Acquisition and transfer of estates and interests - How to a...

Learning Outcomes

This article examines the acquisition and transfer of legal and equitable estates and interests in land, focusing on the main types of estates and interests; the statutory formalities for valid creation and transfer (LP(MP)A 1989, ss 1 and 2); when leases and easements are capable of existing at law under s 1 LPA 1925; registration requirements and the effect of non‑registration in registered land (LRA 2002, s 27); the distinction between registered and unregistered land and their protection and priority schemes; overreaching and its effect on equitable interests; and priority under s 29 LRA 2002, including overriding interests, with application to SQE1-style scenarios.

SQE1 Syllabus

For SQE1, you are required to understand the acquisition and transfer of legal and equitable estates in land, including the relevant statutory requirements and the practical consequences for purchasers and beneficiaries, with a focus on the following syllabus points:

• the main types of legal and equitable estates in land (freehold, leasehold, and equitable interests)
• the statutory formalities for creating and transferring legal and equitable estates (deeds, writing, registration)
• the distinction between registered and unregistered land, and the effect on the protection and priority of interests
• the operation and requirements of overreaching
• the consequences for purchasers where formalities are not complied with.
• the contract stage (LP(MP)A 1989, s 2) versus completion by deed (LP(MP)A 1989, s 1)
• short leases without deed under s 54(2) LPA 1925 and their limits
• which dispositions must be registered to take effect at law in registered land (LRA 2002, s 27)
• how to protect third‑party rights in registered land by notices and restrictions (LRA 2002, ss 32 and 40)
• overriding interests on dispositions of registered land (LRA 2002, Sch 3), especially actual occupation
• the Land Charges regime for unregistered land, including classes C(i), C(iv), D(ii) and D(iii), and consequences of non‑registration (LCA 1972, s 4)
• the section 29 LRA 2002 priority rule for purchasers for valuable consideration.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What are the two legal estates in land that can be held at law in England and Wales?
2. What is the effect of failing to register a transfer of a legal estate in registered land?
3. What is overreaching, and what are its requirements?
4. How does the doctrine of notice affect the enforceability of equitable interests in unregistered land?

Introduction

Acquiring and transferring estates and interests in land is governed by strict statutory rules. For SQE1, you must know the difference between legal and equitable estates, the formalities for their creation and transfer, and how these rules operate in both registered and unregistered land. Understanding these principles is essential for advising clients and answering SQE1-style MCQs. The law is statute-heavy: sections 1, 52 and 54(2) of the Law of Property Act (LPA) 1925, sections 1 and 2 of the Law of Property (Miscellaneous Provisions) Act (LP(MP)A) 1989 and the Land Registration Act (LRA) 2002 supply most of the answers, complemented by case law such as Walsh v Lonsdale and City of London Building Society v Flegg.

Types of Estates and Interests in Land

There are two main types of estates in land that can exist at law: the freehold (fee simple absolute in possession) and the leasehold (term of years absolute). All other rights in land are either legal interests (if they fall within a limited statutory list) or equitable interests.

Key Term: legal estate
A right in land recognised by law as capable of existing at law, specifically the freehold or leasehold estate.

Key Term: legal interest
One of the limited non‑possessory rights identified in s 1(2) LPA 1925 (for example, easements, charges by way of legal mortgage, rentcharges and rights of entry) which can exist at law if created with correct formalities.

Key Term: equitable interest
A right in land recognised by equity, often arising where legal formalities are not fully met or where fairness requires recognition.

Legal Estates: Freehold and Leasehold

A freehold estate gives indefinite ownership of land. A leasehold estate gives exclusive possession for a fixed period.

To create or transfer a legal estate, strict formalities must be followed. In modern conveyancing there are two stages:

• a valid, signed written contract complying with s 2 LP(MP)A 1989 (usually called “exchange”); and
• completion by deed complying with s 1 LP(MP)A 1989 (often TR1/TR2 or a lease deed), and, for registered land, registration where required.

Key Term: deed
A written document that is signed, witnessed, and states on its face that it is intended to be a deed. Required for most legal transfers of land (LP(MP)A 1989, s 1).

In registered land, certain dispositions do not take effect at law until registration is completed at HM Land Registry.

Formalities for Legal Estates

• Freehold: Must be transferred by deed (LPA 1925, s 52(1)). In registered land, the transfer must also be registered to complete the legal title (LRA 2002, s 27(2)(a)); until registration, only an equitable interest arises.
• Leasehold: Leases for more than three years must be by deed (LPA 1925, s 52(1)). Leases over seven years must also be registered to be legal (LRA 2002, s 27(2)(b)(i)). Leases between three and seven years require a deed but not registration to take effect at law. Leases of three years or less can be created orally or in writing without a deed if they satisfy s 54(2) LPA 1925: they must take effect in possession, be at the best rent reasonably obtainable and not require a premium or fine. Short legal leases (seven years or less) are overriding interests on a registered disposition (Sch 3, para 1 LRA 2002).

Registration is constitutive for registrable dispositions: the deed does not itself make the right legal in registered land; it must be completed by registration.

Equitable Interests

Equitable interests arise in several ways:

• Where a legal estate or interest is not validly created (for example, missing a deed or required registration), but there is a valid contract that equity can specifically enforce (Walsh v Lonsdale).
• Where a trust exists, separating legal and beneficial ownership.
• Where equity recognises a right due to fairness, such as proprietary estoppel.
• Where the right is one that can only ever exist in equity (for example, a restrictive covenant, an option or a beneficial interest under a trust).

Key Term: trust
An arrangement where one person (the trustee) holds the legal title to land for the benefit of another (the beneficiary), who has an equitable interest.

Key Term: proprietary estoppel
An equitable doctrine preventing a landowner from denying a right where another has reasonably relied on an assurance to their detriment.

Equity may also recognise attempted legal grants that failed as legal because of a defect in execution (for example, a “lease deed” with an unwitnessed signature) where a valid s 2 LP(MP)A contract exists and the claimant has “clean hands” (Parker v Taswell; Coatsworth v Johnson).

Statutory Formalities: Legal vs Equitable

Legal estates and interests require strict compliance with statutory formalities. If these are not met, the right may still exist in equity if there is a valid contract or other equitable basis.

• Deed: Required for legal estates and most legal interests (LPA 1925, s 52(1); LP(MP)A 1989, s 1).
• Writing: Required for contracts to create or transfer interests in land (LP(MP)A 1989, s 2). All the expressly agreed terms must be in a single document (or exchanged counterparts) and signed by or on behalf of both parties. Variations of such contracts also require s 2 compliance.
• Registration: Required to complete legal title for certain dispositions of registered land (LRA 2002, s 27). If not registered, the right takes effect only in equity.

If a legal estate is not validly created (for example, missing registration), only an equitable interest arises. An equitable lease or easement created by contract is enforceable if specific performance would be granted.

Worked Example 1.1

A sells a registered freehold property to B. The transfer is made by deed, but B fails to register the transfer at HM Land Registry. Who holds the legal estate?

Answer:
The legal estate remains with A until registration is completed (LRA 2002, s 27). B acquires only an equitable interest (under a bare trust) until registration.

Registered and Unregistered Land

The rules for protecting and prioritising interests differ between registered and unregistered land. The registered land regime aims to make the register the primary source of title and most third‑party rights.

Registered Land

• Title is proved by the entries on the register (property, proprietorship and charges registers).
• Transfers of legal estates must be registered to take effect at law (LRA 2002, s 27).
• Most third‑party interests should be protected by a notice or restriction on the register to preserve priority.
• Certain interests (for example, rights of persons in actual occupation and some implied legal easements) may override and bind a purchaser even if not entered on the register.

Key Term: overriding interest
An interest that binds a purchaser of registered land on a registered disposition despite not being entered on the register, such as short legal leases (Sch 3, para 1) and the rights of a person in actual occupation (Sch 3, para 2) if the statutory conditions are met.

Key Term: notice
An entry on the charges register protecting the priority of a third‑party right (for example, an equitable easement, restrictive covenant, or estate contract) (LRA 2002, s 32).

Key Term: restriction
An entry on the proprietorship register regulating how dispositions can be made (for example, requiring two trustees to give a valid receipt so that overreaching can occur) (LRA 2002, s 40).

Protection by entry of a notice preserves the priority of the interest against a purchaser for valuable consideration under s 29 LRA 2002. A restriction does not protect a right’s priority but prevents registration of dispositions unless certain conditions are satisfied—important for beneficial interests under trusts.

Actual occupation under Sch 3, para 2 is fact-sensitive. Occupation must exist at the date of the disposition and, for registered land, remain subsisting to registration; the occupation must be obvious on a reasonably careful inspection or the buyer must have actual knowledge, unless the occupier failed to disclose upon reasonable enquiry.

Unregistered Land

• Title is proved by title deeds (root of title and a chain of conveyances).
• Legal rights bind the world and are enforceable against all (with a special rule for puisne mortgages).
• Many equitable interests must be registered as land charges to bind a purchaser. If not registered, they are void against a purchaser for value (LCA 1972, s 4).
• Some equitable interests (for example, beneficial interests under a trust) are not registrable as land charges and are governed by the doctrine of notice and overreaching.

Key Term: doctrine of notice
A rule in unregistered land: a purchaser of a legal estate for value is bound by certain equitable interests unless they are a bona fide purchaser without notice (actual, constructive or imputed). Most modern post‑1925 equitable rights are instead governed by the Land Charges Act 1972.

Classes of land charge to remember include: C(i) puisne mortgage (a subsequent legal mortgage of unregistered land), C(iv) estate contract (including a contract for a lease or option), D(ii) restrictive covenant and D(iii) equitable easement. Registration is against the estate owner’s name as it appears in the deeds. Failure to register is fatal against a purchaser for value (Midland Bank Trust Co Ltd v Green).

Overreaching

Overreaching is a statutory mechanism that allows a purchaser to take land free of certain equitable interests, which are transferred to the purchase money.

Key Term: overreaching
The process by which equitable interests in land (typically beneficial interests under a trust of land) are removed from the land and attached to the proceeds of sale, provided the purchase money is paid in the manner prescribed by s 27 LPA 1925 (usually to at least two trustees).

Requirements for Overreaching

• There must be an equitable interest that is overreachable (for example, a beneficial interest under a trust of land).
• There must be a conveyance to a purchaser of a legal estate (a buyer or legal mortgagee; LPA 1925, s 205(1)(xxi)).
• The purchase money must be paid to at least two trustees or a trust corporation (LPA 1925, s 27(2)).

If these requirements are met, the purchaser takes free of the beneficiaries’ equitable interests, which attach to the money instead (City of London Building Society v Flegg). If only one trustee receives the money, overreaching will not occur and a beneficiary in actual occupation may have an overriding interest in registered land (Williams & Glyn’s Bank v Boland).

Worked Example 1.2

C and D are trustees holding land on trust for E and F. They sell the property to G, who pays the purchase price to both C and D. Are E and F's interests still attached to the land?

Answer:
No. E and F's equitable interests are overreached and attach to the sale proceeds. G takes the land free of their interests.

Overreaching operates in both registered and unregistered land, and also when a legal charge is granted to a lender (a “purchaser” for these purposes). Payment to two trustees is essential in most cases; a trust corporation may act alone.

Priority and Protection of Interests

The key to advising on priority is to identify the nature of the right, confirm whether it was validly created, and then apply the correct priority scheme for the land status.

Registered Land (Priority)

• Legal estates and interests created by registrable disposition must be completed by registration to take effect at law (LRA 2002, s 27).
• For a registered disposition for valuable consideration, the transferee takes subject only to:
  • interests protected on the register (for example, by notice);
  • overriding interests listed in Sch 3; and
  • interests excepted by statute.
• Unprotected minor interests (which should be protected by notice) lose priority against a purchaser for valuable consideration (s 29). Volunteers (donees) do not gain the benefit of s 29.

Short legal leases (seven years or less) override (Sch 3, para 1). Equitable interests may override as “actual occupation” if the statutory tests are satisfied; however, an occupier may lose overriding status if their occupation is not obvious on a reasonably careful inspection and there is no actual knowledge, or if they fail to disclose when it is reasonable to do so (Sch 3, para 2).

Unregistered Land (Priority)

• Legal rights generally bind the world. The exception is a puisne mortgage, which must be protected by registration as a C(i) land charge; if not, it is void against a purchaser of any interest (LCA 1972, s 4(5)).
• Equitable rights created on or after 1 January 1926 that fall within the Land Charges Act must be registered against the estate owner’s name to bind purchasers. If not registered, they are void against a purchaser for money or money’s worth (LCA 1972, s 4(6)), even if the purchaser had actual knowledge (Midland Bank v Green).
• Certain equitable rights (for example, beneficial interests under a trust) are not registrable as land charges. These are subject to overreaching (if the purchase money is paid to two trustees) or, if not overreached, the doctrine of notice.

Worked Example 1.3

H buys unregistered land from J. There is an unregistered equitable easement affecting the land. Is H bound by it?

Answer:
No, if H is a purchaser for value and the easement was not registered as a land charge (D(iii)), it is void against H under s 4(6) LCA 1972.

The Distinction Between Registered and Unregistered Land

• In registered land, registration is essential for legal title to pass on a registrable disposition and for protecting most equitable interests; some interests override.
• In unregistered land, title is proved by deeds and many equitable interests must be protected by registration as land charges; beneficial interests under trusts are governed by overreaching and, failing that, the doctrine of notice.

A practical way to approach any problem is:

• identify the right (estate, legal interest, or equitable interest by nature);
• ask if formalities have been satisfied (deed, writing, registration);
• determine whether the land is registered or unregistered;
• apply the correct protection and priority rules (notice/restriction/overriding in registered land; land charge/notice/overreaching in unregistered land).

Key Point Checklist

This article has covered the following key knowledge points:

• The two legal estates in land are the freehold and leasehold (LPA 1925, s 1(1)).
• Legal estates and interests require a deed (LP(MP)A 1989, s 1) and, for registered land, registration where mandated by LRA 2002, s 27.
• Short legal leases (three years or less) can be created orally under s 54(2) LPA 1925 if strict conditions are met; short legal leases (seven years or less) override in registered land.
• Equitable interests arise where legal formalities are not fully met or where equity intervenes (for example, trusts, proprietary estoppel, options and restrictive covenants); they are protected by notice or restriction in registered land and by the Land Charges regime in unregistered land.
• In registered land, a purchaser for valuable consideration takes free of unprotected minor interests by virtue of s 29 LRA 2002, but takes subject to interests protected on the register and to overriding interests in Sch 3 (notably actual occupation).
• In unregistered land, legal rights bind (with the puisne mortgage exception requiring a C(i) land charge), and most equitable rights must be registered as land charges (C(iv), D(ii), D(iii)) to bind a purchaser for value.
• Overreaching allows a purchaser or legal mortgagee to take free of certain equitable interests if the purchase money is paid to two trustees or a trust corporation (LPA 1925, s 27(2)); those interests attach to the proceeds instead.
• Failure to register a registrable disposition in registered land leaves the right equitable only; failure to register a land charge in unregistered land renders the right void against a purchaser for value, regardless of actual knowledge.

Key Terms and Concepts

• legal estate
• legal interest
• equitable interest
• deed
• trust
• proprietary estoppel
• overriding interest
• notice
• restriction
• doctrine of notice
• overreaching