to resist this as she is living there. Court decide that the wife was in occupation but did not have a proprietary interest in the land. “Deserted wife’s equity”; the idea that a husband has an enforceable duty to provide a home for his wife. Argument that she was in occupation, had this right to be housed, which is protected by her occupation. Court held that this is not an interest in the land because the husband’s duty is to provide her with a home, not entitlement to live in a particular home. Property rights = right to a specific thing enforceable generally against others. Wife’s right does not attach to a specific thing. She only had a personal enforceable against her husband. Bank knew all about her occupation, but doesn’t matter because she didn’t have a proprietary interest.

Williams & Glyn’s Bank Ltd v Boland [1980] UKHL 4, [1981] AC 487

A number of joint cases brought to the HL. The wife in each case had contributed some way financially to the acquisition of the home. Lord Wilberforce: “Each wife contributed a substantial sum of her own money toward the purchase of the matrimonial home or to paying off a mortgage on it. This, indisputable, made her an equitable tenant in common to the extend of her contribution.” If the wife contributed to the purchase, there would be a resulting trust unless she intended a gift. If she contributed to paying off the mortgage, there is no resulting trust, must deal with this under a constructive trust basis. Doesn’t have to be financial contributions either. Banks argued that even if the wives had an interest, they didn’t have actual occupation because the wife and children are just shadowing the husband as the homeowner, no legal significance. Lord Wilberforce: “There was physical presence, with all the rights that occupiers have, including the right to exclude all others except those having similar rights.” Clearly able to exclude others means possession of the home, which is sufficient for actual occupation. In Ainsworth she did not have rights, in Boland she does. If the wife either failed to disclose her interest or consented to the mortgage, the bank would have taken free of it.

12 Lloyds Bank v Rosset [1990] UKHL 4, [1991] 1 AC 107 (HL)

Husband and wife decide to buy a derelict farmhouse to renovate for their family home. 2 Nov 1982 – 17 Jan 1983 Before the purchase, they get permission from the vendors to get the builders in early W is there daily helping supervise things while H is at work. 23 Nov 1982 H exchanged contracts with the vendor, at this moment they have a binding contract of sale. 17 Dec 1982 Completion of purchase, actual transfer of the documents is done. At the same time, H grants charge to bank. On that date, was the wife in actual occupation of the home? Wasn’t living there yet, wasn’t ready to be lived in until mid-January. CA held that W had an interest and was in occupation on the date the charge was granted to the bank because the builders were in occupation as agents of the H and W. She had an interest in the house based on constructive trust  common intention that the house would be both of theirs and was contributing in many ways. HL decides that W does not have an interest. Common intention to share the house wasn’t necessarily a common intention to share proprietary interest in the house. Didn’t consider the question of whether she was in occupation. We must look at CA for why they decided she was in occupation. Nicholls LJ: “I accept that in ordinary speech one normally does equate occupation in relation to a house with living there. If a person is intending to move into a house but has not yet done so, he would not normally be regarded as having gone into occupation. That is the normal position, with a house which is fit for living in. But that does not provide the answer in the present case, where the house was semi-derelict.” Normally when we ask are you in actual occupation in the dwelling, it means do you reside there. - From Cann, moving furniture there but not being present because away on holidays means only preparing for occupation, not actual occupation. - Thompson v Foy [2009] EWHC 1076 (Ch), [2010] 1 P & CR 30  Already moved out but stuff still left behind is not actual occupation once you have decided to leave and not return. - Chhokar v Chhokar [1984] FLR 313  Can still be in occupation if temporarily away, there is an intention to return. But this is not a dwelling yet, not fit for human habitation. Rules of occupation apply to all kinds of land, e.g. commercial properties, warehouses, storage lots etc., they are occupied by using them in the normal way. Occupation doesn’t mean living on the land unless the land is a dwelling in which people live. The land was occupied by the builders, and agency makes sense. Companies can occupy through their directors and employees.

13 Para 3 Easements and Profits

(1) A legal easement or profit à prendre, except for one which, at the time of the disposition – a) Is not within the actual knowledge of the person to whom the disposition is made, and b) Would not have been obvious on a reasonably careful inspection of the land over which the easement or profit is exercisable. Equitable easements (registrable easements which are not registered) are not protected by Schedule 3. Only non-registrable legal easements are protected. At the stage where you are holding the registrable documents you have the specifically enforceable contract (power to obtain an easement) = equitable easement. But until registration, all you have is an equitable easement which is not protected. This paragraph is about easements that arise by operation of law through long use. By prescription, you can acquire a legal easement  not granted and not registrable but is protected. However, if the person taking the competing registered interest doesn’t know the easement exists and it wouldn’t be obvious on inspection (e.g. right of way = path, easy to spot), it is not protected. (2) The exception in sub-paragraph (1) does not apply if the person entitled to the easement or profit proves that it has been exercised in the period of one year ending with the day of the disposition. Even if the person acquiring the registered interest did not know the easement exists + it would not have been obvious on a reasonable inspection, The exceptions don’t matter if the easement has been exercised in the last year prior to the disposition. Ex: I purchased the land today. You had an easement by prescription of right of way over the land and I didn’t know about it or find it in an inspection. If you can prove that sometime in the last year you have exercised your right of way, you are still protected.

14 Problem Question

Harold and Maude lived together at Greyfriars, a large house set in its own parkland. They bought the place some years ago with their joint savings and with the aid of a secured loan from Lloyds and decided to put the house in Maude’s sole name as Harold was a TV personality at the BBC and wanted to keep his address out of the tabloids.

Some years after they moved in, Maude granted a right of way by deed across the parkland to Astrid. In a second deed she promised her neighbour, Bjorn, that she would not build on the parkland. Cara recently came to live in the gate-house in the park. She and Maude both signed a scrap of paper which read, “In exchange for the sum of £100 per month, Maude licences Cara’s occupation of the gate-house for the next 4 years.”

Disgusted with the political situation in England, Maude has decided to move abroad. She sold Greyfriars to Dee, an old friend, when Dee was on a flying visit from Scotland. Dee plans to live in the house and build several houses on the parkland. These and the gate-house are to be let out to tenants in a month’s time.

Dee has just discovered: - Harold had no idea that Maude had planned to move. They have not spoken since a few weeks ago when they had a heated debate about the gender pay gap. Harold would like to stay in the house. Dee had seen Harold when she visited, but they didn’t speak – understandably given the frosty atmosphere, Dee and Maude took a detour to avoid Harold. - Astrid wishes to continue exercising her right of way. She hasn’t been able to walk much over the past couple of years, but since her hip replacement a week ago, she is on a health kick and wants to walk across the parkland each day. - Bjorn objects to her plans to build and Cara refuses to move out of the gate- house. - Maude failed to pay off her loan when she moved.

Advise Dee.

Identify the rights of each party and the nature of their rights. Dee has some kind of valid title to the property. Bona fide purchaser rule does not apply to land.

Title by registration: ss 28, 29 Priority rules before LRA: acquisition mortgages and overreaching Have we got either overreaching or an acquisition mortgage here? Yes, Lloyds Bank is an acquisition mortgage. Maude gave charge to Lloyds. Abbey National v Cann the bank will always win

15 Does the bank still have a right in the property from Cann? Yes, they have a charge which takes priority. Lloyd takes free of all of these interests.

Basic rule: First in time prevails This is bad news for Dee. Dee will try to replace FIT with s 29. To make section 29 apply, Dee will need to show four things: Registerable disposition of a registered estate for valuable consideration, and registers it. Consequence of s 29 apply, takes free of unprotected interests, but also takes subject to protected interests. Protected interests  registered priorities and interests in Schedule 3 Dee is subject only to prior protected interests, but takes free of unprotected interests.

Acquisition mortgage: If M doesn’t pay back the money, L can sell the land ignoring the interests of other people General position that D is bound by protected interests.

Then look at individual people and see whether they have an interest and whether it is protected.

Harold Made contributions to the house Co-ownership under a trust of land To be an express trust, formalities need to be complied with from LPA 1925 If no signed writing, not an express trust, could be resulting or construction (don’t need writing, from s 53(2) S 53(1)(c) is about trusts, doesn’t apply here. Not good for it to be a resulting trust, Baroness Hale says in Stack v Dowden that resulting trusts should not be used in a domestic context. Harold may have an interest under an express or constructive trust. Is this right protected? Two ways of protecting a right: Registering it or Schedule 3 Can’t put a notice on a register if it is trust of land. Can it be registered as a S 32 minor interest against Maude’s title? No if it is a trust interest (from s 33) So Harold didn’t put it on the register. Schedule 3 para 2 property interest coupled with actual occupation (trust interest counts for these purposes) Doesn’t matter that Dee didn’t know about H’s right. Only matters if his occupation had not been obvious. H has a protected interest, his right will bind D.

Astrid Right of way is an easement, this is an express easement because they agreed. Is this right protected (registered or Schedule 3)? If it is registered, it is protected.

16 Schedule 3 para 3: must be legal easement  this wording is mean because it actually means prescribed or implied (non-express) easements. So A cannot be protected by Schedule 3. Non-express easement must be one that you don’t have permission or agreement for, and done for 20 years Express easements are already in s 27(1)(d), won’t be legal unless they are registered Non-registered express easements are merely equitable.

Bjorn Promise to Bjorn not to build Negative covenant Tulk v Moxay restrictive covenant can be a property right as long as it is protected, can be protected under s 32 as a minor interest. S 33 says they can’t be registered if they are leasehold restrictive covenants. Not an overriding interested, it is either registered + protected or it is not.

Cara License If it looks like a lease, it is one even if they say it is a license  Street v Mountford - Exclusive possession - For a period of time - Rent (Ashburn Anstalt v Arnold says you don’t actually need rent as a requirement)

Formalities  s 52 need a deed to get a legal right in land. S 54(2) But this doesn’t apply to short leases (leases under 3 years), so we don’t have a legal lease. But we have signed writing, this is an equitable lease. Might argue it fits within paragraph 1. But could also apply property right + actual occupation. For a deed, cut-off is 3 years. For registration, needs to be more than 7 years.

If it was actually just a license, it is just a personal right and can’t be enforced against third parties. Cara’s right is a lease, and an overriding interest, so binding upon Dee.

17 Overreaching

Under the LRA 2002 s 27, an interest under a trust is not registrable. Trust beneficiaries:  Cannot be protected by notice on register (s 33 specifically excludes trusts).  Can be protected if in actual occupation (s 29 protected interest under Schedule 3).  Can apply for a restriction (s 43 stops people dealing with the land contrary to the restriction) but cannot use this restriction to defeat the effects of overreaching (s 44).

Law of Property Act 1925 ss 2, 27 Overreaching A purchaser of a legal estate takes free of the trust if the proceeds of the sale are paid to two or more trustees.

If there are two or more registered proprietors holding the land in trust for someone and they sell the land, as long as the sale proceeds are paid to two or more trustees then the purchaser acquiring the interest will overreach the beneficiary’s interest and takes free of the trust. Overreaching protects both purchasers and owners of existing interests. It subordinates the existing interest to the purchaser’s later legal right, and transfers the earlier right in the asset to a right in the proceeds of the transaction. The sales proceeds received by the trustees is held in trust. If there are two trustees that is enough protection for the beneficiaries. One might be a cheat or fraud, but not both.

“Legal estate” includes a legal charge. - If the trustee sold the fee simple on, that would kill the trust completely. - If trustees mortgaged the land, that wouldn’t kill the trust completely because the trustees still have their fee simple estate held on trust, but the mortgage takes priority, e.g. if there is default and the mortgagee decides to take possession and sell, the trust beneficiaries are going to lose. “Purchaser” includes lessee and mortgagee (s 205). If two trustees granted a lease to someone for 25 years, as long as they both received consideration, the lessee will take free of the trust. The trust wouldn’t die, it would just be subject to that lease.

Can have it paid to two or more trustees or to a trust corporation. S 205 Trust corporation is not a corporate trustee, has a special definition: The Public Trustee or a corporation either appointed by the court in any particular case to be a trustee or entitled by rules made under subsection (3) of section four of the Public Trustee Act 1906 to act as custodian trustee. Most trust corporations do not fall within this definition.

LPA 1925 s 2(3)-(4) The principles of overreaching don’t apply to any equitable interests. Exceptions: - Restrictive covenants - Equitable easements  specifically enforceable contract to grant an easement

18 - Equitable charges  security interest in the land arising from equity - Estate contracts  specifically enforceable contracts to grant interests in land cannot be overreached o Sale: If I promise to sell you my land and we make a binding contract, I hold that land in constructive trust for the trust of us, you have an equitable interest under it. o Equitable lease: If I make a contract to grant you a lease. o Option to purchase o Right of pre-emption/first refusal

Yaxley v Gotts Can equitable interests that arise by estoppel be overreached? Agreed he would get long lease of two of the six flats he converted, contract void because failed to fulfil writing requirement from 1989 statute. Court says he gets the lease by way of proprietary estoppel. If it was a contract, would have been specifically enforceable, i.e. an estate contract immune to overreaching. This equitable interest under the constructive trust (proprietary estoppel) is the same interest but would not be immune to overreaching because it arose in a different way.

Protected interests overreached

Overreaching overthrows priorities and trumps the protections under the LRA 2002. S 29 protected interests can be lost through overreaching, e.g. a trust beneficiary in actual occupation’s interest. If there are two trustees and they sell the land or mortgage it, the buyer or mortgagee will take priority over the trust. Overreaching under the LPA 1925 trumps the protection provided by the LRA 2002. Overriding interest = Not protected by registration but will bind any party who acquires an interest unless they are overreached.

City of London Building Society v Flegg [1987] UKHL 6, [1988] AC 54

1977 husband and wife purchased a house called Bleak House for £34,000. A lot of the money came from W’s parents, the Fleggs. The parents were living in a bungalow, but their daughter and son-in-law asked them to sell the bungalow and live with them in a bigger house. Bungalow proceeds £18,000 given to the purchase of Bleak House, purchased in the name of the H and W. Fatal error was not purchasing in the names of all four of them. 1982 H and W in financial trouble so they mortgage house to the building society for £37,500. They don’t consult the Fleggs, clearly in breach of trust. Soon after the charge is granted, H and W become bankrupt. Bank wants to kick them out of the house.

CA holds that the Fleggs win. Decided that an interest protected by actual occupation is not overreached. LPA 1925 s 14:

19 “This Part of the Act shall not prejudicially affect the interest of any person in possession or in actual occupation of the land to which he may be entitled in right of such possession or occupation.” This first part of the statute includes the overreaching provisions. Chambers thinks this is a reasonable interpretation of the statute.

HL overruled the CA. One of the main objectives of the 1925 legislation is trying to ensure that land held on trust is freely marketable, people dealing with trustees can buy in confidence. Lord Templeman: ‘S 14 of the Law of Property Act 1925 and s 70 of the Land Registration Act 1925 (sections that protect the interests of beneficiaries in actual occupation) cannot have been intended to frustrate this compromise and to subject the purchaser to some beneficial interests but not others depending on the waywardness of actual occupation.’ This is odd reasoning because it is exactly what the LRA wanted to do. Lord Oliver: ‘Section 70(1)(g) [equivalent of modern s 29 and Schedule 3] protects only the rights in reference to the land of the occupier whatever they are at the material time—in the instant case the right to enjoy in specie the rents and profits of the land held in trust for him.’ But the primary object of this trust is to provide a home for the four people, not income or profits for the beneficiaries. ‘Once the beneficiary’s rights have been shifted from the land to capital moneys in the hands of the trustees, there is no longer an interest in the land to which the occupation can be referred or which it can protect. … If the trustees sell in accordance with the statutory provisions and so overreach the beneficial interests in reference to the land, nothing remains to which a right of occupation can attach.’ Once overreaching has occurred, you no longer have an interest in the land, the interest is shifted to the money. Being in occupation doesn’t help you because you only have an interest in the money. But the Fleggs didn’t want the home, they want the money, which H and W have all lost already. If it was a sale of the freehold to someone else and overreaching worked, that would mean you have no interest. But this is difficult to consolidate with a mortgage, there is some interest left but just subject to the mortgage.

Unauthorised transfers

Martin Dixon argues that overreaching does not apply to transfers in breach of trust. This can’t be right, because overreaching is only needed when there is a breach of trust. If the transfer is authorised, it will be good and will take free of the beneficiary’s interest, that is not a problem. If the trustees have authority to do so and act properly within the terms of the trust, the beneficiary can’t stop it even if they don’t want it to happen. The only time we ever need overreaching as a purchaser is to protect from the possibility that the trustees are not authorised. The theory that overreaching only works where there has been a breach of trust is really trying to confine overreaching, but that argument doesn’t fly.

20 No sale proceeds

For the trust interest to be overreached, it is a requirement that the proceeds are paid to both trustees. If you pay for one trustee only, won’t qualify for overreaching. The trust beneficiaries are protected because the sale proceeds become the new trust assets to replace the land. In many cases, trustees have wide powers of investment. Don’t care which assets are held on trust as long as they have a certain value that they can hang onto. (But if you want to use the land as a place of occupation, you don’t care about the proceeds because you care about the land.)

State Bank of India v Sood [1996] EWCA Civ 835, [1997] Ch 276

Sood family, two family members were the registered proprietors of the land, held it in trust for themselves and five members of their family. The trustees had a business interest in a company which was in financial trouble. The creditors of the company (State Bank) wanted to get guarantees from the directors. Used the house to provide security for the guarantee. The two trustees personally guarantee the company’s pre-existing debt – they don’t get any money, just become liable. They grant security to the bank to secure the debt. The bank takes the security to enforce it. At no point in the transaction did the trustees receive a penny  no sale proceeds generated by this transaction.

CA held you can still overreach even though there are no sale proceeds whatsoever. Argument that if the requirement is that the sale proceeds are paid to two trustees, that must assume there are sale proceeds. Problem if there are no sale proceeds: Rationale of overreaching is that beneficiaries don’t need to worry because if they give up their interest in the land, they will get the equivalent in sale proceeds in transaction at fair market value. Peter Gibson LJ: ‘The safeguard for beneficiaries under the existing legislation is largely limited to having two trustees or a trust corporation where capital money falls to be received. … But that is no safeguard at all, as this case has shown, when no capital money is received on and contemporaneously with the conveyance. … Despite the dissatisfaction with the existing law which I have voiced, … I would allow this appeal.’

This is an area of law than can use some reform. The Law Commission has suggested we don’t overreach in this case. Also need to put all the priority rules in one place. Other jurisdictions don’t have overreaching, but also don’t protect the interests of trust beneficiaries in occupation. However, they allow trust beneficiaries to file a notice to protect their interest.

21 Problem Question

Tony is the registered proprietor of a country property, Casa Nostra, where he lives with his wife Carmela just outside Bedford. The property comprises a large house, a small cottage, a large fenced-in field with a small barn in the southwest corner, and a garage. In November 2013, he sells Casa Nostra to Paulie. The contract for sale includes a clause that the purchaser takes subject to the rights of the vendor’s niece Adriana, who occupies the cottage.

Paulie becomes the new registered proprietor of Casa Nostra in December 2013, and, on taking up residence in January 2014, he finds that the following events had occurred before the sale to him: (a) In 2012, Tony had allowed his Uncle Junior to plant rhododendrons in Tony’s field. Uncle Junior ran a flower stall at the local market. He wanted to expand into shrubs, but he had nowhere to grow them. Tony allowed Uncle Junior to plant the seedlings in the northeast corner of the field, telling him, “in a couple of years when they’re fully grown, you can come back and dig them up”. (b) In 2010, Tony had agreed in writing with Silvio that Silvio had exclusive use of the garage for his motorcycle repair business for ten years. Tony did not ask for anything in return as Silvio was an old friend. Both signed the agreement but did nothing more. Silvio took up occupation immediately and is still there. (c) In 2009, Tony had granted to Dwight a right of pre-emption in Casa Nostra, exercisable if Tony ever decided to sell the property. Tony told Paulie about the agreement with Dwight before the sale but said that he had no intention of honouring it, because he did not think Dwight would be able to pay the market price. (d) In 1990, Tony’s neighbour Furio began to store spare computer parts for his business in the barn in the northwest corner of the field. Tony did not like it, but was afraid to argue with Furio, who was known to have a violent temper. In any case, Tony did not have any use for the barn at the time, although he thought that one day he might convert it into a cottage and let it to holidaymakers. He resolved to stand up to Furio when he really needed to in future. (e) On taking up possession, Paulie is confronted by Carmela, who has not given up possession as she says that she did not know about the sale, and that she would not have agreed to it had she known. She had always assumed that Casa Nostra was hers too, simply because she was Tony’s wife.

In addition, Paulie finds that Uncle Junior is digging rhododendrons out of the field.

Paulie tells Silvio to vacate the garage immediately, Adriana to leave the cottage by the end of the week, and Furio to get his “junk” out of the barn. Each refuses to do as Paulie wishes. To add to Paulie’s troubles, Dwight is insisting that Paulie transfer Casa Nostra to him (for consideration).

Advise Paulie.

22 Uncle Junior What right does Uncle Junior have? Profit à prendre from the land, the right to take some product from it. Some overriding interests can’t be spotted from inspection. Paulie registered the land in December 2013, Uncle Junior started to use the right in 2012. If it has been exercised for one year Schedule 3 para 3(2) If it happened too long ago, Paulie can say the flowers are his and not Uncle Junior’s.

Silvio Silvio has exclusive use of the garage for 10 years. Although no rent, can still have a tenancy. Above 7 years lease must be registered, so wouldn’t carry out as a lease. Contractual claim under Schedule 3 Exclusive use of the garage, actual occupation Kling v Keston Properties storing things in garage Has to be in possession in order to claim actual occupation. Not that you have a right of occupation to the property. How are chattels branded? Is it the same to occupy a chattel on the land.

Dwight

Right of pre-emption = contract that gives you the first option to buy. S 4(6) If you don’t register a contract, it will be overridden by a purchaser for value. Millbank v Green don’t require good faith if it wasn’t registered

Furio

Furio has purely personal right with Tony, just a contract. Schedule 3 subsection (3) easement is unlikely. Even if we call it an easement, Furio hasn’t used it for a long time so might be defeated by the one year wrong.

Carmella

Ainsworth

23 Rectification and Indemnity

Title by registration under LRA 2002 s 58 creates a problem  risk of a complete forgery. Registration of void documents have legal effect. Theory behind this is that it won’t happen often, and we can compensate the victims etc. Few people will suffer and the majority will benefit from not having to do costly title investigations.

Alteration of the register = any time you change the register (add, delete or modify an entry) Not all alterations are rectifications. Rectification is a special subset of alteration.

Indefeasibility

The purchaser can buy in confidence that she will be able to keep her title and not lose it due to some earlier claim. If you get registered title for valuable consideration, your title is indefeasible (LRA 2002 provides protection against subsequent interests and earlier claims) but subject to some exceptions. LRA 2002 s 29 says you take free of any other interests, don’t have to worry about chain of title, only have to worry about the protected interests. Possibility of rectification of the register  the register can be amended to take away title after you get on it.

LRA 2002 Schedule 4 Rectification

Rectification in equity = amending mistakes in written documents to make them conform to what was actually meant to happen  correcting mistakes in a document from translating agreements/understanding into print, written document rectified to match what was agreed. Similarly, if I declare a trust but the trust instrument doesn’t reflect the trust I declared even though it has been signed, can rectify.

Rectification on the register = altering registrations and typically removing them where they shouldn’t be there. Ex: If I transferred an estate to you and I can rescind the transfer because it was induced by fraud etc. I can cancel the deed and get my estate back. Rectification on the register often has the same effect as rescission = cancelling a registration and returning to the status quo. Rectifying the register can have a major effect on property rights.

Para 1 Rectification is alteration of the register which— a) involves the correction of a mistake, and b) prejudicially affects title of registered proprietor.

Ex: Someone gets a registration by registering a forged document, e.g. mortgage in favour of X. It would prejudicially affect the title of X who is registered proprietor of the charge. This counts as a rectification.

24 We would regard it as correcting a mistake to remove this  The mistake is the Land Registrar thinking it is a valid document and registering it. You only get a chance of indemnity (compensation) for changes in the register if it is classified as a rectification. Classifying as a simple alteration won’t get you indemnity.

Para 3(2) No rectification without the consent of the proprietor in possession unless— a) his fraud or lack of care contributed to mistake, or b) it would be unjust not to alter the register. “Proprietor in possession” is defined in s 132 = physically in possession. Can deem landlord rather than the tenant to be in possession for certain purposes. The proprietor’s fraud/lack of care doesn’t have to cause the mistake, not but-for test. Wide discretion to judge about what is unjust.

Indemnity

If the register is corrected, then someone is often going to suffer a loss as a result. That person could apply to be compensated for the loss they suffered from the rectification. Fundamental principle of the land registration statute is many jurisdictions including England is that this is a state guarantee of title. If the register says you have an estate, you have an estate. If the register is wrong, the state will compensate the person who loses out as a result of the problem. Alteration won’t do, must be rectification.

LRA 2002 Schedule 8: 1(1). Can get an indemnity if loss suffered by reason of— a) rectification of the register, or b) mistake if its correction would involve rectification In a situation where there has been a mistake and something has been registered, to whom of two innocent parties do you pay? Maybe leaving things as they are and not rectifying and compensating someone else might be the best choice. 5(1). Not entitled to indemnity for loss suffered— a) wholly or partly as a result of the loser’s own fraud, or b) wholly as a result of own lack of proper care (they caused this rectification to be needed) Fraudster or careless person who authored their own loss doesn’t get compensation.

Ex: Three people, Anna Blythe and Chris. A is the registered proprietor, has a fee simple estate and lives there. Rogue pretends to be A, goes to B and asks her if she would like to buy A’s house. R forges transfer from A to B. B needs some money from C to pay for this, so she grants mortgage to C. Registers the forged transfer, B becomes the registered proprietor. Legal charge to C is also registered. B is now the registered proprietor of the fee simply estate subject to a registered charge to C, all unbeknownst to A. C has paid money to B who has paid money to R who has disappeared.

25 Does B have an indefeasible title? She is on the register and is honest, not guilty of fraud  None of the exceptions apply to B, she has good faith and value for consideration.

But aren’t we supposed to protect people who relied on the land registration system? B has looked and A has good title. The cause of her loss is not a flaw in the registration system or a mistake made by anyone. Her loss is caused by transaction with R, chose to deal with someone pretending to be A. Victim of a fraud, land title system didn’t mess her up.

C should get indefeasible title because he has properly relied on the registration system which shows B as the registered proprietor. Dealing with B and getting a mortgage for her  he did everything right, if he loses it’s because of a flaw in the system (system guarantees the title of the people on there). C can say “you guaranteed to me that B had good title, I dealt with B in good faith so I should get good title”.

Immediate indefeasibility = indefeasible drops as soon as you have a change in registration, whether forgery or not. Deferred indefeasibility = give someone indefeasibility if they properly relied on someone being on the register, even though that particular registration could be undone. Privy Council in 1930s went for immediate indefeasibility, should allow B to have good title even though her loss would not caused by the land title system but caused by the rogue. Privy Council motivated to immediately protect B because the way the compensation scheme worked at the time  if we took away B’s title and gave it back to A, B would not get compensated by the scheme, would have to look to the rogue to compensate her. If we allow B to keep the title, A would lose her title because of the LRA, but would get compensated fully. But the problem with this is that A is more interested in the land, has a closer connection. A would be more disappointed to be kicked out of her family home. A more just approach may be to compensate B and C, and let A keep the land.

Actual result: A gets compensated and B + C get to keep the land. In English law, notion of qualified indefeasibility sometimes protects B and sometimes protects C depending on certain qualifications.

26 Law Commission guidance

Qualified indefeasibility = Whether A gets her title back depends primarily on who is in possession of the land. A gets title back if she is in possession, while B retains her new title if she is in possession. The loser gets compensated by the registrar. If A wins, C gets compensated too, which is just as good, if not better, than having a valid mortgage.

The LRA 2002 does not contain an express exception to indefeasibility for fraud. However, fraud of a registered proprietor in possession of the land is one of the factors that will determine whether the court will order rectification of the register. It also affects the right to be indemnified by the registrar when rectification is ordered. Courts have been willing to overturn transactions and to create judicial exceptions to statutes on the basis of actual fraud. Lord Bingham in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank: “Fraud is a thing apart. This is not a mere slogan. … Once fraud is proved, ‘it vitiates judgments, contracts and all transactions whatsoever’.” “Parties entering into a commercial contract will no doubt recognise and accept the risk of errors and omissions in the preceding negotiations, even negligent errors and omissions. But each party will assume the honesty and good faith of the other; absent such an assumption they would not deal.”

Barclays Bank plc v Guy [2008] EWCA Civ 452

Mr Guy alleged that there was a forged transfer of his land to a company called Ten Acre Ltd, which he did not participate in in any way. The people behind Ten Acre were the rogues. They mortgaged the land to Barclays for £100m. The land is not worth that much, Ten Acre borrowed a huge sum of money and gave a charge on multiple properties. Guy wants the register fixed. If what happened is true, Guy can have Ten Acre’s registration removed and he can get title back, if they are the rogue (not entitled to be protected or compensated). However, Barclays was not a party to the fraud. Can you get a rectification and remove the charge Ten Acre granted to Barclays? CA said no. The mortgage to Barclays was not a mistake. Barclays took mortgage from ten Acre, who was the registered proprietor, and was not a forgery, acted honestly. If Barclays knew or at least suspected the forgery, then the registration to Barclays would have been a mistake. Difficult to put into term of mistake – If they took a mortgage from Ten Acre, not a mistake because Ten Acre was the proprietor. If they knew or suspected the forgery, not a mistake because they would know the truth.

27 Registration of the transfer to TA can be called a mistake. But who is mistaken? Not Guy, didn’t know about it. Not TA, they did the forgery. Mistake is with the Registrar for accepting a forged transfer for registration. Saying that the registration to Barclays was not a mistake creates a problem to G, title goes back to G but subject to the mortgage from B. If the registration of the mortgage to B is not a mistake, G is not entitled to indemnity or rectification. G suffered a loss as a result of the operation of the land title scheme. This is not a fair outcome.

Odogwu v Vastguide Ltd [2009] EWHC 3565 (Ch)

Chief Odogwu is the registered proprietor of some land. Doesn’t live on the land in London, lives abroad. Does transactions through agent solicitors. A rogue forges a charge, grants mortgage to Credit & Mercantile. C&M doesn’t get paid, exercised their power of sale as mortgagee of a mortgage in default and sell it to Vastguide. Held that the transfer to Vastguide was a mistake because it knew of the forged mortgage. Aware that the mortgage was forged, unlike Guy. Solicitor noticed it wasn’t authorised, wrote to the police and let people know. But oddly he didn’t put a notice on the register claiming that this was a problem. But if Vastguide knew it was a forged mortgage, we can treat the registration of the transfer to Vastguide as a mistake. We can undo that, V is probably not entitled to compensation because they knew. Chief is the registered proprietor in possession even though he is living in another country. He is entitled to rectification as against C&M because it was a mistake for the Registrar to accept this forged registration so we can undo it.

Malory Enterprises Ltd v Cheshire Homes (UK) Ltd [2002] EWCA Civ 151, [2002] Ch 216

Problems with reasoning, think about how we should deal with this. Land owned by Malory, a company which is registered in the British Virgin Islands. A rogue registers a UK company with the exact same name Malory. Transfer goes through, easy fraud. Transfer is accepted for registration in the name of Cheshire Homes. Malory BVI gets rectification. CA interprets the case strangely  registration causes legal title to pass and does not affect beneficial ownership. Patten LJ in Swift 1st: Says that Malory is incorrect, judges made a mistake.

28 “Absent a trust, the legal estate carries with it all rights to the property and equity has no role to play in separating legal from beneficial ownership.” Before the transaction, Malory BVI was the registered proprietor of the land, had legal title which they enjoyed for their own benefit. No trust involved, don’t need one because no co- owners. When the transfer was registered, title registered in CH’s name and they become the legal owner. No equitable interest before, so not possible that Malory BVI retains beneficial/equitable ownership. Should a trust arise in Malory BVI’s favour when this occurs? Chambers thinks yes, it would entitle M BVI to rectification from CH. The court shouldn’t say CH is not entitled to indemnification because they only got bare legal title. We want to compensate CH when they lose the registration even though they suffered the loss as a result of the rogue. CH gets compensated. From the moment of registration in the name of CH, Chambers says CH should be holding the land on trust for M BVI. M BVI in actual occupation has an interest protected under Schedule 3 as beneficiary of a trust. If M did not have an interest in the land, they would not be protected, vulnerable to any subsequent dealings by CH. From Guy v Barclays, the way to protect someone in M’s position is that if they are in actual occupation, Chamebrs thinks they should have an equitable interest in the land which should protect them in the priorities scheme of the LRA.

Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 330, [2015] Ch 602

Mrs Rani is the registered proprietor. A rogue forges a mortgage to S. R finds out that her house is subject to a mortgage to S she knew nothing about until the demand letters started showing up. Can rectify this  registration of the mortgage was a mistake because it was based on a forgery, she is still proprietor in possession, so she is okay, keeping her land free of the mortgage. Can S get an indemnity? Argued that S’s problem wasn’t caused by the land registration system, caused because they were duped by a fraudster. Must look to fraudster for compensation. S didn’t suffer loss as a result of having your mortgage removed from the register because it should never have been there in the first place. Your own problem that you paid someone with no proprietary interest in the land. Argument loses, S gets entitled because of Schedule 8. Schedule 8, paragraph 1(2)(b): “The proprietor of a registered estate or charge claiming in good faith under a forged disposition is, where the register is rectified, to be regarded as having suffered loss by reason of such rectification as if the disposition had not been forged.” In order to calculate S’s right to be paid for their loss, we must imagine that there was no forgery and the mortgage was good. Even though S’s loss was not caused by the land registration system or R, just caused by being the victim of a fraudster, they are entitled to compensation from the scheme. When you take a mortgage, always a risk you won’t get paid, but this state guarantee is good for S. 29 Clarke LJ said: “Cheshire’s status as registered proprietor was subject to the rights of Malory BVI as beneficial owner because section 69 of the Land Registration Act 1925 only has the effect of vesting in Cheshire ‘the legal estate in fee simple in possession’ ...” In Swift 1st Ltd v Chief Land Registrar, the Court of Appeal said that, on this point, Malory “was decided per incuriam ... and is wrong. Swift 1st Ltd v Chief Land Registrar [2015] EWCA Civ 338 --> Overrules Malory. The judgment provides criticism of the principle: Patten LJ said that: 37 The decision in Malory has not received an enthusiastic response from commentators and continues to create difficulties in cases still governed by the 1925 Act. Although the court's determination that the right of the BVI company to obtain rectification of the register was capable of taking effect as an overriding interest has generally escaped criticism and is not challenged on this appeal, concerns have been expressed that the decision that the registration of title under section 69 does not carry with it both legal and beneficial ownership runs contrary to general principle and overlooks the function and purpose of the state of the register as an exhaustive statement of ownership. Dr Martin Dixon in his book Modern Land Law, 8th ed,012) said, at p 44, footnote 6:

“Acceptance of the Malory approach would be to import principles of unregistered conveyancing into registered land and this would wholly contradict the system of registration of title and the move to e-conveyancing that the LRA 2002 is designed to facilitate.”

“the principle of qualified indefeasibility is fatally undermined. The 2002 Act embodied a careful scheme, the structure of which is outlined above. X is to have the land back, subject to special protection for the registered proprietor in possession. This is an important policy framework and it should not be subverted without amendment to the legislation.”

Blacklocks v JB Developments (Godalming) Ltd [1982] Ch 183

Blacklocks  uncle and nephew joint owners of farmland. Decide to sell it to Godden, which they do. They sell the farm, but decided to keep a corner of it, where the house is where they live. Nephew makes a mistake. When given the document with the survey to trace out what they are selling, forgets to leave out the little triangle. The uncle dies, nephew living in the house by himself. Godden sells to JB Developments, who discover B on the land. B is in actual occupation throughout, did he have an equitable interest in the land? Court held that B could rectify the transfer to G because it was his innocent mistake. G knew the deal, didn’t think they were getting the whole parcel, were not duped into thinking they are getting the whole thing. The transfer B and G registered did not match their actual agreement. Can rectify this, register the rectified transfer with the exception, and as soon as you do that B would recover legal title.

30 From the moment the mistake is made, B had the power to recover title. From the outset, Godden was holding the corner of land on trust for him. Therefore B had an equitable interest in the recoverable land. JB thought they were getting everything and relied on the register, they take subject to protected interests (any interests of someone in actual occupation).

If we are willing to rectify for an innocent mistake, shouldn’t we rectify in the case of a forgery? Surely forgery is the stronger case. Malory has the power to get the register rectified and recover legal title. That power to recover title means M has an equitable interest in the land in the same way B had the power to rectify and recover title. Any time we see someone who has the power to get the title to the land, e.g. through correcting a mistake, removing a forged registration, agreeing to sell a house or granting an option to purchase, equity treats that person as having an equitable interest.

Some argue that M BVI should not have had an equitable interest in the land because the rectification of the register is up to the discretion of the Registrar. But Chambers thinks there are laid out principles, not that much of a discretion. M should be entitled to recover as long as they were not careless.

Freer v Unwins Ltd [1976] Ch 288

The claimant had the benefit of a restrictive covenant that prevented the owners of neighbouring properties from leasing them to businesses that might compete with Freer’s. By mistake, its interest was not protected by a notice on the register, so Unwins took its lease free of the restriction. Freer brought an action for rectification of the register to show its interest. Freer’s right to have the register rectified was accepted, but it was held that the restriction could not take priority over Unwins’ lease, because rectification is not retrospective. The problem here is that the effect on the value of an interest such as Freer’s is unpredictable. It is true that the interest has not been destroyed, so as soon as the lease lapses, Freer’s interest takes priority again over all future dispositions. That is fine if Unwins’ lease is short, because Freer will soon be able to enforce his interest. But if Unwins’ lease is, say for 90 years, then Freer’s interest becomes worthless.

31 Co-ownership: Severance

All cases of co-ownership (where more than one person owns land) must take effect as a trust  Trusts of Land and Appointment of Trustees Act 1996 After 1996, all trusts of sale were replaced by trusts of land  Trustees have a power rather than an overarching duty to sell. All trustees are treated as a single entity. Maximum of 4 people can hold a trust of either freehold or leasehold estate in land. A property right (e.g. easement or mortgage) is not a trust in land.

Shared Rights

Any particular right you have can be shared, e.g. bank accounts, fee simple estates, mortgages, easements. More than one person has an interest in that thing and the rights are divided between them.

One way to divide up rights is over time, i.e. successively. Ex: Can create a trust, hold asset in trust for you for life, remainder to X. Enjoy your interest for life, on your death it passes to someone else.

Can also share rights at the same time, i.e. concurrently. Concurrent interests are shared either in joint tenancy or tenancy in common.

Stack v Dowden

Man argued it should be split 50/50. Woman contributed the majority. They hadn’t expressed how it would be divided. Four unities were present. Majority said presumption was JT. Looked at many things, not just financial contributions. Many cases tried to expand this decision, but it is limited to domestic family relationship. Found TIC by contribution. Financial affairs not joint, bank accounts separate. Found in favour of the woman, who owned the larger share.

Lasker v Lasker

Mother and grown daughter. Flat was intended as an investment for daughter, mother did not live in there. JT was rebutted because is was not for living in.

Equity assumes bargains not gifts, get no more than you paid for. Paid for 60%, get 60%. An express declaration is always conclusive. If paid for 60% but says 50/50, it will be 50/50.

32 Differences between JT and TIC

Joint tenancy Tenancy in common

 No shares (indivisible ownership)  Undivided shares Own together as a whole – no different Both entitled to possession of the than you would be if you were just one whole, but there may be unequal person, can’t say you have 50% or equal shares. parts. Each person has a discrete share, Joint tenants are regarded as a unified variation of amounts decided between person, so must all act together if they themselves. want to affect their legal title. Can do what they like with that share they have. If they want to mortgage  Requires the four unities their share or sell it/give it away, they Possession  entitled to possess the could. whole property Interest  no shares but exactly the  Only requires unity of possession same interest in the thing Entitled to possession of the whole, or if Title  joint tenancy is derived from it is an intangible then the use of the the same instrument whole. Time  arises at the same time (with Don’t need the other unities. statutory exceptions, e.g. Trustee Act vesting of assets into a new trustee to (May have difficulty working out if it is a become a joint owner with the rest of JT or TIC if they have equal shares the trustees) deriving from the same instrument at the same time.)  Survivorship If a joint tenant dies, their interest  No survivorship ceases to exist and disappears, nothing If you die, your interest in the thing to give away by will. Surviving joint doesn’t cease, it continues to exist and tenant becomes the sole owner of the forms part of your estate. thing.

Changing the state of ownership:

Severance = converting a joint tenancy into a tenancy in common. This always produces equal shares. If you are joint tenants and you sever, you will be equal tenants in common, even if you contributed unequally to the purchase of the asset as joint tenancy.

33 Partition = divide assets and end concurrent ownership. Getting rid of shared ownership (can be JT or TIC) and turning it into separate ownership. Divide up the asset and go your own way, each become the sole owner of the assets or sale proceeds you take from the pot. A lot of assets can’t be divided up this way, e.g. TIC of a racehorse, divide sale proceeds  “sale and partition”. Possible to subdivide land if you get planning approval, but more likely to sell the land and divvy up the proceeds. One tenant may sell their share to the other tenant for the fair market price.

Goodman v Gallant

Mr and Mrs Goodman buy property in 60s, marriage goes sour. Mr Goodman runs off, Mrs G meets Mr Gallant. Join together to buy out the husband’s share, become joint tenants. Then they break up. But severance always gives equal shares, so she loses out on 25% of the house.

If two or more people own land, a statutory regime applies: Law of Property Act 1925 ss 34, 36

 When dealing with land, cannot have a tenancy in common at law, the legal owners must be joint tenants. Cannot have any more than 4 joint owners at law who are on the legal title. Any additional joint owners can only have an equitable right.

 The statute imposes a trust whether you want it or not. f you are joint tenants at law, a statutory trust arises and they must hold the land for either themselves or someone else. They can choose the terms of the trust themselves, deed of trust must be in writing to satisfy s 53(1)(b). Normal transfer form TR1 has check box for express trust. Otherwise can be resulting or constructive trust.

 There is no severance at law. When dealing with land, all we are severing is the joint ownership in equity and turning it into a tenancy in common in equity. The joint owners at law stay joint owners at law, the severance takes place for the equitable interest under the trust.

 This only applies to land. If we are dealing with goods, can have tenancy in common at law. If you have joint ownership of goods in law, the legal ownership can be severed into tenancy in common. Land in other common law jurisdictions can have tenancy in common at law. * Not all the assets we will deal with in exams are land, can be goods/chattels. *

34 METHODS OF SEVERANCE

LPA 1925 s 36(2) If you want to sever your JT in equity (no matter what form the legal ownership is, can’t sever JT in law anyway) you do it by giving a notice in writing or “other acts and things” (look to common law for these other things).

Page-Wood VC in Williams v Hensman (1861) : “In the first place, an act of any one of the persons interested operating upon his own share may create a severance as to that share. ... Secondly, a joint tenancy may be severed by mutual agreement. And, in the third place, there may be a severance by any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.”

1. Notice in writing 2. Operating upon own share 3. Mutual agreement 4. Course of dealing 5. Murder or manslaughter If one joint tenant murders the other one, the murderer doesn’t get the benefit of survivorship, it is treated as if it is a severance of the JT and it because TIC in equity (because imposing a trust on the asset).

1. Notice in writing

Must serve it on all the other joint tenants. No specific form required, statute doesn’t dictate, just a notice in writing. Clear intention that you intend to sever, can’t infer the intention to sever.

Re Draper’s Conveyance (1969)

A couple owned a house together as JT, get separated/estranged and start divorce proceedings. Before the assets are divided up, one of them dies. Relatives of the deceased argue there was a severance.

Court held there was a severance. One of the wife’s documents in the divorce proceedings operated as sufficient notice under LPA 1925 s 36(2). “In the premises I humbly ask that the said property may be sold and that the proceeds of sale thereof may be distributed equally; alternatively that the respondent pay me one half of the value of the said property with vacant possession.” Courts regarded this as an unequivocal intention to sever. In writing and served to the other party. Even though it was the wife’s document and the husband was dead, she couldn’t take the whole, only entitled to half.

35 Harris v Goddard (1983)

Document stating the grounds for the divorce petition and what you are asking for: “That such order may be made by way of transfer of property and/or settlement of property and/or variation of settlement in respect of the former matrimonial home at 95, The Street, Fetcham aforesaid and otherwise as may be just.” It was argued on behalf of the relatives of the deceased party that this was sufficient notice of an intention to sever. Court held this was not sufficient to sever. Too vague – only asking for relief, not severance.

2. Operating upon own share

Joint tenants do not have shares in the first place, but you are creating a share as a tenant in common. Dealing with your asset in such a way as to give rise to a share.

Certain events, e.g. an assignment by the joint tenant of their equitable interest or making a specifically enforceable contract to assign your interest/mortgage it/charge it create a share, and someone else acquires an interest in that share. If one joint tenant becomes bankrupt, by operation of law the assets of the bankrupt person become vested automatically in their trustee in bankruptcy = equivalent to an assignment of their rights in the asset, creates the share to give to the trustee, and severs the JT in equity.

First National Securities v Hegerty (1965)

Husband and wife are joint tenants of the home. Buy the house, and soon after H leaves. He borrows some money before leaving the country, and forges a charge in favour of First National Securities. W didn’t participate in this and was unaware of it, H forged her signature to grant the legal charge. What is the effect of that?

If you register the legal charge, under the LRA it is effective to create the charge even if it is a forgery. There is a legal charge grant, purports to be granted by both but really wasn’t. W was in occupation and possession, would have a claim to rectify the register and have the legal charge removed. F would have a claim to compensation. However, the court treated this as a severance of the JT in equity. Even though H could not consent on W’s behalf to charge it, it was sufficient to work in equity on his interest (he wanted to make the charge, so the forged legal charge operates as an equitable charge on H’s share). This produces a severance in equity.

36 3. Mutual agreement

Burgess v Rawnsley (1975) CA

A couple agree to buy a house together. He wants her to marry him. She doesn’t want to marry him, just wants to live in the upstairs flat. When they buy the house they discover that their intentions don’t match, and she refuses to move in. Total failure of consideration here. Can two people with these cross intentions have any effect?

R (the woman) agrees to sell to the other joint tenant H (the man) her share for £750. B asks solicitor, and then agrees. R changes her mind and says she wants £1000 instead. Then H dies. Courts holds there was a severance.

Argued that this was not a sufficient agreement for the purposes of severance, because there were no formalities and not specifically enforceable. They were just negotiating. Court says this isn’t the point, not about dealing with your own share, it is sufficient evidence that they agreed to sever.

Even though she changed her mind and it was informally made (not an enforceable agreement at law), from the facts it went on beyond negotiation because at one point they agreed. An agreement is different from just negotiating.

“The significance of an agreement is not that it binds the parties; but that it serves as an indication of a common intention to sever.”

4. Course of dealing

If the joint tenants are treating the shared asset as a TIC but you can’t point to an express agreement, it may be their real intention for it to be a TIC.

Gore v Carpenter (1990)

Back and forth negotiating, never agreed on a price they would do it on. No agreement but argued that this is a course of dealing, inferred from these negotiations that they no longer joint tenants. The court rejected this argument. They never got as far as an agreement like in Burgess. A course of dealing is where over the years the parties have dealt with their interests in the property on the footing that they are interests in common and are not joint.

37 EFFECT OF SEVERANCE

Dealing with land in the following examples: ABCD own the whole thing as joint tenants in law and hold it in trust for themselves as joint tenants in equity.

Ex1: D sells to third party E.

D doesn’t have the share before he decides to sell to E but does when he sells it to E. E now by assignment or specifically enforceable contract acquires that share. D severs his share, it becomes a one-quarter tenancy in common (JT to TIC goes to equal shares). E is not a joint tenant with ABC, acquired his interest by a different instrument at a different time, don’t have the four unities. Can’t step in as joint tenant. ABCD could make E a joint tenant, but all four must get together and convey it from ABCD to ABCE. But D is dealing with his own share, E steps in and must be a tenant in common. Doesn’t destroy the whole JT because D can’t unilaterally sever between ABC. ABC are joint tenants of a ¾ interest in the land. D affects their interest because previously they were JT of the whole estate. The land is held in trust for tenants in common  E ¼, ABC ¾ held jointly Can have shared ownership in any sort of right (even lesser interest e.g. life interest, tenancy in common interest).

Note: The pie charts illustrate the state of the equitable ownership under the trust. The legal title is still ABCD after the share sale, joint tenants at law holding in trust according to the above terms. D still on title as one of the joint tenants.

38 Ex2: C sells share to a fellow joint tenant.

Operating on C’s own share, produces severance. The joint tenants must always have the same interest arising at the same time. Seems like D has a bigger interest, but C and D cannot unilaterally affect A and B’s joint tenancy ownership. D has two separate interests in the land, as a joint owner of ¾ and a sole owner of ¼. Is a tenant in common of ¼ with himself and AB.

Ex3: A murders B.

ABC are joint tenants at law, holding for themselves as joint tenants. A by murdering produces his own 1/3 share  severance of his own share. A cannot benefit from his own crime. Doesn’t mean he loses everything. He loses the right of survivorship – severance in equity so A becomes tenant in common. C entitles by way of survivorship what would have belonged to B had B lived. Innocent party gets the benefit of survivorship. C isn’t the killer, didn’t do anything wrong, so A’s crime should not adversely affect C.

If B was murdered by a stranger, there is no severance and A and C would continue as joint tenants. At law, the legal owners are A and C holding in trust for themselves at tenants in common, 1/3 for A and 2/3 for C.

39 Co-ownership: Sale

What do you do when there is a dispute over the sale of co-owned land? At lease one of the tenants doesn’t want to sell.

Up until 1996, JT or TIC held land under trust for sale = duty as trustees is to sell the land and distribute/invest the proceeds but have the power to postpone the sale. Collateral purpose could take precedence over duty to sell.

Trust of land was introduced by TLATA 1996 to replace trust for sale. Can still have express trust for sale if the terms of the trust say the trustees have a duty to sell. But statute will imply a power to defer the sale. If someone wants to force a sale, they can apply to the court if the parties don’t agree.

S 14 The court has power to make any orders directing them to do what the trustees could have chosen to do, e.g. the court can direct a sale because trustee would have this power.

S 15 What factors the court must take into account: - Intentions of the persons who created the trust - Purposes for which the property is held - Welfare of minors occupying the premises, and - Interests of a secured creditor

Insolvency Act 1986 changes the importance of those factors. If one of the tenants becomes bankrupt, their property rights get transferred to the trustee in bankruptcy, who then is under a duty to realise all the assets and distribute the proceeds according to law to pay off secured creditors + the rest to unsecured. S 335A After one year since the bankruptcy started, the interests of the bankrupt’s creditors outweigh all other considerations under s 15 of the TLATA 1996, moves to the top of the queue. Only exceptional reason can say not going to sell. A secured creditor can petition a tenant into bankruptcy and then rely on the provisions under the Insolvency Act.

40 Mortgages

All forms of security rights exist for the purpose of securing the performance of some obligation. Personal security right = guarantee, indemnity, e.g. starting a small company, incorporate it as a legal person, no bank will want to lend money to it, so founders give personal guarantees in case the company can’t pay. Property security right = mortgage, charge, pledge, lien

Reasons for taking security

If a creditor gets security, they become a secured creditor.

Problems with unsecured obligations: - Cost of enforcement if your debtor doesn’t pay (legal proceedings and civil enforcement is expensive process) - The debtor’s bankruptcy or insolvency would mean you can’t enforce your debt (can’t sue the debtor anymore, can only make a claim in the bankruptcy and line up with the other unsecured creditors)

Benefits of security: - Creditors take security to avoid the problem of losing out in a bankruptcy. - Security increases the likelihood that the debtor could pay the debt. Rational debtors would pay the most onerous debts first, otherwise risk losing those assets.

Benefits to the borrower: Secured debt is lower risk, so creditors are willing to lend at lower rates of interest. Creditors trying to make a combination of risk and profit.

Property rights which can be used to hold as security

Possession: - Pledge (pawn)  give possession of chattels to the lender - Lien  like a pledge except it rises by operation of law, keep possession until costs paid

Ownership: Giving legal ownership to the creditor to hold the security. - Common law mortgage  want to borrow money, transfer title to land to creditor - Hire purchase  take a bailment of chattel lease, title will pass to you once you pay the purchase price - Romalpa clause  retention of title, e.g. manufacturer buying materials from supplier who will retain title until the debt has been paid and the materials have been consumed. - Sale and lease back  sell the stock to lender, then lender leases it back, gives title to lender as security

Encumbrance: Not possession or taking legal title, grants a specific security interest, so can be intangible assets (no need to give possession), debtor retains title so very flexible.

41 - Equitable charge  company granting a charge over either specific assets (fixed charge) or over all the company’s assets dealt with in the ordinary course of business (floating charge) - Equitable lien is like an equitable charge except it arises by operation of law for certain reasons, e.g. mistakenly improve someone’s land - Charge by way of legal mortgage

Mortgage evolved from a pledge (lease of land, gage) to a common law mortgage. Common law form of mortgage  non-possessory security, the legal title or ownership is transferred to the creditor, who promises to reconvey when the debt is paid in full Debtor keeps possession of the land. Owner by Honoré’s definition is the debtor.

Equity of redemption

Equity of redemption is not just a remedy  totality of D’s equitable interest in the land. Value of your equity = market value of the property – mortgage Negative equity = borrow more than the land is worth (downturn of economy or took out high risk loan)

Equitable right to redeem

Notwithstanding that D is in default on the loan, D is allowed to redeem, and can get their land back if they come in and pay back the loan + costs in full later. C can’t complain if the debt is paid in full. Notwithstanding the form of the security (e.g. owning a fee simple estate), it is merely a security interest for the sake of getting the money. C has a right for security purposes only.

Forfeiture: Right to redeem cannot last forever, want the land to be marketable and for C to deal with it fully. C gets an order for foreclosure; the court decrees an amount of time after which D’s right to redeem grace period ends.

Lewison J in Ultraframe (UK) Ltd v Fielding [2005] : The moment you create a security interest, you have the equity of redemption (an equitable interest in the land). Equitable right to redeem only arises once you are in default. The security is an encumbrance. It is transmissible, can sell it or grant further security in your equity of redemption etc.

A mortgage is not a trust. Mortgagee has a substantial interest for its own benefit. Holds title as security, has right to get paid. This right to get paid takes priority over the mortgagor’s beneficial ownership. Trustee is usually a fiduciary, whereas mortgagee entitled to act in its own selfish interest. Mortgagee must act in good faith, can’t use their powers in a way which unfairly/adversely affects the mortgagor, e.g. mortgagee exercising their power to sell the land, must get a fair price.

42 CHARGE BY WAY OF LEGAL MORTGAGE

With registered land, we grant a legal charge. This is a kind of encumbrance.

Law of Property Act 1925 s 87 By statute, can now have statutory legal charge. D keeps the legal estate, C gets a charge registered on the title.

If you have a register of title, it is easier if D stayed on title as the registered proprietor rather than issuing a new title every time you take out a mortgage. Mortgage registered as a charge on that title. To comfort lawyers and conveyancers at the time, we treat the charge “as if” it is a mortgage by demise or subdemise. Mortgage by demise = If I have the registered fee simple estate and register a charge in your favour (I borrow money from you), you have a charge by way of legal mortgage which is treated as if I have just granted you a 3000-year lease. You have right to possession for 3000 years. If I default, you are not the owner, all you have is a registered charge. But statute also says you have the power to sell. If mortgaging leasehold estate, e.g. want to use a 75-year lease as security, as registered proprietor of the leasehold estate I will register your charge and that will be treated as a sublease  whatever I have left on my lease, you get a lease of that length less one day.

Mortgages under the LRA 2002

Registration of charge by way of legal mortgage: - s 27(2): legal charge must be registered to take effect in law, if you don’t register it is only an equitable charge - s 27(1): “does not operate at law” until registered

MORTGAGEE’S RIGHTS AND POWERS (CREDITOR)

1) Right to possession of the land 2) Right to sell the land in order to get the debt paid 3) Mortgagee’s duties: account, act in good faith, take reasonable care 4) Can get receiver appointed to take over the affairs of a debtor company

 Right to payment, most mortgages secure the obligation to pay money.  Other mortgagor’s covenants e.g. Debtor promises to maintain the premises in good condition, keep it insured etc. Debtor can be in default under the mortgage not for non-payment, but for breaching one of the other conditions.

43 1. Mortgagee’s right to possession

Harman J in Four-Maids Ltd v Dudley Marshall Ltd [1957] : “The right of the mortgagee to possession … has nothing to do with default on the part of the mortgagor. The mortgagee may go into possession before the ink is dry on the mortgage unless … he has contracted himself out of that right.” The mortgagee has a right to possession immediately. The nature of the mortgage means that the right to possession is not based on default, it arises in the beginning. Statute tells us that we treat the mortgage as if it is a grant of a lease for 3000 years. A tenant under a 3000-year lease has a right to possession of a space on the earth from the moment the lease is granted. It is the nature of the mortgage that the borrower is granting a right to possession to the lender. They can come to an agreement about who is in possession, and typically the lender doesn’t want to be in possession because they would be required to account for the profits earned from the land, unless they are taking steps to enforce the mortgage. Borrow usually stays in possession, lender attempts to go into possession once there has been a default.

Administration of Justice Act 1970

Parliament intervened to try and help borrowers where the land contained a dwelling house  Trying to help people who defaulted on the mortgage to stay in their homes. Often the land itself is a dwelling house but would also apply to a larger piece of land that contained a dwelling. If the mortgagee wants to go into possession, will apply for a court order for possession. Protection for borrowers available if it is a dwelling and you have prospects of paying it back, can remain in the home until you get your affairs in order.

S 36: If the borrower has some prospect of paying off the default and get the mortgage back into good standing within a reasonable time, the court could postpone the mortgagee’s right to possession even though they have that right by virtue of the mortgage. Borrowers need to show this is a temporary setback, will get finances back into order. Court grant a postponed right to possession conditional on certain things happening.

Typically, a mortgage would contain an acceleration clause; once you are on default in the instalments, the entire becomes due. Borrowers under the 1970 statute can’t pay back the entire mortgage balance even if they could catch up on repayments.

Administration of Justice Act 1973 (amendment) S 8: Amendment says that if you have an instalment mortgage, the court can ignore the acceleration clause. Possession will be postponed if you can get your instalment arrears caught up.

44 Ropaigealach v Barclays Bank plc [1998]

Facts: Mr and Mrs R had mortgage on their dwelling house. Were not living there because it was undergoing major renovation, they were away. Went into arrears, B sent some letters initially. R said they missed these letters and did not receive B’s final demand. B sold the house by auction without even taking possession  unusual approach to this. When R found out their house had been sold, tried to reverse the process.

Ratio: The court held that the protection you get under the AJA 1970 s 36 only applies when the lender is seeking an order for possession. It doesn’t interfere with them exercising their power of sale. This is not a more general protection for dwellings, the legislation is taken at face value. B did not guarantee vacant possession to the buyer when selling the house, it was the buyer’s risk to figure out if they could get the borrowers out. The purchase price the buyer got would have been substantially lower in this case, which is even worse for the borrowers.

No better protection than this statutory protection. Mortgage remedies are build into the land registration acts of other common law jurisdictions, not here.

2. Mortgagee’s power of sale

LPA 1925 provides an implied power of sale.

Usually, mortgages will contain an express power of sale. If the mortgage doesn’t have the express power, the statute implies a power of sale, but it is a two-stage process before you can use that power

S 101 When an implied power arises: - When the date for redemption has passed (end of the term of the mortgage, must refinance or pay what you owe), or - Missed an instalment, overdue on an instalment mortgage.

S 103 The conditions that must exist before the mortgagee can exercise this implied power, e.g. given notice, interest is outstanding etc.

S 104 Power to convey title If the mortgage is in default and the lender exercises their power of sale, the property will be sold to someone.

45 This section gives the lender the power to convey title directly to the buyer even though title is in the name of the borrowers  The lender only has a registered charge and is not the owner on the Register, so they need a statutory power to be able to convey title.

S 105 Proceeds held in trust Lender holds the proceeds of sale in a statutory trust (created regardless of intention): - Must first pay the costs of the sale, e.g. agent fees, legal costs etc. - Then use the money to discharge the mortgage debt  capital, interest, costs + charges incurred under the terms of the mortgage contract - Any surplus left over after the costs and debts have been satisfied goes to whoever is entitled to the mortgaged property, i.e. who the trust is held for. If there is only one mortgage, the residue goes to the borrowers (even if they are trustees). Often there is more than one mortgage, so the first mortgagee sells and next in line is the second mortgagee from priorities.

3. Mortgagee’s duties

Palk v Mortgage Services Funding [1993]

Mortgage debt at the time they are in court = £358,587 In financial trouble, lost job and property values fallen, interest rates were high. P arranged a private sale for £283,000, thought it was the best they could do. Situation of negative equity  They owe more under the mortgage than the land is worth.

Mortgagee doesn’t have to agree to a private sale by the borrowers if it is a negative equity situation. If there is a surplus and borrowers have a reasonable sale that they want to see through, normally the lenders would agree to that, preferable because it keeps the cost of the sale down.

The mortgagee refused its consent  courts held that M is entitled to do so. M went to court to get an order for possession – not to sell, but to rent the property out and ride out the recession, hope that down the road property values will have gone up enough that they could sell and make some money. Problem was that from the evidence before the court, the best they could do was £13- 14k per year. The interest on the mortgage accrued at £43k per year. M would have to account to the borrowers for £13k in rent, but at the end of the year the borrowers will be another £30k in debt because the interest is outpacing the income from the land.

Court willing to help the borrowers. Can’t compel a mortgagee to enforce its security. But if he does take steps to exercise his rights over security, there are limits on what he can do. The borrower has an interest and will be liable for any shortfall, so you have to try to ear a fair market price. Part of duty of care and good faith.

46 Nicholls VC in Palk v Mortgage Services Funding [1993] : Mortgagee’s duties

- Account  When lender goes into possession, will need to account for any income they receive, e.g. rents, sale proceeds. If mortgagee took possession and rented the property out, all the income goes into the mortgage account.

- Act in good faith  Not fiduciaries, can look after their own interests first. However, must do so in a way that is not unfairly prejudicial to the borrowers, exercise their powers in good faith. If by breach of the duty of good faith or reasonable care, the property doesn’t earn the income it should have earned, the mortgagee will have to add the amount it should have earned into the account.

- Take reasonable care  This care changes depending on what powers/rights they are exercising. If in possession, they have a duty to take care of the property. If they are renting it out, make sure to get a reasonable market rate. If they sell, take care to get a decent market value, not just sell cheaply to pay off themselves.

These duties are owed to the mortgagors, guarantors and subsequent mortgagees. Breaching duties could adversely affect the guarantors who would have to pay whatever the mortgagors can’t pay.

Mortgagees do not owe these duties to trust beneficiaries. The mortgagee’s duties are owed only to the legal owners, not the people who are beneficial owners to the trust. Recall: When two or more people own land, they must hold it in a statutory trust  If anyone has a co-ownership interest in the land, necessarily that will be held in a trust.

Parker-Tweedale v Dunbar Bank [1991]

The land was owned by the wife, she mortgaged it and was the sole owner, but holding in trust for herself and her husband. The parties were estranged and going through a divorce. She agreed to the mortgagee selling it at a certain price. The person who bought the land sold it a week later for substantially more money. The husband thinks the mortgagee sold at too low a price, brings action.

Court held that the mortgagee did not breach its duty of care. In any event, the mortgagee did not owe the duty to the husband, he had no standing to sue. Only owed the duty to the wife, who was the legal owner.

47 Quennel v Maltby [1979]

Peter Quennel is the sole owner of a house mortgaged to Barclays. Typical term of a mortgage  will not lease the property to anyone without the mortgagee’s consent. P decides to lease to two university students without B’s consent. P later decides he wants to sell the property so wants the students out. The students had a statutory right to stay, secure tenancy protected under the Rent Act 1977  can’t get them out or raise the rent.

Makes scheme with his wife Joan Quennel. J buys the mortgage from B, pays B what is owed under the mortgage, the mortgage is transferred to her. P is sole legal owner, registered charge is in favour of J. As mortgagee, J goes to court to get an order for possession, exercising B’s rights (B never consented to the tenancy)  Mortgagee has priority and right to get the students out.

Obtained order for possession at first instance, but reverse on appeal because she was acting improperly. Templeman LJ: The mortgagee only has rights and powers in order to protect his position as a secured creditor. Fundamentally, regardless of what property rights are held for security purposes, they are only to be used to security purposes and not for other purposes.

Limit: Rights as mortgagee to get possession can only be used for security purposes, not to achieve extraneous purposes.

4. Receiver

Mortgagee’s remedy  power to appoint a receiver. Usually the mortgage will contain an express power to do so. If it doesn’t, this power is implied into every mortgage by the LPA 1925. S 103 contains the power to appoint a receiver, s 109 regulates how it is exercised.

When a receiver is appointed, the receiver is an agent of the mortgagor (borrower)  can exercise all rights the borrower has. However, they have a duty to act in the best interests of the mortgagee (lender) who appointed them. Owes duties to both lender and borrower.

This is useful where dealing with corporate debtor or multiple parties. Usually would get receiver appointed if the borrower is a corporation. The receiver is the agent of the borrower but also takes over the management of the corporation, so the powers are shifted to the receiver who takes care of the rest rather than enforce security with each property one by one.

48 Silven Properties v RBS [2003]

Land investment development company owned lots of land. Needed finance, granted mortgages over 34 properties to RBS. Got into financial trouble, so bank appointed receivers. Receivers sold all the properties, S claimed that some of these property sales were undervalued. They said RBS should have: - Obtained planning permissions which would have increased the market value. - Some of these commercial properties should have gotten tenants in them first to get an income stream and increase the market value. If they did these things they would have gotten a lot more money. S argued that the receiver as agent should be active and do extra things in order to increase the proceeds of sale. Since they did not, the receivers breached a duty.

Lightman J: Duties of a receiver vs duties of a mortgagee Once the receiver is appointed (usually has blessing of the court), they must take steps to manage this thing and get things moving, unlike a mortgagee who can sit back and do nothing. Even though the receiver is the agent of the mortgagor, this is primarily a device to protect the mortgagee. Although he has a duty to enforce the security, he doesn’t have any higher duties just because he is a receiver.

49 UNDUE INFLUENCE

Situation: Mortgagor under default for the mortgage, mortgagees want to take possession and sell the property. Potential defence against mortgage claim = May be able to rescind the mortgage if it was the product of undue influence or misrepresentation. One of the borrowers’ decision to enter into the transaction was induced by some other party, usually the other borrower.

The mortgagee is not the cause of the problem, it is some other person. Normally, cannot rescind a contract unless the other party is the one doing the undue influencing or misrepresenting, or that they are aware you are acting under undue influence or fundamentally mistaken.

In this context, the mortgage may be rescinded if the mortgagee had constructive notice of the problem  ought to have know if it did the proper searches that undue influence or misrepresentation has occurred.

Creditor (mortgagee) has notice that X may have unduly influenced or misled the debtor. C has notice of the undue influence or potential for undue influence/misrepresentation if the conditions are met: - The loan appears to be for the benefit of X and not D (like a guarantee), and - D is in a close personal relationship with X.

Typical situation  Husband and wife mortgage family home to secure loan for husband’s business. Joint owners granting the mortgage, she is benefitting him helping him raise money.

RBS v Etridge (No 2)

Lord Nicholls: When will the bank have constructive notice of undue influence by the husband?

Who appears to benefit from the loan? If it is the joint mortgage of a jointly owned house, and appears to be for their joint benefit, the bank is not on notice and the mortgage is safe, can’t be rescinded.

Lord Nicholls: When both husband and wife own the company and they are mortgaging house to guarantee debts of the company, the bank needs to dig deeper. The company arrangement may be an income splitting device and the wife is not an active member of the company, just appears to be there.

The bank is protected if the wife attends a private meeting with a representative of the bank at which she is: - Told of the extent of her liability as surety

50 - Warned of the risk she is running - Urged to take independent legal advice. In exceptional cases the bank, to be safe, has to insist that the wife is separately advised.

Manifest disadvantage = transaction which calls for an explanation.

CIBC v Pitt

Even though the money was used for the husband’s business, they didn’t tell the bank. According to the state purpose of the loan, it looked like the money was for their joint benefit so the bank did not have constructive notice of undue influence.

Where the loan appears to be for someone else’s benefit and there is a close personal relationship, the bank is under constructive notice that there is a potential for undue influence and misrepresentation (husband may be exerting pressure or not telling the wife about the whole picture). If the bank takes the steps listed, the mortgage can’t be rescinded even if there is undue influence proved at a later stage.

Effect of rescission

What happens when the claim for rescission against the bank is successful?

If the wife can rescind the husband and wife’s joint mortgage, the legal charge is voided  was not validly granted so although it existed legally, the rescission will operate ab initio (take it off and treat it as if it never happened). The bank now has an equitable charge on the husband’s share only  he wasn’t unduly influenced.

Severance of joint tenancy in equity  Even if it was jointly owned in equity, this severs the joint tenancy in equity so the husband and wife will be joint tenants holding in trust for themselves as equal tenants in common. The husband’s 50% share is subject to an equitable charge in favour of the bank.

C (mortgagee) can apply to the court under the TLATA 1996 s 14, get an order for sale of land.

51 Problem Question

Ed, Liz, and Shaun lived together in a house that they rented. (in occupation) They purchased the fee simple estate from the landlord for £300,000. (co-ownership situation) Title was registered in the names of Liz and Shaun. (joint legal owners holding in trust) No trusts were declared on the TR1 form. (could have constructive or resulting trust?)

The parties executed a separate deed declaring that the house was held in trust for Ed, Liz, and Shaun as tenants in common in equal shares. We actually have an express trust. This looks like it will satisfy s 53(1)(b)  express trust rules and trumps any other trusts. It absolutely doesn’t matter how much each of them contributed to the purchase. Severance is completely irrelevant  L and S are joint legal owners, L, S and E are equal tenants in common (doesn’t matter if one person paid for everything, must look at what the express trust says)

Liz and Shaun needed money for their business so they granted a registered legal charge over the house to the Winchester Building Society (WBS) to secure a line of credit of £400,000. The business did poorly and they now owe £450,000 to WBS, which is proposing to sell the house. (mortgage + mortgage remedies question)

Ed wants to know if he will be entitled to any share of the sale proceeds. Advise Ed.

Exam tip: Look at all the questions, figure out what the focus of the question is about.

Who granted the charge? L and S granted the charge as joint legal owners; this is something they were entitled to do and had the power to do, whether they did it properly or not. Two or more trustees granting a legal charge = we might have overreaching. Although no apparent proceeds anywhere, that doesn’t matter (Sood). Proceeds, if there are any, have to be paid to both trustees, and it is their own business so that will probably be satisfied.

Need to identify the relationship first. Joint tenants at law, holding in express trust as equal tenants in common, has the power to do this even if it may be in breach of their trust.

E is in actual occupation. Under LRA 2002 he would have a protected interest by virtue of s 29 and Schedule 3. But this wouldn’t matter because it looks like his interest has been overreached. Looks like the bank would be entitled to take the lot.

He may have a claim against L and S for breach of trust in law (£100,000 value in the house), but no claim against the bank.

52 How would your advice be different if Liz had acted alone to borrow the money from WBS by forging Shaun’s name on all the relevant documents, including the registered legal charge?

Forgery = potential for rectification of the register. No overreaching, because not a transaction by both trustees. If that’s the case, E’s protected interest would still be protected. E can apply for rectification (since he has an interest in the thing). Get that done, we can assume S would be on board with that.

WBS’s charge would be an equitable charge attached to L’s interest, but not to E or S’s interest. WBS might want to apply under the TLATA 1996 for a sale of the land, but it ought to be the case that S and E each get 1/3 of the sale proceeds.

Problem Question

Hope and Frank were two young City lawyers. Looking forward to a future of high salaries and ever-rising property prices, they decided to invest in their first home, a semi- detached residence in Barking.

They obtained a loan from Dreamhomes Ltd for £180,000 of the £250,000 purchase price. Their prospects at work seemed good, Hope persuaded Frank to invest a little money in doing the place up. They got planning permission to extend the kitchen and to turn the loft space into two more rooms.

A year later, Frank lost his job and Hope did not get the promotion she had expected. They can no longer keep up with the mortgage repayments and Dreamhomes is seeking possession of their house in order to sell it. Their agents have prepared advertisements that do not mention the planning permission, even though Frank had told Dreamhomes about it.

Advise Hope and Frank. Would your answer differ if their home is now worth only £175,000?

What is necessary for undue influence? Needs close relationship and transaction that calls for explanation. Not enough facts, don’t know if they are acting on reliance. AJA 1970 s 36 requires they prove they only have a temporary setback. Not evident from the facts, need to make assumptions. Agents breached duties in power of sale  Need to obtain market price of the property If the sale had not yet occurred, could they get an injunction? Good mortgage contract would specify what happens if their duties in exercising powers was breached. No surplus would go to the borrowers if only worth £175,000.

53 The Nature and Creation of Leases

Two estates at law, freehold and leasehold interests. Structure of estates in land, how they co-exist together.

A lease can be granted of a block of flats: the whole block/building, or individual leases of each flat. Lease is a derivative interest, can be granted over any type of land, e.g. open land.

Terminology

Landlord = grantor of a lease, lessor Tenant = lessee/grantee, the person who takes the lease, holds the lease for a period Covenant = a promise contained in a deed Not all leases need to be made by deed, but most long leases will be made by deed. Term = length of the lease, how long it is granted for Assignment = disposition or transfer of a lease (can be of a freehold too) Reversion = the interest remaining in the grantor after granting a particular estate, whatever is left in what is granted Ex: Freeholder grants a lease, the reversion of that lease is vested in the freeholder. Tenant granting a sublease, the reversion of the sublease is the superior lease

Definition of ‘lease’ in LPA 1925 s 1(1)(b) = a term of years absolute Difference between freehold and leasehold: Ex: A conveys a leasehold interest in Greenacre to B, A is the freeholder and remains associated with the property. This gives rise to a continuing contractual relationship which is governed by legislation, common law and equity. The freehold allows the owner of the freehold the rights to the land in perpetuity, subject to restrictions (e.g. in restrictive covenants) or other encumbrances on the freehold. The term of a freehold is perpetuity. Leases are granted for a finite period, either for a fixed term or determinable on notice and perhaps for a periodic length. Leases are always a derivative interest of either the freehold or a superior leasehold interest. Can subgrant leases out of a superior lease ad infinitum as long as it is for a shorter period than the lease which the grantor holds.

Historically, lease was purely contractual relationship between landlord and tenant/grantor and grantee  in personam, lessee’s rights were not proprietary but personal. This gave rise to an action in damages against the lessor on his covenant to give enjoyment of the land.

It has become recognised as a special contract with a proprietary character that gives right to possession against a third party, can exclude third parties. Fundamental difference here between rights in personam (usually licences in land law) vs rights in rem  a right to the land (e.g. lease). The relationship between the parties has privity of contract and privity of estate.

54 Elements of a lease  Exclusive possession  Term certain Street v Mountford (HL) An occupier of land for a term of years absolute at a rent is a tenant provided that the occupier is granted exclusive possession. Lord Templeman gave judgment about the elements of a lease. [292]d: Fundamental difference between licence and lease “A tenant armed with exclusive possession can keep out strangers and keep out the landlord unless the landlord is exercising limited rights reserved to him by the tenancy agreement to enter and view and repair. The licensee, lacking exclusive possession, can in no sense call the land his own, and cannot be said to own an estate in the land.” Lessee can exclude third parties such as the landlord due to fundamental right to exclusive possession, licensee will not have exclusive possession. Not necessarily a lease just because the parties label the agreement a lease. Often parties will argue this is a licence because landlords want to avoid the protections for tenants. Courts will look at substance, not form, and examine the factual circumstances. - Does the tenant have exclusive possession? - At the commencement date of the lease, was there a term certain? If answer to both questions is yes, it is a lease. Otherwise, it is not.

Types of leases Principally connected with their length  Fixed term  for a fixed amount of time, e.g. long residential leases  Periodic tenancies  yearly, monthly, weekly, any periodic basis. Will continue from period to period until they are terminated. Ex: Assured shorthold tenancy granted for an initial fixed term. At the expiry of that fixed term, the Housing Act 1988 says it doesn’t automatically come to an end. A periodic tenancy will continue. This period depends usually on how often you pay rent.  Tenancies at will  a party can determine at any time, continues until it is determined by the landlord asking the tenant to leave/serving possession proceedings, no form of notice is required. This is a rare form.  Lease by estoppel  Where a person is granted a tenancy, he and the landlord are estopped from denying its existent. Landlord can’t derogate from the tenant’s grant, the tenant can’t dispute the landlord’s title. If the tenant is sued by the landlord for possession, the tenant can’t defend by saying the property doesn’t belong to you, it belongs to someone else. Ex: Bruton v London Quadrant Housing (HL): “It is not the estoppel which creates the tenancy, but the tenancy which creates the estoppel. The estoppel arises where one or other of the parties wants to deny one of the ordinary incidents or obligations of the tenancy on the ground that the landlord has no legal estate. The basis of the estoppel is that, having entered into an agreement which constitutes a lease or a tenancy, he cannot repudiate that incident or obligation.” Described as the worst decision of HL.

55 LQH were granted licence to occupy a building to be redeveloped by the local authority. In turn, they let various people who needed short-term housing into occupation of some flats on what was purported to be a licence in the same way that they had a licence. The principle until Bruton was that you cannot give that which you do not have. If no estate in the land, how are you to create an estate in the land? LQH has a personal right, not an estate in land like a lease. Local authority able to terminate the licence quickly because they were developing the land. Mr Bruton sued LQH for breach of repairing obligations under s 11 Housing Act 1985, incl. working central heating. LQH said they are not B’s landlord, not bound by s 11. HL found that if you have a licence, you can create a tenancy. This is an example of a lease by estoppel.

Common types of leases

Common law tenancies = basic form of leases Basic common law principles have been built on and developed by heavy intervention by statute. We are looking at common law principles, not the statutory tenancies: - Assured tenancies  a species of that is assured shorthold tenancies created by the Housing Act 1988 (effectively all short lets in England and Wales, heavily regulated by statute) - Business tenancies under the Landlord and Tenant Act 1954 - Rent Act (regulated) tenancies  created by Rent Act 1977, much of the case law about leases will mention these tenancies, they still exist but cannot be created ordinarily nowadays.

Creation of Leases

Formalities Starting point: LPA 1925 s 52(1) All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed. Any creation of an interest or estate in land must be made by deed. Exception: Where the lease is for less than three years for immediate possession. If your assured shorthold tenancy is for a year, it doesn’t need to be created by deed or even in writing. Short leases can be oral  s 54(2). Assignment of leases must always be by deed, including short tenancies. Contract  Law of Property (Miscellaneous Provisions) Act s 2 and s 2(5)

Equitable leases

Walsh v Lonsdale (1882) Courts of law and equity just fused by Judicature Act, one of the first cases the courts had the power to enforce in equity in the courts of common law.

56 Landlord agreed to give a 7 year lease of a mill to a tenant at a rent which was to vary according to the number of looms running. Agreed that the tenant would pay one year’s rent in advance. No lease was ever executed. Tenant let into possession, paid the rent in arrears for a year and a half. Therefore became a yearly tenant at law. But landlord demanded a year’s rent in advance. Tenant’s refusal to pay made landlord levy distress. Tenant brought action in damages for wrongful distress, an injunction restraining the landlord’s distress pending trial, and specific performance of the agreement that they had for the lease. Had agreement for the lease but didn’t actually execute the lease. This case is about the right to specific performance of imperfect leases. “Equity looks on that as done which ought to be done.” The courts will enforce an agreement for a lease in circumstances where a tenant has been let into occupation and has carried out the lease on principally the same terms as they agreed. Equity were intervene where the conscience of the court is affected. At law, where proper formalities have not been followed, a party is entitled to damages, but not to the land itself. A person entitled to the relief of specific performance is entitled to demand the land itself. The tenant wanted the lease he bargained for. This in the eyes of equity is what he was entitled to. Ex: If you purchase land, you become the owner in equity on the exchange of contracts. Only on completion of registration do you become legal owner.

Yaxley v Gotts Equity intervened in this case. LP(MP)A s 2(5) expressly preserves the operation of the constructive trust in relation to contracts which fail to comply with the statutory requirements of writing. CA confirmed that this provision allowed a limited exception for those cases where a supposed bargain has been fully performed by one side, and from the general circumstances mean that it would be inequitable to disregard the claimant’s exceptions, and insufficient to grant him no more than a restitutionary remedy. If parties carry out their obligations, although Parliament has determined formalities for when entering into contracts for (sale or disposition of) land, equity can intervene. Equitable rights were still capable of vindicating parties’ rights by s 2(5) of the 1989 Act.

When do you register a lease?  When the term is for more than 7 years from the date of grant  If the lease takes effect in a possession after the end of a period of three months after the date of grant Ex: If you grant someone a lease and they don’t go into possession straight away, that needs to be registered. This can still be a short lease under three years or up to seven years.  If the possession is going to be discontinuous, the lease must be registered.  Some secured tenancies under the Housing Act 1985 Rule about discontinuous possession and if possession is delayed for more than three months after the date of grant  registration is important because it ensures that anyone

57 looking at the register would know about the rights of that tenant. If someone looking to purchase went to the property, the tenant wouldn’t be there, so need to register your rights.

Relationship of landlord and tenant

Larry = landlord Terence = tenant Seb = subtenant

T wants to take a lease of the flat from L. 5 flats in the building, freehold vested in L. T will take a leasehold of flat 1. L is the holder of the estate known as the “fee simple absolute in possession” with the power to grant T a lease. T is then entitled to possession of the property for 15 years. 15 year term from the date of the tenancy agreement, so lease of 15 years. T wants to sublet his flat. No covenant against subletting here. S becomes T’s tenant. In the landlord and tenant relationship we have privity of estate and privity of contract as between the parties but in varying circumstances.

Difference between privity of estate and privity of contract: A enters into contract with B, A have privity of contract with B. If A grants B a lease, A has privity of contract because they have entered into a contract. Also has privity of estate with you because A is B’s landlord and B is A’s tenant.

There is privity of estate and privity of contract between L and T, and between T and S. L is T’s landlord with mutually binding obligations at common law. Entered into a contract (lease), which created privity of contract between them. There is no privity of estate or contract between L and S.

What happens if L sells his interest in the freehold, and T assigns the remainder of his term of the lease. L signs the reversion of T’s lease to Alison. She is the assignee of the freehold. T assigns the remainder of his term to Tabitha. In that case, A becomes the landlord of Ta after L transfers that interest to A. Ta then becomes the landlord of S for the remainder of S’s sublease. T had a lease of 15 years, he could have granted S anything up to 15 years less one day. Privity situation: A and Ta have privity of estate but not privity of contract because they never entered into a lease with each other. Similarly, Ta and S have privity of estate but not contract. A and S have neither privity of estate nor contract. Landlord and Tenant Covenants Act 1995 largely abolished the concept of privity of estate and contract. Now there is a concept of old leases granted before the 1995 Act came into force, and new leases, which were executed after the 1995 Act.

Elements of the Lease

58 Street v Mountford [1985] AC 809 (HL)

This is the highest authority on what a lease is. Mr Street owned a house. Entered into signed written agreement with MRs Mountford on 7th March 1983 allowing her a right to exclusive occupation of two rooms in the house. Terms of the agreement  M would pay S £27 per week, either party could terminate the agreement by giving 14 days notice. The agreement consistently described itself as a licence. At the time, the Rent Act 1977 gave leasehold tenants the right to a fair rent set by an independent officer or tribunal which the landlord was required to accept. Also required a longer period of notice from the landlord to terminate the tenancy than what was agreed in this case. M claimed the agreement was a lease, applied for a fair rent to be assessed. S said it was a licence. County court found M had a lease. CA overturned, said the agreement made it plain if was a licence. HL overturned the CA, notwithstanding contrary intention for it to be a licence, the agreement was actually a lease. It gave M: 1) Exclusive possession 2) For a term certain at the commencing of the tenancy 3) Is rent a necessary ingredient? No.

Exclusive possession = the ability to exclude the entire world, including the landlord, from the property. Can by done by way of injunction. Landlord can reserve rights to enter, e.g. with notice, but cannot enter as they please. Aslan v Murphy In this case, the clause denying exclusive possession had no purpose other than to defeat the claimant’s exclusive possession. It was, of substance, not a clause that genuinely deprived the tenant of exclusive possession. Only designed to stop it being a lease, courts looked through this sham, declared it was a lease.

AG Securities v Vaughan & others Antoniades v Villiers Conjoined appeal, HL considered the issue of exclusive possession in 1990. Four tenants moved in not as a group, each moved in as another moved out. Company attempted to terminate the agreements of the fourth. They claimed they all jointly held the lease, qualified for statutory protection. HL held they were all licensees. In Antoniades, different position. The two tenants moved in at the same time, signed tenancy agreement at the same time, were a couple. Different from AG Securities, where they were sharers moving in and out at different times  no unity of possession. HL held the couple were tenants because the tenancy agreements were interdependent, they moved in or out together.

Term certain = must have a fixed maximum duration at the outset.

59 A fundamental requirement of the lease. Mexfield The parties must be able ascertain at the date of commencement the duration of the term. If it is not possible to do that, it is void.

If tenant takes possession and pays rent on a periodic basis, that will create a periodic tenancy. Although rent isn’t an essential component of a lease, it is indicative of a lease because it demonstrates the period the lease runs from and to. A tenancy in that case is certain because each party has the power to determine it on reasonable notice. The authority for this is Prudential Assurance Co Ltd v London Residuary Body [1991] UKHL 10  The last time the highest court considered the issue of a term certain before Mexfield.

Lace v Chantler [1944] Duration of the war was held not to be a term certain.

“10 years or until B get’s married” is valid, because we know the maximum duration  if B doesn’t get married for 10 years, it will only be a 10 year lease.

Mexfield Housing Co-operative Ltd v Berriford [2011] UKSC 52 A mutual housing association granted a monthly tenancy which would only be able to terminate on the ground of arrears of rent or breach of covenant, tenant had a right to break. The landlord housing association couldn’t grant an assured tenancy under the Housing Act 1988 or a secured tenancy under the Housing Act 1985. As a result, the term was effectively indefinite. It claimed that this could not have amounted to a lease, it had previously given tenants a notice to terminate. Supreme Court sat with seven judges to analyse this important question of what term certain means. Unanimously held this amounted to a common law tenancy governed by LPA 1925 s 149(6). Indefinite leases from before 1925 were to be treated as a lease for life (tenant’s lifetime duration). LPA 1925 converted those leases to a term of 90 years determinable on the death of the tenant. It would either run for 90 years or the death of the tenant, whichever was earliest. There is a valid tenancy in this case, landlord can only terminate it on the death of the tenant or 90 years, whichever was earlier. Lord Neuberger was critical of the modern need for a term certain. Supreme Court indicated this may not last much longer. [34]: “There is no apparent practical justification for holding that an agreement for a term of uncertain duration cannot give rise to a tenancy, or that a fetter of uncertain duration on the right to serve a notice to quit is invalid. There is therefore much to be said for changing the law, and overruling what may be called the certainty requirement, which was affirmed in Prudential, on the ground that, in so far as it had any practical justification, that justification has long since gone, and, in so far as it is based on principle, the principle is not fundamental enough for the Supreme Court to be bound by it. It … is reinforced by the fact that the common law accepted perpetually renewable leases as valid: they have been converted into 2000-year terms by section 145 of the Law of Property Act 1922.”

60 Strong words saying this is a useless, unnecessary term. Despite this, the law has not changed. There are five reasons why the Supreme Court kept it: 1. Antiquity 2. The law says it is so 3. The House of Lords confirmed it ‘recently’ in Prudential [1990] 4. Unintended consequences in other cases, upsetting long-established titles 5. Uncertain grants to individuals become tenancies for life anyway (note: uncertain tenancy to a company doesn’t create a tenancy for life because a company doesn’t have a lifetime) Matter of reform, invitation to the legislature to change the law. Law Commission is currently examining leases.

Rent LPA s 205(1)(xxvii): No need for rent “Term of years absolute” means a term of years (taking effect either in possession or in reversion whether or not at a rent). Cf. Ashburn Anstalt v Arnold [1989] Ch 1

Tenancy rebutted  No intention to create legal relations (contract law)  Marcroft Wagones Ltd v Smith [1951], exclusive possession could be because of a different relationship e.g. charitable reason.  If it is a service occupancy = occupation is necessary for the better performance of your job  Street v Mountford page 118.  In the case of sharers  AG Securities v Vaughan, Mikeover v Brady people were sharing, going in and out with no exclusive possession.

61 Leasehold Covenants

Covenant = promise made by deed, enforceable by the ordinary law of contract between the parties who executed the deed or their personal representatives. Can be express (written down in the lease, set out so the parties agree beforehand while the lease is in draft) or implied.

Implied covenants

Not written in the lease, the law implies these through common law or statute.  Quiet enjoyment  Not to derogate from grant  Repair of common parts  Property is fit for human habitation Another implied covenant in all short leases is to repair or keep in repair, s 11 Housing Act 1985. In assured shorthold tenancy, there is an obligation on the landlord to keep structure, exterior, installations for water, gas, electricity and sanitation, and space + water heating in good repair.

Quiet enjoyment

Right to uninterrupted possession of the property. It applies to the landlord and anyone claiming under him.

This covenant is implied automatically between landlord and tenant. It imposes on the landlord an obligation to allow the tenant the quiet enjoyment of the property. Leading authority: Budd-Scott v Daniell

It gives the tenant the right to be put into possession of the whole of the demised premises. It is broken if the landlord or someone acting on his behalf does anything that substantially interferes with the tenant’s title, possession or ordinary lawful enjoyment of the premises. Authority: Southwark LBC v Mills [2001] 1 AC 1 (HL) What sort of action by the landlord would be tantamount to a breach? e.g. If the landlord does something such as entering the premises without permission, harass the tenant, conducts works on the property in the common parts. If those actions interfere substantially with the tenant’s right to possession or easement over the common parts, that may give rise to breach of covenant.

Protection from Eviction Act 1977 is a cornerstone legislation that protects tenants from landlords who wish to deprive them of possession of the property without due process of the land. S 1: It is a criminal offence for a landlord to unlawfully evict or harass an occupier of premises, e.g. to go into the property and change the locks. The premises must be residential, doesn’t apply to commercial premises. S 2: Restricts right of re-entry without due process of law.

62 Where any premises are let as a dwelling on a lease which is subject to a right of re-entry or forfeiture it shall not be lawful to enforce that right otherwise than by proceedings in the court while any person is lawfully residing in the premises or part of them. Permissible to enter commercial premises, landlord can take peaceful re-entry and instruct bailiffs to change locks. Complete defence to the offence: If you reasonably believe that nobody is occupying the premises. Due process = issue processional proceedings and obtain order of the court.

Not to derogate from grant

Leading authority: Harmer v Jumbil [1921] 1 Ch 200 Rule of common honestly. A person who gives with one hand cannot take away with another  that is inconsistent with the grant of a lease. Can’t grant someone a lease and then try take away from them. Ex: A lets to tenant B a garden flat. A decides to build extension. Cannot use the garden as a building site because it has been demised to B. If you grant someone a lease that includes a garden and then try to build form it, you are derogating from your grant. This principle is not limited to land law, also in contract law.

Tenant’s implied covenants

 Is there a covenant to pay rent? Maybe,could be an implied covenant depending on the facts of the case. Usually there is an express covenant to pay rent, if there isn’t it may suggest it is a peppercorn rent or some other reason. Rent = a periodical sum paid in return for occupation of the land. It issues out of the land, for the non-payment of which, distress is leviable. In modern law, rent is a payment that the tenant is bound by his contract in the lease to make to the landlord in exchange for his use of the land. Authority: United Scientific Holdings v Burnley Borough Council [1978] AC 904 (HL) Lord Diplock: describing rent “My Lords, the mediaeval concept of rent as a service rendered by the tenant to the landlord has been displaced by the modern concept of a payment which a tenant is bound by his contract to pay to the landlord for the use of his land.”

Distress = ancient remedy, allows a landlord to enter into premises to seize and hold goods as security for non-payment of rent. Still common in respect of commercial premises but curtailed significantly and abolished in respect of residential premises by s 71 of the Tribunal Courts and Enforcements Act 2007. No longer need to be concerned with it, new regime.

 Not to commit waste Waste = an act which alters the nature of the land, whether for the better or the worse. Four types  ameliorating, permissive, voluntary, equitable In the context of leases, we are only concerned with voluntary and permissive waste.

63 Permissive = the failure to do that which ought to be done, the passive permitting of land to fall into disrepair, e.g. failing to repair buildings or allowing them to generally fall into disrepair. Voluntary = the failure to do that which ought not to be done, e.g. removal of fixtures and fittings, damaging the property, carrying out unauthorised works.

 To use the property in a tenant-like manner

Express covenants

Common types:  To pay rent

 Not to assign or sublet This is common, covenant not to assign without the consent of the landlord. An assignment might take place without the consent of the landlord. This assignment in breach of the lease is still effective and operative at law. If you assign your tenancy/lease to an assignee without landlord’s consent where you should have obtained it, it still operates. The assignee becomes the tenant at law. Consequences  landlord has the right to forfeit the lease as against your assignee. Assignee takes big risk if they don’t see your licence to assign. Landlord and Tenant Act 1927 s 19: Notwithstanding any express provision to the contrary, a qualified covenant condition or agreement against assigning, underletting, charging or parting with the possession of demised premises or any part thereof without licence or consent shall be deemed to be subject— (a) to a proviso to the effect that such licence or consent is not to be unreasonably withheld. If the landlord has agreed with the tenant that the tenant can assign with his licence or consent, that licence or consent must not be reasonably withheld by the landlord. Otherwise landlord is at risk of damages (Landlord and Tenant Act 1988 s 1). Tenant can get order from the court to get landlord to give his consent or licence. Houlder Brothers and Co Ltd v Gibbs [1925] The reasons given in the case “was one which had no reference either to the personality of the proposed assignee or to the subject matter of the lease” and was therefore unreasonable. You can’t just as the landlord say no licence just because I don’t like you. Landlord can give the reason that your covenant strength is not good enough. Covenant strength = ability to perform a covenant, usually relates to rent or service charges. Ex: Proposed tenant is a newly formed company, landlord can say they don’t want to give the current tenant licence to assign to this new company because how would we know that they will pay the rent – no trading history or bank references. In this situation, the current tenant may have to give an authorised guarantee agreement, or the assignee might need a third party to the licence to assign who will be the guarantor and covenant with the landlord directly. If the assignee breaches any of the terms of the lease, he will pay on the assignee’s behalf. Reasonableness is a factor. Ashworth Frazer Ltd v Gloucester CC [2001] UKHL 59; [2001] WLR 2180 Key authority on what reasonableness is.

64 There is no strict rules on the definition of reasonableness. Approved of Lord Denning in Bickel v Duke of Westminster: “The landlord has to exercise his judgment in all sorts of circumstances. It is impossible for him, or for the courts, to envisage them all.” This is comparable to the courts exercising their discretion. The court is reluctant to impose strict rules that might fetter discretion.

 Covenant to repair Landlord of Tenant Act 1985 s 11 implied into every contract of a short lease. Also a third party tortious duty is imposed on landlords under Defective Premises Act 1972 s 4 separately and distinctly from the contractual duty between the parties. (1) Where premises are let under a tenancy which puts on the landlord an obligation to the tenant for the maintenance or repair of the premises, the landlord owes to all persons who might reasonably be expected to be affected by defects in the state of the premises a duty to take such care as is reasonable in all the circumstances to see that they are reasonably safe from personal injury or from damage to their property caused by a relevant defect.

Remedies for breach

What are your remedies as a landlord if the other party breaches a covenant?  Sue for damages  Forfeit the lease  Seek an order for specific performance (injunction that requires the tenant to do what they have covenanted to do under the lease) If the tenant carried out unlawful alterations, damaged the landlord’s reversion by those unlawful alterations. Can sue for damages and seek an injunction requiring the tenant put things back to the way they were before. On a long lease, the landlord may not want the property back so may not seek forfeiture  common in commercial cases

Tenant’s remedies for breach  Damages  Specific performance  Set off  setting off sums that the landlord says you owe to him against sums you say he owes to you, e.g. Landlord has not repaired the boiler (express term in the lease, or implied obligation under s 11 if it is a short lease). Tenant can set off against the rent the cost of repairing the boiler. This is called equitable set off. It was discussed in British Anzani (Felixstowe) Ltd v International Marine Management [1980]. Tenant cannot stop paying their rent, can only set off sums that are due. Equitable set off makes sure you do the repairs, but deduct from the landlord. Modern leases do not allow sums to be set off against rent, saying the rent must be paid without deduction or set off. The right exists at law but you can contract out.

Running of covenants

Privity of contract between parties who have entered into a contract. Privity of estate between parties who are in a relation of landlord and tenant to each other.

65 Privity of estate may not also give rise to privity of contract because the parties may be successors in title to the original contracting parties. This was reformed by the Landlord and Tenants Covenants Act 1995, abolished privity of contract and estate for leases granted after 1 January 1996.

What happens where there is no privity between the freeholder and a sub-lessee? What if T has his lease forfeited, is S out? Yes, because ordinarily the sub-lease falls with the head lease.

Bruton v London and Quadrant Housing Trust [1999] UKHL 26 Lambeth Borough Council owned a block of flats in Brixton. Planned to demolish the flats and rebuild, but project was delayed. In the meantime, council gave charitable body that provided accommodation to the homeless and those in need a licence to use the flats for that purpose. Clear from the agreement that Quadrant only had a licence. Council had no statutory power in the circumstances to give them a lease under law anyway. Mr Bruton was a party housed by Quadrant in the flats. The agreement between B and Q was a licence. B claimed it was a lease, and that L&Q was under the s 11 repair obligations. He wanted L&Q to fix things for him, L&Q said they are not his landlord so s 11 doesn’t apply. L&Q won until HL overturned the principle that you cannot grant a lease if you don’t have a lease (a licence is not an estate in land). HL said you can grant an estate of land even if you don’t have one yourself, estopped from denying the existence of the lease between B and L&Q because the arrangement ticked all the boxes from Street v Mountford  exclusive possession, term certain Only depends on establishing these principles, doesn’t depend on L&Q establishing they had proprietary title good against the world and the council. Once L&Q’s licence was terminated, B’s lease was terminated with it. Statutory intervention in Housing Act 1988 provides that if your landlord has a lease and you have a sublease which is an assured shorthold tenancy, the reversioner (superior head lessee or freeholder) becomes the AST holder’s landlord. This does away with the problem of privity  good public policy for ASTs.

Running of covenants pre-1996 in ‘old leases’

Before the 1995 Act came into force, privity still mattered. Restrictive covenants are freehold covenants. Covenants have a benefit to sue on the covenant and a burden obligation to form the covenant. e.g. Rent – the benefit is landlord’s right to receive rent, burden is the tenant’s obligation to pay rent. Assignee of a lease can enforce the covenant but might not be liable to perform the obligations of a lease under a transfer. Common law principle: the law will not enforce obligations/burdens on parties that did not contract to perform them. But there are exceptions in landlord which enforce burdens. Benefits are easy, can assign and everyone wants benefits, but may not want the burdens. Law must enforce the burdens.

66 In old leases, even though the original tenant might assign his lease to another, he will remain liable on the leasehold covenant throughout the entire term of the lease. Ex: T assigns his old lease to new tenant and new tenant doesn’t pay the rent, L can come to T to pay the rent because they are contracted together. Landlord and Tenant Covenants Act 1995 provides a statutory code which governs leases, supersedes the previous provisions. If new tenant stops paying rent, L can recoup arrears from T. But the statute gives the assignor/old tenant a right to a remedy in the form of an overriding lease.

This kind of liability has been completely abolished for leased granted on or after 1st January 1996. Exam tip: Identify if it is an old lease or new lease, look at the date it was granted.

Tenant of old lease won’t be liable if: 1. The lease is perpetually renewable 2. There is an express provision in the lease saying the tenant’s liability won’t continue on an assignment 3. Where the lease has been extended by statute (Leasehold Reform Housing and Redevelopment Act 1993) 4. Surrender and regrant (old lease dies, there is a new lease) 5. Under s 17 of the 1995 Act, former tenant can be liable for a fixed charge e.g. rent, service charge, liquidated damages. In this situation, if the former tenant is liable he can apply for an overriding lease.

For covenants to run with the land, i.e. be enforceable against assignees, two factors must be present: - Privity of estate - The covenant must ‘touch and concern’ the land = satisfy a number of factors in P&A Swift Investments v Combined English Stores Group [1989]. Lord Oliver: o Could the covenant benefit any owner in the estate in the land, as opposed to the particular original tenant? o Does the covenant affect the nature, quality, mode of use or value of the land? o Is the covenant plainly expressed to be personal between the parties? Ex: Under an old lease, where an assigned takes place  Ta is the lessee/assignee, if Ta stops paying rent, L can sue Ta but also sue T because T contracted. If Ta causes L some loss under the lease and there is a liquidated sum of damages to be paid, and Ta has no money to pay, but L doesn’t want to forfeit the lease and only wants the money, he can sue T for it. There are situations where T might obtain an overriding lease. Under the 1995 Act, T would apply for an overriding lease that sits over the lease between Ta and L, T then becomes Ta’s landlord. He can forfeit her lease as her new landlord to stop her from carrying out all the breaches, because L won’t forfeit and get the property back so keeps suing T for Ta’s breaches. Working rule to determine whether covenant touches and concerns the land [in the notes]

Running of covenants granted after 1996

67 General principles of privity of contract and estate have no application to new leases. On assignments: S 3 The benefit and burden of all covenants passes to the assignee. T assigning to Ta, T is released and all benefits and burdens pass to Ta. S 5 The tenant is released after assignment. S 8 If L assigns the freehold to A, he can apply to be released under this section. Doesn’t happen automatically when landlord assigns his reversion (since there is privity with the landlord as well). S 11 If the tenant is in breach of covenant, e.g. T doesn’t get L’s permission to assign but assigns to Ta, the assignment takes effect at law but T is not released from his covenants because he was in breach of covenant. If T does seek L’s consent before assigning, and L is not sure Ta has good enough covenant strength to fulfil obligations, L might give permission but make T sign an authorised guarantee agreement  direct covenant that T will perform the obligations if Ta doesn’t.

There is retrospective effect of the 1995 Act  overriding leases.

68 Termination

Five main ways to terminate a lease: 1. Expiry of a fixed term  the term has come to an end, so does the lease. In common law, a tenant who stays in occupation after the effluxion of time is a trespasser. If a common law lease comes to an end and the tenant does not vacate, he is a trespasser. Statutes have overlaid on that a way in which the lease might continue. 2. Surrender of the lease by the tenant to the landlord  surrender can’t be unilateral, must be a bilateral act. 3. Notice to quit  a notice served by one party to the other that they intend for the lease to come to an end. Many variations of this notice. 4. Forfeiture for breach of covenant  the principle way in which leases come to an end in practice. A landlord brings a lease to an end for breach of covenant, e.g. not paying rent, altered the premises. 5. Merger  principle at law that you can’t hold two estates in land as the same legal person. Ex: Freeholder of a block of flats, if he also buys all of the leases in those flats, he can’t hold both the leasehold and freehold interests in the same legal person. Lots of exceptions, but this is the basic principle. Common exception: If I grant a lease of a property to myself and another person (the two lessees are the trustees of the leasehold interest for either themselves or for a child etc.). If you buy the leasehold interest of 125 years of a property where you are already the freeholder, the leasehold will merge into the freehold, bringing about an end to the lease.

Surrender

Can’t be a unilateral act, landlord must consent. Tenant must show that the landlord unequivocally accepted the tenant’s surrender in order to avoid liability under the lease  Relvok Properties Ltd v Dixon (1972 CA). Delivery of the keys to the premises of the landlord doesn’t count: Tenant can’t walk into landlord’s office and just say they don’t want the lease anymore. If the landlord doesn’t accept the tenant’s surrender of the tenancy, the tenant’s liability continues (still liable for rent, covenants etc.).

Bellcourt Estates Ltd v Adesina [2005] EWCA Civ 208 Must be a bilateral act. Peter Gibson LJ: “The doctrine of surrender by operation of law is founded on the principle of estoppel, in that the parties must have acted towards each other in a way which is inconsistent with the continuation of the tenancy. That imposes a high threshold which must be crossed if the tenant is to be held to have surrendered and the landlord is to be held to have accepted the surrender.” Approves passage from Megarry & Wade: “An abandonment of the premises by the tenant without more, even if rent is unpaid, is not a surrender, because the landlord may wish for the tenant’s liability to continue.” Landlord may not want an empty property, tenant may not want onerous lease.

Notice to Quit 69 Notices served by one party on the other to terminate a tenancy. Type of notice to quit served depends on the type of tenancy the tenancy has. Three common types:  Common law tenancies require ordinary notices to quit  Assured Shorthold Tenancies require service of a notice governed under s 21 Housing Act 1988 (most common type of tenancy, short let)  ASTs don’t just come to an end after the fixed term, a statutory periodic tenancy comes into effect based on the period you pay rent, s 21 must give two clear months notice to terminate the tenancy.  Business tenancies are subject to the Landlord and Tenant Act 1954

Common law position:

Ordinary common law tenancies are not protected by any statute. Notices to quit apply to periodic tenancies, e.g. run from month to month. No fixed term or fixed term has ended, and parties agreed tenant can stay in occupation and continue to pay rent. Must be in writing and contain the information prescribed by regulations  s 5(1)(a) Protection from Eviction Act 1977. Notice to quit content is governed by the Notice to Quit etc. Prescribed Information Regulations 1988. Needs to be at lease 4 weeks notice, but appropriate notice can be longer.

Assured tenancies: (non-examinable)

After the fixed term has expired, can serve a s 21 notice bringing an end to the periodic tenancy that arises afterwards. Alternatively, can be brought to an end by breach of covenant  terminated by service of a notice under s 8 of the Act. Schedule 2 Housing Act 1988 sets out all the grounds for termination. Prescriptive about the court’s discretion to grant an order of possession where there are arrears in rent.

Business tenancies:

70 If a tenant has a commercial lease, it can be outside of the LTA 1954. Principle purpose of 1954 Act is to give security of tenure if you are a business tenant. If you are outside the protection of that Act (can contract out of it), it is just an ordinary common law tenancy, just happens to be for a commercial premises. This influences how you terminate a business tenancy. Don’t need to go to court to get an order for possession, can take peaceful re-entry of the property (usually change locks outside of business hours and give notice of forfeiture on the window). In these circumstances, tenant can go to court and get an injunction while the court determines whether to grant relief from forfeiture. When terminating a business tenancy, landlord needs to serve a notice under the Law of Property Act 1925 s 146. This is a notice that a landlord serves on a tenant when there has been a breach of covenant other than of rent. S 146(11): You don’t need to serve a notice under s 146 if there are arrears of rent. We only need to know about forfeiture of business tenancies in relation to a termination for breach, not looking at the statutory scheme.

Forfeiture

Forfeiture is the termination of a tenancy for breach of a covenant in the lease. Power for the landlord to terminate the lease for breach of one of the tenant’s covenants. It can be non-payment of rent or service charges, or breach of other covenant of repair, not to sublet, not to assign without consent etc. Assignment without breach still operates at law, assignee gets all the rights and obligations but is exposed to a forfeiture action by the landlord because predecessor of title was in breach of covenant.

The purpose of the forfeiture clause is to provide the landlord with security for performance of the terms of the lease. The courts “lean against forfeiture” and if the tenant remedies the breach he will invariably be able to obtain relief against forfeiture.

The effect of forfeiture is to bring to an end the tenancy, all its interests, such as sub- tenancies, mortgages and charges, so that the landlord is entitled to possession immediately  Official Custodian for Charities v Mackey [1984] 3 All ER 689. If the tenant after forfeiture wants the property back, he must apply for relief. As the act of forfeiture brings the tenancy to an end, the landlord is no longer entitled to rent after he forfeits and no longer entitle to sue the tenant on the covenants of the lease. This isn’t the case conversely. The tenant (who did not elect to end the lease) can still sue the landlord on certain covenants, can get injunction to get landlord to do something they are required to do under the lease.

Almost all leases contain forfeiture and re-entry of the premises clauses that can bring the lease to an end. If there isn’t, the landlord just can’t get back possession for breach until the expiry for term.

Five stage process for terminating a tenancy by forfeiture:

71 1. Identify the breach  could be a breach of a repairing covenant to keep the property in good repair. 2. If it is a residential long-lease (more than 21 years + is a residential dwelling), the landlord needs to obtain a determination of breach (declaration that there has been a breach) under s 168 Commonhold and Leasehold Reform Act 2002 before the notice under s 146 is served. 3. Landlord needs to serve notice under s 146 LPA requiring the tenant to remedy the breach within a reasonable period of time (varies according to the facts). 4. If the breach is not remedied (or capable of remedy) after the period elapses, the landlord needs to serve proceedings for a possession order if it is a residence or take possession without an order if it is a commercial premises. The act of forfeiture is the service of the proceedings on the tenant, at that moment the tenancy ends. Also, the act of re-entry is the end of the lease. 5. Once the act of forfeiture has been carried out, the tenant must seek relief from forfeiture for the lease to continue.

If the breach is irremediable, the tenant can’t do anything about it. Ex: Breach of covenant against using the premises for an immoral purpose, e.g. keeping a brother, dealing drugs. A stigma attaches to those acts, not entitled to relief from forfeiture. No need for reasonable period, get possession order immediately.

The above is all for forfeiture for a breach of covenant other than non-payment of rent.

Non-payment of rent

S 146 doesn’t apply, can proceed straight to issuing proceedings. Most modern leases contain an exclusion of the requirement to demand rent formally. Will say rent is payable whether formally demanded or not.

It used to be that where rent was in arrears by six months or more, a formal demand was no longer needed  Common Law Procedure Act 1852 s 210 County Courts Act s 138: Tenant has right to apply for relief against forfeiture for non- payment of rent if, within four weeks of the order, he pays all of the arrears of rent and associated costs to the landlord. Without a further order, the lease will be revived.

72 After service of proceedings, the lease comes to an end. However, tenants continue in the premises because they can’t be evicted without a court order and bailiffs appointed to evict them, and they can still sue on the tenant covenants. This is the ‘twilight period’ between service of proceedings and the granting of a possession order. The possession order confirms the act of forfeiture, on that date the lease is really at an end.

In most commercial leases and residential long-leases, there is a provision for the payment of service charges. Service charges can be payable for maintenance of the structure of the building etc. The amount fluctuates year-to-year. If it is a residential long-lease, those buildings might have facilities and concierges that the tenant must pay annually. If the tenant doesn’t pay, that is a breach of the lease.

It is also possible for leases to reserve other payments, such as the service charge, as rent in order to take advantage of the provisions of s 146(11) and get around having to serve a s 146 notice. Two conflicting decisions of the Court of Appeal on whether this is the position:

Escalus Properties v. Robinson [1996] QB 231, CA, Says this is fine, it you call service charges rent then they become rent. Norse LJ at 243 F to 244C: Where the terms of the lease provide that the service charge should be payable as additional rent, it ‘invests the charge with the character of rent’. Therefore, where the service charge is reserved as rent, it is deemed rent. By treating the service charge as rent, Section 146 (11) would mean that no notice was required before forfeiture. Escalus was a case concerning, in part, s 138 of the County Court Act 1984 and whether a tenant was entitled to automatic relief from forfeiture for non-payment of rent under that section. The service charge was payable as additional rent. That was sufficient to clothe it with the character of rent so as to be able to rely on section 138. If it had simply been a service charge and no more, then relief would have been a discretionary remedy of the court under section 146(2).

Freeholders of 69 Marina, St Leonards–on–Sea– Robinson, Simpson & Palmer v John Oram & Mohammed Ghoorun [2011] EWCA Civ 1258 Chancellor of the High Court, Sir Andrew Morritt: Even where service charges are reserved as rent, there must still be a determination that they are due pursuant to section 81 of the Housing Act 1996 and a service of notice under s 146 LPA 1925.

There is now a direct conflict between these two Court of Appeal cases and landlords are advised to serve get a determination under s 81 that the service charge is due and serve a s 146 notice, even where it is reserved as rent.

Relief from forfeiture

73 What can a tenant do if his lease is forfeited? T can apply for relief from forfeiture of the lease. Under County Court Act 1984 s 138, relief is automatic if the tenant pays the rent in arrears in accordance with the provisions. In all other cases, relief is at the discretion of the court. No strict guidelines on how this relief is exercised.

Relief can be applied for in the case of residential leases whilst possession proceedings are still ongoing and in the case of commercial property, after the landlord has peaceably re- entered.

Chatham Empire Theatre v. Ultrans [1961] 1 WLR 817 The Court has the ”widest discretion to grant relief”

Factors that may be taken into account when the tenant comes to court looking for relief after remedying the breach: (a) Whether the breach was wilful or deliberately committed, for established and sound principle requires that wilful breaches should not, except in exceptional cases, be relieved against, if only for the reason that the lessor should not be compelled to remain in a relation of neighbourhood with a person in deliberate breach of his obligations. (b) Whether the breach was inadvertent, due to a mistake by the tenant’s solicitors. (c) Whether the breach was caused by circumstances beyond the tenant’s control (e.g. the threat of compulsory acquisition or requisition). (d) Where the breach consists of doing something (e.g. assigning or the making of alterations) without the landlord’s consent and without having asked for that consent, whether that consent could reasonably have been refused if it had been asked for. (e) Whether the tenant has made or will make good the breach of covenant and is able and willing to fulfil his obligations in the future. (f) Whether the breach has occasioned lasting damage to the landlord. (g) Whether the damage sustained by the landlord is proportionate to the advantage he will obtain if no relief is granted. (h) Relevant conduct and interests of persons who are not party to the lease (e.g. a contracting purchaser or a beneficiary under a trust of the lease). (i) The personal suitability of the tenant, where it is clear from the lease that the personal qualifications of the tenant are important. (j) Personal hardship which will be occasioned to the tenant if relief is refused. (k) Whether the tenant has a remedy against a third party (e.g. his solicitor). (l) Whether the tenant’s defence has been put forward in good faith. (m) Whether third parties have acquired rights in the property without notice of the forfeiture, although this factor will not carry much weight where the landlord has acted unreasonably or precipitately. (n) Whether the breaches relate to non-payment of periodic sums such as maintenance/service charges akin to rent, in which case the principles applicable

74 to forfeiture for non-payment of rent should apply so long as the landlord recovers the sums due.

The courts lean against forfeiture. Often it will be a relief on terms. Possession hearing, then adjourned for trial about whether there actually has a breach, or whether they should be entitled to relief. Court will exercise discretion at the trial. General tendency against allowing the landlord a windfall. If a landlord takes possession, he takes free of all encumbrances on the property (e.g. lease, mortgage), and can resell.

Others entitled to relief are those claiming under the tenant. Ex: Tenant has long-lease of the flat (essentially the same as owning the freehold), he will obtain a mortgage secured against the leasehold interest of the property. The mortgagee doesn’t want the lease to be forfeited because they lose their security for the loan given to the tenant. Banks will often seek relief for forfeiture on the tenant’s behalf, entitled to do this under s 146.

Waiver of forfeiture

It is possible for the landlord to waive his rights to forfeit.

For a waiver to be operative, the landlord must do some unequivocal act which, objectively considered, recognises the continued existence of the lease. Ex: If the landlord knows there is a subsisting breach of the lease, but still demands or accepts rent after the breach giving rise to the right to forfeit. If a landlord waives a breach of covenant he will be unable to proceed with forfeiture of the lease.

Central Estates (Belgravia) LTd v Woolgar (No. 2) [1972] 1 WLR 1048 W breached the covenant against causing a nuisance. CE started proceedings, issued s 146 notice. In the meantime, billing department still demanded the quarterly rent from W. In this case, CE was deemed to have waived its rights to forfeit for that breach.

The law on waiver of forfeiture is set out at paragraphs 17-092 to 17-108 of Woodfall. The basis of the law is set out in paragraph 17-092: “By waiver of forfeiture (an expression often used in the old cases) is meant waiver of the right to forfeit. Waiver cannot occur once the forfeiture has been effected, whether by physical re-entry or by proceedings. The occurrence of a breach of covenant or other event giving rise to a right to forfeit puts the landlord to his election. He may either choose to enforce his right of forfeiture, and to treat the lease as being at an end; or he may choose not to enforce his right of forfeiture and to treat the lease as continuing to exist. In this respect the landlord is in no different position from that of a party to a contract who, faced with a repudiatory breach of contract, may choose either to accept the repudiation or to affirm the contract. “Waiver” of forfeiture takes place where the landlord chooses to treat the lease as continuing to exist or, in other words, where the landlord affirms the contract. It is based on the doctrine of election. It is said that courts of law always lean against forfeitures.”

75 Problem Question

Ta stopped paying rent. What can A do? It is a flat/dwelling. If advising A, tell her not to peacefully re-enter  may commit criminal offence and/or expose yourself to damages for unlawful eviction. She ought to issue proceedings. It is rent, no need to serve s 146 notice. Act of service of the proceedings on Ta (e.g. sending to her in the post) is the act of forfeiture. [Is acknowledgement required?] Onus is then on Ta to obtain relief from the court against forfeiture. Under s 138 CCA, if after receiving the proceedings and Ta pays off the arrears, the lease will continue automatically. If it goes to a hearing and an order is made for possession, if Ta pays off the rent within 28 the lease continues again without further order. In the twilight period, the lease is technically at an end under common law provisions. But statute has intervened to protect the tenants, so not at an end until the court orders it + A has authority to re-enter the premises under an order of court.

Ta is using it for immoral purposes. A would be advised to write to her immediately with a notice under s 146, giving her a reasonable period to remedy that breach. Probably not remediable, so can keep the notice short and get on with issuing notice of proceedings. No automatic right to relief when the breach is not for rent but for another breach of covenant, so the court will exercise its discretion at the hearing  Is Ta entitled to relief against forfeiture in these circumstances? A will argue no because immoral and stigma.

Ta keeping pet at the property.

76 No qualified covenant to keep pet, e.g. you cannot keep a pet without the reasonable consent of the landlord. If the covenant says there is no right to keep pets, Ta is not allowed to keep a pet. Ta might say she wants relief against forfeiture and get rid of the dog without a week. Court will say, as long as you get rid of the dog quickly and pay all of A’s costs, Ta will have relief and her lease will continue as if there had been no forfeiture.

77 Problem Question

2017 August Q1:

Alyssa is the registered proprietor of two fee simple estates located near each other: Crab Cottage and Holly House. Each estate consists of a detached residential dwelling set in a large wooded garden. Alyssa lives in Holly House.

Twenty years ago, Alyssa granted a 21-year registered lease of Crab Cottage to George. He lived there and worked as a carpenter and gardener. The lease states that the tenant is responsible for maintaining the gardens of both Crab Cottage and Holly House.

Ten years ago, George made and installed an ornately carved set of mahogany bookshelves in Crab Cottage. It covers an entire wall of the lounge and is attached to the wall with 30 large screws.

Three years ago, George was diagnosed with a terminal illness. He became unable to care for the gardens properly.

George died last year and his ex-wife Robin is entitled to his entire estate. She recently became the registered proprietor of the lease of Crab Cottage.

The gardens of both Crab Cottage and Holly House are overgrown and desperately in need of attention. Robin received estimates from several gardeners and was surprised to learn that it will cost £10,000 to restore each garden because many trees are diseased and need to be replaced.

Robin seeks your advice. Is she required to restore the garden at Crab Cottage? Is she required to restore the garden at Holly House? Also, can she remove the bookshelves that George installed in Crab Cottage and move them to her own house?

Advise Robin.

20 years ago = 1997, this is important because we know that the Landlord and Tenant Covenants Act 1995 will apply. This is helpful because it is much easier than dealing with all the old stuff. Need to know the provisions of the Act and how they work.

Needs a deed, needs to be registered

Service occupation  Was he working on her land as a carpenter and gardener? Did this property come as part of a service occupation, or would that even matter?

Leasehold tenants

78 Tenant fixtures, what is the degree and purpose of the annexation here? Are the bookshelves chattels or fixtures? If fixtures, they are part of the land and belong to the landlord. If chattels, they are George’s, and will pass as part of his estate to Robin. But not just about degree and purpose of annexation, these are tenants’ fixtures, tenant can remove their fixtures at the end of their lease provided they do minimal damage or repair any damage.

The lease passes to Robin  not controversial.

When the lease passes to Robin, does she have to comply with these obligations? Will she be bound by the leasehold covenants? Application of the 1995 Act s 3(2) says yes  notwithstanding the fact that it is a positive covenant (it is a leasehold covenant so doesn’t matter it is positive), it will pass provided it is not expressed to be personal.

Two parcels of land next to each other. Alyssa lives in one of them. Other parcel of land  granted 21-year lease to George 20 years ago Leasehold covenant exists George installs bookshelves with 30 large screws. George dies, Robin inherits his estate. Becomes registered proprietor of the lease. Has to pay for gardening of CC and HH. Also wants to keep the bookcases.

1. Prioritise the issues Take a view on what is really important, work out what the real issues are. No need to question introductory paragraph. If you are given a date, work out why it is important. Make sure to portion your time to the issues accordingly. Can flag out/mention small things, but don’t spend to much time on them.

2. Answer the question “Advise Robin” = do not sit on the fence Look at both sides of the argument but come to a conclusion. Reasonable, logical, well-argued answer.

79 Freehold Covenants

SUBSTANTIVE REQUIREMENTS

What is a freehold covenant?

Covenant = promise made by deed A deed of covenant is executed according to the Law of Property (Miscellaneous Provisions) Act s 1. Exception: Restrictive covenant is an equitable interest, so doesn’t need to be made by deed, any form of writing is sufficient.

Freehold covenant = agreement between two freeholders/owners of fee simple estates There is no privity of estate between the two contracting parties, unlike leasehold covenants.

Hill v Tupper

A grants B right to put pleasure boats on canal. C also puts pleasure boats on canal, affecting B’s business. B claims he has a property right, says this is can be enforced against C. Courts says this is not a property right, it is a novel right, so won’t recognise it. B has a licence (personal right). Court suggests that if B wants to get rid of C, he can sue A for breach of contract, which would compel A (who has the property right) to remove C and comply with his contractual obligations.

If court can protect a right without giving it property status, they will. Property rights bind the whole world, might have unintended consequences. This case is a good example of the courts anti-admitting new rights, because can find a different way of protecting obligations to you without recognising a property right.

Leasehold covenants vs freehold covenants:

Leasehold covenant has relationship of privity of estate between the parties (made between lessee and lessor). The enforceability of burdens is not a problem (or creates different problems) for leasehold covenants, which can be enforced against new landlords and tenants who have privity of estate. A leasehold covenant is protecting the landlord’s interest, taking care of the reversion. We have privity of estate and dealing with one parcel of land, everything is descended on this one parcel of land. Leases are non-perpetual, won’t last forever the way freeholds do, we aren’t stuck with the onerous obligations forever. Contracts always born with an end point, same with a lease.

80 First look at the terms of the lease, leasehold covenants must be incorporated into the lease contract that you sign, otherwise you won’t be bound by it. So easier to discover that leasehold covenants exist. Leasehold covenants don’t change the position of everyone else in the world. Similar justification as equitable rights, doesn’t really affect anyone else, so we don’t need to control them in quite the same way.

In freehold covenants, no pre-existing relationship between the covenantee and covenantor, and no privity of estate. All you have at the outset is privity of contract, and this may disappear later on when the benefits and burdens of the covenant are transferred.

Note: If you have a covenant between two leaseholders, notwithstanding the fact that there is a lease relationship in there somewhere, because it is not between the two covenanting parties, we will still treat that as a freehold covenant and all the rules of freehold covenants will apply.

The two original parties have privity of contract, but when the benefitted or burdened land changes hands, does the obligation travel with the land or stay with the person? Can assign the benefit of a contract, but usually burden stays with the contractor. Do the covenant obligations go with the land to successors in title?

Can only register the burden, not the benefit, so we won’t know who has the benefit of the covenant (the right to enforce it) if it is not expressed. Sometimes if we express who it is meant to benefit, it might be personal. If after the land changes hands many times, no one really knows who has the benefit and who can enforce, a risk-taker might just not comply with it and go against it. Reasonable chance that someone doesn’t know that they have the benefit from the covenant.

TRANSFER TO SUCCESSORS IN TITLE

Does the burden of the covenant run with the land? How do we attach it to the land?

Must locate both the benefit and the burden. There must always be a corresponding benefit and burden in order for the obligation to be enforced.

If passing both the benefit and the burden, you need to use the same set of rules for both.

81 Extending the benefit to a third party

(Rather than attaching the benefit to the land) Two statutory mechanisms for passing the benefit (falls outside the chart):  Contract (Rights of Third Parties) Act 1999 If there is a covenant between party A and B, ordinarily under privity of contract that would only be enforceable between A and B. Contract (Rights of Third Parties) Act enables us to say person C can enforce it if the covenant was made for their benefit, or if they were named in the contract as someone who could enforce it. o Expressly mentioned 3rd party or class of 3rd parties o No requirement of existence at the time of the covenant o No additional touch and concern requirement  Law of Property Act 1925 s 56 Much stricter, not enough that party C was intended/supposed to benefit from the covenant between A and B. A person may be treated as a covenantee (even if not mentioned by name) if they are: o included in the general class of persons covenanted with o identifiable and in existence at the time the covenant is made The covenant must be constructed in such a way as if it were made with party C  contract requires careful phrasing/drafting.

Person A having benefit of the covenant between A and B and sells their land to C, does the benefit pass? At this stage we don’t need to ask if it is a positive or negative covenant. Can pass benefit no matter if positive or negative covenant. Exception: Schemes of development requires must be restrictive covenant.

Whether it is positive or negative doesn’t matter for the benefit, it only matters for the burden. Can move the benefit of a positive covenant, if you want to move the burden you will need to use equitable rules for moving both the benefit and the burden. If just moving benefit, can use either legal or equitable rules. For legal rules, must be acquiring a legal estate. Some things can stop you from using the legal rules  e.g. if C only gets an equitable estate, or if it is a scheme of development. Equitable estate = failure of formalities  haven’t completed disposition by registration (s 27(1) if you don’t register a transfer of estate it is only effective in equity); or deed required for transfer of a legal estate (LP(MP)A 1985 s 1), otherwise may need specifically enforceable contract or estate contract LP(MP)A s 2. If you only get to LP(MP)A s 2, you only get an equitable estate.

82 PASSING THE BENEFIT:

At law

To pass the benefit of a covenant using the legal rules, there are four requirements: 1. The covenant must ‘touch and concern’ the land of the original covenantee; and 2. The claimant must have a legal estate in the land; and either 3. a) The covenant must have been annexed to the land, either expressly or impliedly; or b) The benefit of the covenant must have been expressly assigned to another person (LPA 1925, s 136)

‘Touch and concern’:

3-stage test by Lord Oliver in Swift Investments v Combined English Stores (1989) : 1) Would the covenant benefit any owner of the estate? Must be capable of benefitting anyone, not just benefitting someone because it is particularly personal to their enjoyment, e.g. picnicking on the land. 2) The covenant can’t be expressed to be personal. Can’t expressly conferring the benefit on a named person  can’t specify the name of the person but rather needs to be about the owner of X land. 3) Does the covenant affect the nature, quality or use of the land? Want the land to be benefitting, not the landowner.

Ex: Covenant not to use the land for business purposes can touch and concern the DT because it may preserve the nature/tranquillity of the neighbourhood, increase the utility and quality of the benefitted land.

Ex: Restriction on the number of units (undertake not to build on your land, or to build something of only a specific height, e.g. no more than two storeys). This will benefit all owners of the DT, increase quality and use of land because you know your light will be guaranteed and your land won’t be overlooked.

Legal estate: Doesn’t have to be the same legal estate as your predecessor, just has to be a legal estate in the land.

Annexed to the land:

 Express annexation Look at the wording of the covenant for some indication that it is intended to stay with the land and go to all subsequent landowners. It must be clear that the covenant is for the benefit of certain land or that it is intended to endure for successive owners of the land: “heirs and successors of Y, the owner of Blueacre for the time being”  clause catching everyone involved. Well-drafted covenants will have express annexation.

83  Implied annexation If an express annexation clause is not there, or the effect of the covenant/clause is ambiguous, can look for implied annexation or infer from the correspondence. Less complex because there is statutory implication dealing with this. LPA 1925 s 78: This section will almost always annex the benefit of the covenant to the land unless there is a clear expression of a contrary intention, s 78 will almost always annex the benefit of a covenant to the land.

Additional requirements at common law: Federated Homes v Mill Lodge Properties and Crest Nicholson Residential v McAllister  The land must be capable of benefitting from the covenant (otherwise doesn’t meet ‘touch and concern’ test anyway).  The land must be identifiable from the covenant. Must be able to say with certainty what land benefits from that covenant, from the covenant itself or some admissible extrinsic evidence e.g. map/plan.

Expressly assigned:

LPA 1925 s 136 Express assignment of the benefit of a contract Grady case

In equity

Equitable rules are used when you can’t use the legal rules, can’t fulfil one of the tests, or when passing the burden. Usually use equitable rules to pass the burden, so will have to use the equitable rules to pass the benefit as well.

Requirements: 1. The covenant must ‘touch and concern’ the land of the original covenantee; and 2. The claimant must have a legal or equitable estate in the land; and either 3. a) Assignment (express or implied); or b) Annexation (express or implied, as previously discussed); or c) Scheme of development (restrictive covenants only)

Scheme of development

A special way of passing the benefit of a restrictive covenant which only exists in equity. Kind of a ‘local law’ is created, common in new housing estates where you have many plots of land and want to instigate a system of regulation through a scheme of covenants. Mutual benefits and burdens – everyone is bound by the same obligation, and everyone has the ability to enforce that obligation against their neighbours if they should breach that agreement.

Scheme of development rule allows benefits to be retrospectively attached to the land to solve the timing problem.

84 Ex: When B agreed with the housing developer not to use plot 2 for barbeques, that benefit will retrospectively attach to plot 1 (now owned by A), notwithstanding that the housing developer sold plot 1 to A before obtaining the promise from B. Result: All plots are benefitted and burdened by the same mutually enforceable covenants. This creates a local law.

Doctrine of merger/unity in easements = if the DT and ST come into the ownership of the same person, the easement is extinguished. In a building scheme, if two plots of land become owned by the same person, the covenant doesn’t extinguish, just suspends. If the land should come back to separate ownership (subdivide the plots again), the covenant will automatically revive. Otherwise it is too easy to defeat the ‘local law’.

Elliston v Reacher (1908)

There are 4 requirements for a scheme of development: 1) All the plots of land must have a common vendor (be sold by the same person). 2) The plots must be identifiable, must have an identifiable scheme. 3) The covenants must all be the same in substance to be mutually enforceable. 4) Common intention requirement  the plot must be bought with the understanding that this local law exists. This was seen as very restrictive and hard to meet.

Re Dolphin’s Conveyance (1970)

Relaxes the requirements. The most important requirement out of the four is common intention  everyone buying must have the common intention that they will be mutually bound to these covenants. The scheme must be identifiable, with identifiable plots of land.

Birdlip v Hunter (2016 CA)

Lewisham LJ re-explains the requirements. The two important things are identifiable scheme and common intention. How do we work out if there is common intention? Starting point is the conveyance, common intention that everyone is bound. Extrinsic admissible evidence also allowed.

85 PASSING THE BURDEN:

At law

Austerberry v Oldham Corp (1885) Not allowed, can never pass the burden of a covenant using legal rules.

In equity

Requirements set out in Tulk v Moxhay for passing the burden: 1. Covenant must be restrictive/negative. 2. Covenant must touch and concern the benefitted land. . Lord Oliver’s 3-stage test in Swift Investments v Combined English Stores (1989) . Proximity  the two tenements must be geographically proximate to each other. 3. Covenant must have been imposed to benefit land of the original covenantee. 4. The burden of the restrictive covenant must have been intended to run with the land. . Law of Property Act 1925 s 79 Helpful statutory intervention  S 78 annexes the benefit of the covenant to the land, s 79 does the same but with the burden, unless there is a clear contrary intention. 5. Registration requirement  as an equitable interest, a restrictive covenant must be protected by a notice on the register (LRA 2002 s 32) in order for it to be enforceable against successors in title.

Restrictive vs positive covenant

Look at the substance of the obligation, not the form. A covenant that says you must refrain from something may not necessarily be restrictive, if it says you must refrain from all except one thing, it is positive. + vice versa.

Cotton LJ’s ‘hand-in-pocket’ test in Haywood v Brunswick (1881) = does it require the servient (burdened) owner to do something/pay for something to be done? If it requires them to put a hand in their pocket and make some financial outlay to meet the obligation, it is positive. e.g. Cannot let shrubs grow above 4 ft  requires you to cut them. If you are passive, you will find yourself in breach of covenant. To comply with a restrictive covenant, you must be able to do simply nothing.

Ex: In Tulk v Moxhay, the covenant was to “maintain the open character of the land”. ‘Maintain’ suggests requiring you to do something, but really it is restrictive because it is just telling you not to build on it.

86 If the covenant has multiple clauses and some are positive + some are negative, you can separate the covenant. Can strike half of it down and uphold the other half, the whole covenant doesn’t have to fail. Separate out the negative obligation from the wider covenant if needed.

Positive covenants

The general rule is that the burden of a positive covenant will not run. Positive freehold covenants are not recognised as property rights.

Exceptions to the general rule:  Mutual benefit and burden  Chain of indemnity covenants  Right of re-entry  Long lease converted into a freehold (LPA 1925 s 153)

Mutual benefit and burden from Halsall v Brizell (1957)

 The benefit and the burden must be related. A person who takes a benefit of a deed of covenant must also take a share of any burden inherently related to it. Ex: Y grants X a right of way easement over a driveway on Blueacre, subject to X agreeing to pay £300 per year to the upkeep of the driveway. This would fall into the category. X gets the benefit of the right of way, inherently related to that is the £300 payment to keep it accessible. Ordinarily will be payment of money but can be other exchanges than monetary.

 The benefit (and consequently the burden) must be capable of being disclaimed. Ex: If it is a right of way of necessity, you have no other option to access your land and are forced to use that benefit. If you have no choice, can’t force you and successors in title to comply with the positive obligation. Must be a situation where you can opt not to take the benefit, because then you can also opt not to take the burden. Rights of way of necessity with positive burdens attached cannot be transmitted under the mutual benefit and burden rule.

This exception can be rebutted by saying it arises out of necessity: Ex: There is a right of way and one party is asked to pay for its upkeep (maintenance of the track, cutting back hedges). Benefitting from right of way, so need to take on the burden. But is this a right of way of necessity? No choice, can’t access your property unless you exercise your right of way.

Right of way = easements question. Payment for use of the right of way + successors in title make it a covenants question as well. The payment is the covenant, the right of way itself is an easement.

87 Rhone v Stevens

S says they did not make the covenant. Positive covenant doesn’t run, when S bought the house from the original owner/covenantor it did not come with this burden, so he is not bound. R says it attaches to the land. Ordinarily wouldn’t run, but this is a mutual benefit + burden exception, because S has the benefit of support  R’s cottage supports S’s roof, so S gets the benefit. Argues that he needs to accept the burden (trade-off) that comes with it which is to keep the roof in good repair.

The exception is rebutted. S has no choice as to whether he accepted the benefit (using the cottage as support for the roof). The benefit was forced upon S, so a burden was forced upon him too. The mutual benefit and burden principle only works if you are actively choosing to accept the benefit and burden.

Chain of indemnity covenants

Inefficient and easy to destroy, susceptible to falling apart, so is a risky way of trying to pass the positive burdens. This chain of contracts is also expensive to set up.

Ex: A and B make a promise, B promises A that B will cut his hedges and maintain them under 3 ft. B then sells his land to C. The covenant wouldn’t usually pass to C because it is a positive obligation (Tulk v Moxhay). There is still privity of contract between A and B, not destroyed, B is still liable for cutting the hedges. If C lets the hedges grow to 6 ft, B is still liable. B doesn’t possess the land anymore, so can’t cut the hedges anyway. Because you can’t pass the positive obligation and there is still privity of contract with A, C contracts with B, under obligation to B to not let the hedges grow above 3 ft. If C does, then B can sue C. A can enforce against B, only person he can sue is the person he has privity with. B has contract with C with mirrors the obligation with A. Not the most efficient way but secures it. The problem comes when there are more layers, C selling on. It might work, but the whole chain might collapse where one person in the chain dies or can’t be found.

88 Ex: X (owner of Redacre) promises Y (owner of Blueacre) that: 1) He will not use his land for business purposes, and 2) He will pay Y £300 per year towards the upkeep of the shared driveway that runs across Blueacre and which allows access to Redacre. Redacre = servient tenement (burdened land) Blueacre = dominant tenement (benefitted land)

X sells Redacre to X2. X2 sets up a noisy garage. Y sells Blueacre to Y2. Can Y2 enforce the covenant against X2?

 Is X2 prevented from using the land for business purposes? Yes, this is a restrictive covenant and likely meets the Tulk v Moxhay requirements.  Must X2 pay £300 to Y2? Possibly yes, whilst as a general rule positive burdens do not pass with the land, this covenant may be caught by the mutual benefit and burden principle in Halsall v Brizell.

Do the benefits pass to Y2?

 Can Y2 prevent X from using the land for business purposes? Yes, the benefit of the covenant will be annexed to the land impliedly if not expressly (LPA 1925 s 78). Obtained legal estate in the land, touch and concern requirement is met, s 78 does most of the work, attaching benefit to the land.  Can Y2 enforce the £300 payment against X? As above.

DISCHARGE AND MODIFICATION

Freehold covenants are fairly onerous  restrict reasonable uses of the land.

Jurisdiction allow discharge and modification: Law of Property Act 1925 s 84(1) “The Upper Tribunal shall… have power from time to time, on the application of any person interested in any freehold land affected by any restriction arising under covenant or otherwise as to the user thereof or the building thereon, by order wholly or partially to discharge or modify any such restriction…”

Any person with an interest in the freehold land affected by the restriction can make an application to the Upper Tribunal Lands Chamber, who have discretion to modify or discharge. Often times there are speculative applications  people who haven’t yet acquired the land but have planning permission. In order to build out the scheme they want to make, they must discharge a covenant or modify it. No mandatory ground for modifying or discharging, it is always discretionary for the Tribunal to decide what to do.

89 Grounds for discharge/modification:

1. S 84(1)(a)  The covenant is rendered obsolete as a result of change in the character of the property/neighbourhood or some other material circumstance. “By reason of changes in the character of the property or the neighbourhood or other circumstances … the restriction ought to be deemed obsolete.” This is a high threshold, need to be absolutely certain with good evidence. New s 84(1)(aa) is more useful than the obsolete test.

2. S 84(1)(b)  Everyone entitled to the benefit of the covenant/restriction can come together and agree that it should be modified or discharged. (Similar to Saunders v Vautier in trusts.) Standard requirements: Everyone must be of full age and capacity to enter the agreement. The agreement doesn’t have to be express written agreement/oral statement, implication is enough.

3. S 84(1)(c)  The Tribunal might order modification/discharge if doing no injury will be caused to those entitled to the benefit of the covenant by doing so.

4. S 84(1)(aa)  Can apply if it restricts a reasonable public or private use of the land. 1) The restriction restricts a reasonable use of the land 2) and meets one of the two criteria in s 84(1A) (i) Confers no practical benefit of substantial value or advantage on the persons entitled to the benefit of it (ii) Or is contrary to the public interest 3) and the loss of the covenant can be compensated for in monetary terms.

Shephard v Turner [2006] CA

Scheme of development case  All properties in a cul-de-sac were built at the same time and mutually bound + benefitted by the same covenants.

1952 covenant: “No building shall at any time be placed upon any portion of the land coloured light pink and hatched green on the said plan.” The pink/green land includes the back garden of No. 4, which belongs to the Turners. No building in this particular back garden. The Turners want to build a bungalow & garage there. They already have planning permission. Six of their neighbours object on planning grounds and on the basis that they have the benefit of this restrictive covenant.

90 Application of s 84:

S 84(1)(a) obsolescence  No. The covenant is not obsolete. It is part of a scheme of development which is still in place. The character of the land is still residential, no change in the character of the property or other material circumstances in play.

S 84(1)(b) consent  No. No unanimous consent, 6 of the benefitted owners object.

S 84(1)(c) No harm  Applicants conceded that there is some loss of amenity, some benefit in not having an additional house build in someone’s back garden. Issues of light being obstructed, being overlooked, increase in traffic etc.

S 84(1)(aa) - Reasonable use of the land impeded - Substantial practical benefit or contrary to public interest - Money adequate compensation In this case, modification of the covenant was allowed and the building of the bungalow and garage was allowed to go ahead.

When looking at whether reasonable use of the land is being impeded, ask what is the purpose of the covenant?

1) CA said primary purpose of the covenant was to guard against nuisance (overcrowding, additional traffic, overlooking). When we are looking at whether use is reasonable and whether the purpose of the covenant is going to be defeated, must take a long-term view when balancing discharging the covenant and reasonable use. In the short term, while the building of the bungalow and garage is being undertaken there will be nuisance  construction traffic and noise. In the long term, the addition of one dwelling probably wouldn’t increase the nuisance.

2) In public interest, planning permission becomes important. Local planning authority creates a local plan (sometimes even more localised neighbourhood plan) which could say they need more housing, schools etc. and designated good places. In this case, it happens that the local planning authority said they needed more residential dwellings in this area. Upper Tribunal says it might be contrary to the public interest not to modify this covenant. Planning permission can’t defeat a covenant, but it can be useful in the balancing of factors.

91 Planning permission on its own isn’t enough to get around the restrictive covenant. Still have to modify/discharge the covenant through LPA 1925 s 84 .

- There is some overlap in the exercise the local authority undertakes when they decide whether to grant planning permission and the exercise the Upper Tribunal undertakes when deciding whether to grant the s 84 application  considerations, balance and weight attached to factors, but two different processes that both need to be cleared. - Just because in public law they remove the bar and you can build, still need to clear property law hurdle. Whatever the planning authority says doesn’t have any bearing at all on what the property law position is.

Effect of a s 84 order:

S 84(5): “Any order made under this section shall be binding on all persons, whether ascertained or of full age or capacity or not, then entitled or thereafter capable of becoming entitled to the benefit of any restriction, which is thereby discharged, modified, or dealt with, and whether such persons are parties to the proceedings or have been served with notice or not.” Pretty much final, the covenant is not suspended/able to come back. Action in rem – it is either gone or in its new state.

Derreb Ltd v Blackheath Cator Estate Residents Ltd (2017)

Comparison to Shephard v Turner S 84(1)(aa) point, potential public interest but no planning permission factor.

1956 conveyance: Land not to be used for any purpose other than a sports ground or the erection of detached dwellings for private residence. Any plans for building must be submitted to the vendor’s surveyor. Land stood vacant since 1999 – unused and overgrown, waste of land. Applicant proposed a new scheme for the land that included a mixture of buildings  flats, detached houses, semi-detached houses, some recreational amenities. The land will never be used for sports again, not needed in the local area. The land is next to a housing estate already. Planning permission not yet granted for this but fairly confident. Applicant sought discharge or modification of the covenant.

The court does grant the modification of the restrictive covenant. On the basis that they have not yet gotten planning permission, public interest argument is not as weighty. They succeed partially on submitting that the covenant is obsolete.

S 84(1)(a): The requirement to submit plans to the Vendor’s surveyor was obsolete  vendor had long since died, and we don’t know about his successors in title.

92 S 84(1)(aa): Reasonable use of the land is being impeded here. Reasonable to build out this scheme, local area needed it notwithstanding that planning permission had not yet been acquired.

The covenant was not really trying to limit it to building only detached houses  It just wants to ensure the neighbours had some control over what pops up on the land next to theirs, allowing those with the benefit of the covenant to control what was built if detached houses were not possible.

Compensation

If you are successful in modifying/discharging a covenant, the person who was entitled to the benefit of that covenant may qualify for compensation.

S 84(1)(c): Two ways the Upper Tribunal can calculate the compensation 1. On the basis of the loss/disadvantage you suffered from the modification/discharge of the covenant 2. On the basis that when you acquired the land, it was at a reduced value, and now once the covenant has been modified/discharged, the value increases. This protects the party who benefits from the covenant and loses out. It is discretionary, the court doesn’t have to order anything, may not get compensation. Discretion to award under one, but not both, heads, if the Tribunal thinks it is just to make the award.

Reform of s 84: S 84 currently only applies to freehold covenants, but it works well. Currently, we only have common law methods of getting rid of easements. Proposed: Extend the scope of section 84 so that it applies to easements, profits and land obligations that are created after the programme of reform.

93 REFORM PROPOSALS

Law Commission, Making Land Work: Easements, Covenants and Profits à Prendre (Law Com No 327, 2011)

Criticisms of the current law: complaints about freehold covenants

 Complexity Different rules for benefits and burdens, and for passing at law vs in equity. It is difficult to deal with the huge body of law with different nuances that are all trying to achieve the same thing. We should bring some sort of harmony to this area of law.

 Difficult to identify at all times who benefits from a covenant Can register benefit of an easement (put on the property register of the land that benefits) and burden of an easement (charges register). This is because easements are a legal interest. Covenants are equitable interests  Not on the LPA 1925 s 1(2) list, s 1(3) says they must be equitable, so can’t be registered. What happens when the land changes hand and people in the chain of transactions die? Don’t know who can enforce the covenant that burdens a parcel of land, so less likely to comply with it.

 Positive covenants generally do not run (with a few exceptions: mutual benefit + burden principle, chains of indemnity covenants, rights of re-entry, conversion of long leaseholds into freeholds). There is a need for positive covenants to run with the land in some circumstances, blanket rule is not suitable. We should allow for this in a new scheme.

 Problem of privity of contract Two parties make covenant and then land changes hands, under privity of contract those original parties are still technically bound to one another and it doesn’t go away even though they don’t have the land anymore.

The case against positive covenants:

Numerus clausus = “closed number”. There can only ever be a finite number of legal property rights that can exist (doesn’t apply to equitable rights). Principle derived from Roman law and an important feature of the law of property in civil law systems, where ownership is regarded as absolute and indivisible. Strictly limits the number of different types of other property rights (i.e. real rights) that can exist in derogation from that basic starting point. The extent to which the numerus clausus principle can, does, or should apply in the common law is an important consideration, especially in the case for positive freehold covenants. We limit by putting substantive requirements on our rights, restrict them in different ways e.g. must touch and concern, so that there is a closed list.

94 If you can’t do something at law, just do it in equity instead. Not the same right but can achieve basically the same thing  e.g. co-ownership, max 4 people must be joint tenants, if you want some other concurrent interest you can do it in equity.

Why are we more inclined to recognise new equitable rights than legal rights?

Equity acts in personam, only binds the two particular parties subject to the obligation. Not so objectionable because it doesn’t change the position of the rest of the world. However, in reality equitable rights could change the position of the rest of the world  they come under a liability. In rem rights automatically put duty on everyone. N granting S a restrictive covenant, no one else in the world comes under a duty. But they come under a liability risk  if they obtain the land one day then they made come under the burden we created. To be subject to the equitable duty, the third party needs notice. In order for C to be bound by N and S’s agreement, they need to acquire the land with notice of the obligation that attaches to it. Equitable rights = duty-burdened rights, in that you acquire a right (e.g. estate in land) but also a duty attached to it. You don’t come under the duty unless you acquire the right, so equitable rights are less objectionable. In rem rights only give you duties, don’t give you any rights at the same time.

- Property rights are rights in rem, too many rights have a danger of overburdening the land. Even rights in equity will eventually come to burden an owner. Overburdening is not actually a strong justification for numerus clauses because we can still put many easements on the land. There is nothing stopping us from layering those burdens in equity too, so some of our arguments for numerus clausus in common law are not as strong as civil jurisdictions. McFarlane argues that B may be reluctant to sell off parts of a large estate for fear of his neighbours using their land in an undesirable way, if he couldn’t make such limitations.

- Creating ‘fancies’  unlimited scope of obligations you can attach to land, e.g. require people to do things or pay money to ensure things happen. LPA 1925 s 1 has 8 legal interests, we just can’t create things we don’t already recognise. It is seeking to prevent overburdening by creating too many different types of rights. Nothing stopping you from creating 100 easements, completely permissible. Obligations like walking dog or trimming hedges every Wednesday cannot be property rights.

- Land is a finite resource. Onerous obligations have negative impact on land value. Land is an important asset/resource for people (used as security for example), often a person’s most valuable resource.

95 - Privity argument: Holding someone liable to account on a promise made by another when the land changes hands is problematic. They didn’t make that promise, but the obligation they never entered runs with the land. As soon as you create a right in rem, everyone is bound by that right, the whole world comes under a duty to respect that. Can sue for trespass or interference. Right in personam only bound to person you made the agreement with. Because A grants an easement to B, then C’s position has changes because just A and B have limited the rights of everyone else in the world, directly impacting others. Ex: A grants B right of way, this imposes duty on all Cs absent of their consent not to obstruct B’s right of way. Concerned about holding one person liable for something they didn’t agree to  this is a specific concern with freehold covenants. This objection also holds for negative covenants too, but it is more objectionable for positive covenants.

Weakness to this argument: we are subject to tortious duties without our consent, simply as a result of living in a civilised society that has these rules. But if we think about tortious duties, look at duty of care and negligence etc. it doesn’t require you to do something, just refrain from doing something. Duty to take care = duty not to act recklessly. So often tortious duties are negative. Tortious duties are not asking you to do anything, same with criminal law. Just telling you what you can’t do, what you can do.

While the benefit of positive freehold covenants can be transferred, the burden of those covenants cannot be imposed on others who have not undertaken their performance. This is consistent with the normal rules of contract law that normally permit contractual rights to be assigned, but not contractual obligations. Lord Templeman in Rhone v Stephens [1994] : “Restrictive covenants deprive an owner of a right which he could otherwise exercise. Equity cannot compel an owner to comply with a positive covenant entered into by his predecessors in title without flatly contradicting the common law rule that a person cannot be made liable upon a contract unless he was a party to it.”

Restrictive and positive covenants are different in nature. Acquiring land with restrictive covenant = not giving you the whole package/bundle of rights, just holding back a particular right while giving them all the others. Positive covenant = giving you rights, but taking them away again  now you have to do something positive too.

Limited number of rights makes the rules simpler, transaction of land (conveyances) will be cheaper because you know what you are looking for and that there are a finite number of things to look for. But each of the 8 things you are looking for are complicated enough by themselves as it is. It is just as much hassle as if you look into a wider number of obligations. You reduce the risk of a problem being compounded, but there could be a complex dispute on the substance.

96 But can achieve by registration system. Go in with notice and your eyes open, know what you can or can’t do. Some say registration would be enough, some say you also need an effective system to discharge or modify these obligations.

The case for positive covenants:

- The refusal to recognise positive freehold covenants as property rights is defensible as a matter of principle, but the commercial reality of that position is not so clear. Mechanisms such as chains of indemnity covenants, the artificial use of long leases, and the mutual benefit and burden principle from Halsall v Brizell [1957] have all been used to circumvent the inability to pass the burden of positive freehold covenants. The presence of such work-arounds suggests that there is a need and desire to pass such obligations. Since it is not at law, people turn to equity for the rights they need instead. Better to allow positive covenants rather than force individuals to resort to the expensive, time-consuming and in some cases risky ways of getting around the rule.

- Various controls could be placed on positive covenants to ensure that they do not overburden and negatively impact on land, e.g. list of permissible positive obligations, limitations on characteristics.

- Can strengthen s 84 so that it can modify or get rid of onerous positive covenants.

McFarlane suggests getting prior approval for a proprietary positive covenant from a court + incorporating a buy-out clause to be released from the duty.

Solution: the ‘land obligation’

Radical because it is a new legal interest in land, adding onto the list in the LPA 1925 s 1(2)  Law Commission proposals are radical because they are expanding the list, going against the numerus clausus principle. Generally speaking, very difficult to get a new right on this list, but quite quick to take away. 1925 property legislation did the opposite, slashed the number of legal estates to 2. Prior to 1925, could have a fee tail, other successive and concurrent interests e.g. life interest.

New species of interest are generally only equitable, e.g. restrictive covenants.

The new land obligation is an appurtenant right, won’t exist in gross. Needs a DT and ST, and the benefit/burden attaches to the land, not the person  behave in a similar fashion to easements. Will allow both positive and negative obligations. Won’t immediately transform covenants into land obligations, just won’t create any new restrictive covenants.

97 Key features:

Can be registered if: 1) The benefit of the obligation touches and concerns the benefited land; 2) The obligation is either: a) an obligation not to do something on the burdened land; b) an obligation to do something on the burdened land or on the boundary (or any structure or feature that is treated as marking or lying on the boundary) of the burdened and benefited land; or c) an obligation to make a payment in return for the performance of an obligation of the kind mentioned in paragraph (b); and 3) The obligation is not made between lessor and lessee and relating to the demised premises.

 Registration Legal interest in land = must appear on the title register, fall under LRA 2002 s 27(2) (d) or similar provision to easements for registration requirements. Both benefit and burden must be registered so we know at all times who has to do what and who can enforce the obligation. Land will be acquired in full knowledge of the rights and obligations that affect it. (This is a justification for positive obligations, go into it knowing there is a positive obligation attached.) Because it is a legal interest, you can register both the benefit and the burden. Burden appears on the charges section of the registry, and benefit will appear on the property register. Risk of enforcement is greater so more compliance. Limitation period is 12 years from the date of the breach. Covenant is not extinguished but might be abandoned if over 20 years.

 Control on types of positive obligations Implement a ‘touch and concern’ requirement  something relevant to the land, not an arbitrary obligation. No set list of permissible positive obligations you can choose from. Restriction: positive obligation may only be to do something on the burdened land (or the boundary between the burdened and benefitted land), or to pay to have something done on the burdened land (or its boundary). e.g. N can agree to mow her own lawn every Wednesday, N’s land is ST. This meets the characteristics of a positive obligation. This gives R a nicer view so it does touch and concern the land. N cannot agree to mow R’s lawn every Wednesday, that would be N doing something on the benefitted land. Can’t just be requiring the payment of sums of money, can’t just be a financial obligation e.g. N promises to pay R £300 every Wednesday  doesn’t touch and concern the land. Needs to be payment in order to achieve something on the burdened land, e.g. N can’t promise to pay R £300 for R to landscape his garden, R is the benefitted land.

98  Modification and discharge Positive obligations should be subject to even tighter control than negative obligations, so we can get rid of them if they become too onerous. Section 84 will apply to the land obligation as well as easements, with two further grounds for modification/discharge applying solely to positive land obligations: 1) May be modified or discharged if, as a result of changes in circumstances, performance of the obligation has ceased to be reasonably practicable or has become unreasonably expensive when compared with the benefit that it confers. (i.e. If the burden outweighs the benefit.) 2) Lands Chamber of the Upper Tribunal should have the power, whenever a positive obligation is discharged or modified, also to discharge or modify a reciprocal payment obligation owed in respect of that covenant, and vice versa. (i.e. Where there is a positive obligation which has a reciprocal payment, you will cut your hedge every Wednesday in return for me paying you £200 each year, remuneration for complying with a positive obligation is discharged when the obligation is discharged.)

Other proposals:

The burden of a restrictive land obligation should be transmitted to all estates and interests derived out of the burdened estate, and to all occupiers of the burdened land, save for: 1) the owner of an estate or interest that has priority to the land obligation (and an occupier authorised by such an owner); and 2) a mortgagee of the burdened land who is not in possession of it.

The burden of a positive land obligation should be transmitted: 1) to estates derived out of a burdened estate which confer a right to immediate possession of the burdened land, in accordance with the normal priority rules, save that the burden of a positive obligation shall not pass to a lease for seven years or less; and 2) to mortgagees when they come into possession of a burdened estate.

Where property burdened by a positive obligation is divided, the resulting estates should be jointly and severally liable on the obligation, but that liability between those estates should be apportioned in the proportions which, in the absence of express apportionment, will be based upon the areas which their respective parts bear to the area of the burdened property.

On proof of breach a court may, in its discretion grant an injunction, make an order for performance of the obligation, or for payment of damages or of the payment of the amount due under the obligation (contract principles to be applied to the calculation of damages).

99