Registration of title and protection of interests - Dealing ...

Learning Outcomes

This article explains minor interests in registered land and the mechanisms for their protection and priority, focusing on notices, restrictions, and overriding interests; it examines the basic and special priority rules under the Land Registration Act 2002 (sections 28 and 29), the operation of overreaching in defeating beneficial interests under a trust, the differences between agreed and unilateral notices and their impact on priority and cancellation, and the consequences of failing to protect a minor interest.

SQE1 Syllabus

For SQE1, you are required to understand how minor (equitable) interests in registered land are protected and prioritised, with a focus on the following syllabus points:

• the distinction between legal and equitable (minor) interests in registered land
• the function and effect of notices and restrictions on the register
• the concept of overriding interests, especially those arising from actual occupation
• the consequences of failing to protect a minor interest by registration
• how to advise on the enforceability of minor interests against purchasers and mortgagees
• how the LRA 2002 priority rules operate (basic vs special), including the role of section 29 in defeating unprotected interests
• the mechanism and effect of overreaching on beneficial interests under a trust

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 is the main purpose of entering a notice on the register in respect of a minor interest?
   1. To create a legal estate
   2. To protect the priority of an equitable right
   3. To prevent any dealings with the land
   4. To guarantee compensation for loss
2. Which of the following is an example of an overriding interest?
   1. A registered charge
   2. A restrictive covenant protected by notice
   3. An equitable leaseholder in actual occupation
   4. A beneficial interest under a trust with no occupation
3. If a minor interest is not protected by a notice on the register, what is the likely consequence when the land is sold to a purchaser for value?
   1. The interest is automatically upgraded to a legal estate
   2. The interest will override the purchaser in all cases
   3. The interest may be lost unless it qualifies as an overriding interest
   4. The interest is always enforceable against the purchaser

4. True or false? A restriction on the register can prevent registration of a transfer unless certain conditions are met.

Introduction

When dealing with registered land, it is essential to understand how minor interests—usually equitable rights—are protected and prioritised. The Land Registration Act 2002 sets out a system for recording, protecting, and enforcing these interests. If a minor interest is not properly protected, it may be lost on a sale or mortgage of the land. This article explains the key mechanisms: notices, restrictions, and overriding interests, and how they interact in practice.

Under the LRA 2002, most third-party rights affecting registered land fall into one of three relevant categories: registrable charges (e.g. legal mortgages), interests that override registered dispositions (Schedule 3, primarily short legal leases and interests of persons in actual occupation), and other interests that must be protected by an entry on the register to retain priority (minor interests protected by notice or restriction). Understanding how and when each category applies is critical to advising purchasers and mortgagees.

Key Term: minor interest
An equitable right in registered land that is not a legal estate or charge but can be protected by entry of a notice or restriction on the register.

Key Term: notice
An entry in the charges register of a registered title that protects the priority of a minor interest (LRA 2002, s 32). It does not confirm validity of the interest; it records the claim and preserves priority against subsequent registrable dispositions for value.

Key Term: restriction
An entry in the proprietorship register that limits the ability to register certain dispositions of the land unless specified conditions are met (LRA 2002, s 40), often used to protect interests under a trust by ensuring overreaching can occur.

Key Term: overriding interest
A right that binds a purchaser of registered land even if it is not entered on the register, such as certain short legal leases (Sch 3, para 1) and the rights of a person in actual occupation (Sch 3, para 2), subject to exceptions.

Key Term: actual occupation
Physical presence on the land with a sufficient degree of permanence and continuity that is obvious on a reasonably careful inspection (or the buyer has actual knowledge), giving rise to overriding status only if coupled with a proprietary interest at the time of disposition.

Minor Interests in Registered Land

Minor interests are typically equitable rights that do not amount to a legal estate or charge but still affect the use or enjoyment of land. Examples include restrictive covenants, equitable leases, equitable easements (especially those created after 13 October 2003), rights of pre-emption and options (estate contracts), home rights under the Family Law Act 1996, and beneficial interests under a trust.

Not all minor interests are protected the same way. Some interests—most importantly beneficial interests under a trust—cannot be protected by notice (LRA 2002, s 33) and are instead managed through restrictions and overreaching. Conversely, many equitable interests (e.g. equitable easements created post‑2003, estate contracts, home rights) should be protected by entering a notice in the charges register to avoid loss of priority against a purchaser for value.

Key Term: basic priority rule
Under LRA 2002, s 28, a transferee who does not give valuable consideration takes subject to all existing property rights, whether or not protected on the register.

Key Term: special priority rule
Under LRA 2002, s 29, a purchaser for value of a registered estate (on registration) takes subject only to registered charges, protected registered interests, and overriding interests; unprotected minor interests are postponed.

Protecting Minor Interests: Notices

A notice is the main method for protecting most minor interests. Entry of a notice in the charges register ensures that the interest will bind a purchaser for value under the special priority rule (s 29). There are two types of notice:

Key Term: agreed notice
A notice entered with the registered proprietor’s consent or where the applicant produces evidence satisfying the registrar of the interest (application on form AN1). It is generally faster to process where consent is provided.

Key Term: unilateral notice
A notice entered without the proprietor’s consent (application on form UN1). The proprietor is notified and may apply for its cancellation; if the beneficiary of the notice objects, the registrar will resolve or refer the dispute.

Notices do not create the substantive interest, nor do they guarantee its validity. Their function is to preserve priority against later registrable dispositions for value. Some interests cannot be protected by notice (LRA 2002, s 33), including beneficial interests under a trust, certain short leases and landlord–tenant covenants; those must be managed via restrictions or other mechanisms.

The registered proprietor can challenge a notice and seek cancellation; if a unilateral notice is entered without reasonable cause, the person lodging it may be liable for damages (LRA 2002, s 77).

Not all interests can be protected by notice. For example, beneficial interests under a trust must be protected by a restriction, not a notice.

Worked Example 1.1

Scenario: Olivia has the benefit of an equitable easement over her neighbour's registered land. She wants to ensure her right is protected if the land is sold.

Answer:
Olivia should apply to enter a notice on the charges register of the neighbour's title. This will protect her equitable easement and ensure it binds a purchaser for value.

Worked Example 1.2

Scenario: Jai has an option to purchase registered land (an estate contract). He applies for a unilateral notice. The proprietor disputes the option and seeks cancellation.

Answer:
A unilateral notice (UN1) can be entered without consent. On the proprietor’s cancellation application, the registrar will notify Jai, who can object and provide evidence of the option. If Jai shows reasonable cause and evidence for the claim, the notice will remain. If he cannot, the registrar may cancel it. Entering a notice without reasonable cause risks damages under LRA 2002, s 77.

Restrictions: Controlling Dealings with the Land

A restriction is entered in the proprietorship register and prevents registration of a disposition unless certain requirements are met. Restrictions are commonly used to protect the interests of beneficiaries under a trust of land, ensuring that purchase money is paid to at least two trustees so that overreaching can occur. By doing so, beneficial interests under the trust are detached from the land and transferred to the capital money paid, leaving the purchaser with title free from those interests.

Common restriction wording includes the standard “Form A” restriction used where the beneficial interest is held as tenants in common: “No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.” Other bespoke restrictions may require specified consents or compliance with trust terms.

Entry of a restriction will prevent the registration of a later registrable disposition for value which is not in accordance with the terms of the restriction. A restriction may be entered onto the register without the consent of the registered proprietor, though the proprietor may object to the proposed restriction and the registrar will decide the issue.

Key Term: overreaching
The statutory mechanism (LPA 1925, ss 2 and 27) by which a buyer paying capital money to at least two trustees or a trust corporation takes the property free of beneficial interests under a trust; those interests attach to the proceeds of sale instead.

Worked Example 1.3

Scenario: A property is held on trust for Alice and Ben. The register contains a restriction requiring that no transfer is registered unless signed by two trustees.

Answer:
The restriction ensures that any sale proceeds are paid to two trustees, allowing overreaching of Alice and Ben's beneficial interests. The purchaser will then take the land free of those interests.

Worked Example 1.4

Scenario: The register shows Eli and Noor as joint legal owners with a Form A restriction. They sell to Priya and receive the price as joint trustees. A beneficiary, Sam, later claims a beneficial interest in occupation.

Answer:
Payment of capital money to two trustees triggers overreaching, so Sam’s beneficial interest is transferred to the sale proceeds. Even if Sam was in actual occupation, overreaching prevents overriding status. Priya takes free of Sam’s trust interest. Sam must seek his share from Eli and Noor.

Overriding Interests: Actual Occupation

Some interests can bind a purchaser even if not protected by notice or restriction. These are called overriding interests. The most important for SQE1 is the right of a person in actual occupation (Schedule 3, para 2 LRA 2002). Short legal leases not exceeding seven years also override under Schedule 3, para 1. Legal easements can override only in limited circumstances (e.g. implied or prescriptive rights that are known, obvious on inspection, or exercised within the last year).

Interests of persons in actual occupation will override a purchaser only where:

• the claimant has a proprietary interest at the time of the disposition; and
• is in actual occupation at that time; and
• the occupation is either obvious on a reasonably careful inspection or known to the buyer, and the claimant did not fail to disclose the interest when reasonably asked (exceptions in para 2(b) and (c)).

It is important to note two points:

• The occupation must exist at the time of the disposition (the execution of the transfer/mortgage); it is not enough to resume occupation later.
• Overriding status can be lost if the buyer makes proper enquiries of an occupier and the occupier fails to disclose the right or if occupation is not obvious on a careful inspection and the buyer had no actual knowledge.

Key Term: actual occupation
Physical presence on the land with sufficient permanence and continuity for the circumstances, typically evidenced by living at the property or keeping possessions there, and obvious to a reasonably careful inspection unless the buyer has actual knowledge. The proprietary interest and occupation must both exist at the time of disposition.

If a person with an equitable interest is in actual occupation at the time of completion, their interest may override a purchaser, even if it is not protected by notice. However, if the purchaser makes proper enquiries and the occupier fails to disclose their interest, the overriding status may be lost.

Worked Example 1.5

Scenario: Sarah has a beneficial interest under a trust and is living in the property. The legal owner sells the property to a purchaser for value. No notice or restriction is on the register.

Answer:
Sarah's interest may override the purchaser if she is in actual occupation and her occupation is obvious on inspection. If the purchaser makes enquiries and Sarah fails to disclose her interest, she may lose overriding status.

Worked Example 1.6

Scenario: Daniel has an equitable lease of a room in a registered property and keeps possessions there. On sale, the buyer inspects but Daniel’s room is locked and not obviously in use. The buyer made no enquiries of other occupiers.

Answer:
Daniel’s equitable lease could override under Schedule 3, para 2 if he had a proprietary interest and was in actual occupation at the time of sale. If his occupation was not obvious and the buyer had no knowledge, the buyer will not be bound unless the buyer failed to make reasonable enquiries where an occupier is apparent. Making appropriate enquiries can defeat overriding status if the occupier fails to disclose their interest.

Exam Warning

If a minor interest is not protected by notice and does not qualify as an overriding interest, it will be lost on a sale to a purchaser for value. Always check whether the interest is protected and whether the person claiming it is in actual occupation. Remember that home rights under the Family Law Act 1996 can be protected by notice but do not gain overriding status even where the spouse or civil partner is in occupation.

Consequences of Failing to Protect a Minor Interest

If a minor interest is not protected by notice, it will not bind a purchaser for value unless it qualifies as an overriding interest or is otherwise protected (e.g. via restriction and overreaching). Under the special priority rule (LRA 2002, s 29), a registered purchaser for value takes free of unprotected minor interests.

Conversely, if the disposition is not for value, the basic priority rule (s 28) applies, and the transferee takes subject to all prior interests whether or not protected on the register. Priority is tested at the time of registration of the purchaser’s title.

Further, the existence of a restriction can control registration, ensuring that overreaching occurs and preventing a purchaser from being bound by beneficial interests under a trust. However, if only one trustee disposes and no restriction is present (or complied with), beneficial interests may bind the purchaser as overriding interests if the beneficiaries are in actual occupation and the exceptions do not apply.

Revision Tip

Always advise clients to protect their equitable interests by entering a notice or restriction on the register. Do not rely on overriding status unless the person is in actual occupation at the time of disposition and their occupation would be obvious on a reasonably careful inspection, or the buyer has actual knowledge. Where a trust exists, ensure that a suitable restriction (such as Form A) is entered and that any sale triggers overreaching by paying capital money to two trustees.

Summary

Key Point Checklist

This article has covered the following key knowledge points:

• Minor interests are equitable rights in registered land that are not legal estates or charges.
• Most minor interests are protected by entering a notice in the charges register (LRA 2002, s 32).
• Restrictions are used to control dealings with the land, especially to protect beneficiaries under a trust (LRA 2002, s 40), and to ensure overreaching occurs (LPA 1925, ss 2 and 27).
• Some interests can override a registered disposition if the holder is in actual occupation at the time of the disposition and their occupation is obvious on inspection or known to the buyer (Sch 3, para 2 LRA 2002), or if within the limited categories of Schedule 3.
• If a minor interest is not protected by notice and does not override, it will be lost on a sale to a purchaser for value due to the special priority rule (LRA 2002, s 29).
• Purchasers should always check the register for notices and restrictions and make enquiries about occupation; a reasonably careful inspection and enquiries can defeat claims to overriding status if the occupier fails to disclose.
• Beneficial interests under a trust cannot be protected by notice and are instead managed by entry of appropriate restrictions and overreaching.
• Unilateral and agreed notices have different procedural routes; a proprietor may seek cancellation of a unilateral notice, and damages can be awarded for notices entered without reasonable cause (LRA 2002, s 77).

Key Terms and Concepts

• minor interest
• notice
• restriction
• overriding interest
• actual occupation
• agreed notice
• unilateral notice
• overreaching
• basic priority rule
• special priority rule