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

Learning Outcomes

This article explains overreaching in English land law, including:

• The statutory foundations in the LPA 1925 and LRA 2002, and how overreaching operates in both registered and unregistered land.
• The precise conditions for effective overreaching, with emphasis on the two‑trustee rule, capital money, and trustees’ powers to receive and give valid receipts.
• The legal consequences of successful overreaching for purchasers, mortgagees, and beneficiaries, and how equitable interests are shifted to the sale proceeds.
• The relationship between overreaching, restrictions, and the prohibition on notices, and how these mechanisms support the curtain principle and priority rules.
• The impact of actual occupation and overriding interests, explaining when a beneficiary in occupation is nonetheless bound by overreaching and when protection is retained.
• Typical SQE1 fact patterns involving co‑ownership, mortgages, sole‑trustee sales, and court‑ordered sales under TOLATA 1996, highlighting common traps in problem questions.
• Outcomes where the statutory requirements are not satisfied, including the continued enforceability of equitable interests under the doctrine of notice or as overriding interests.
• Practical exam technique for analysing problem scenarios: identifying the existence of a trust of land, testing each overreaching requirement in sequence, and reaching a clear conclusion on priority.

SQE1 Syllabus

For SQE1, you are required to understand the function and requirements of overreaching in both registered and unregistered land, with a focus on the following syllabus points:

• the statutory provisions governing overreaching (Law of Property Act 1925 and Land Registration Act 2002)
• the conditions for overreaching to occur, including the two-trustee rule
• the effect of overreaching on equitable interests and the protection it provides to purchasers
• the consequences of failing to overreach
• the application of overreaching in common exam scenarios
• the role of restrictions under s 40 LRA 2002 and the prohibition on protecting trusts by notice (s 33 LRA 2002)
• how overreaching interacts with overriding interests (Sch 3 LRA 2002, para 2) and s 29 LRA 2002 priority rules
• overreaching in mortgage transactions (including City of London Building Society v Flegg and Bank of India v Sood)
• the effect of TOLATA 1996 (ss 10, 11, 14, 16) on trustees’ powers, consultation, consent requirements, and court‑ordered sales

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 statutory requirements for overreaching to occur on a sale of land?
2. What is the effect of overreaching on a beneficiary’s equitable interest under a trust of land?
3. In what circumstances will a purchaser not take free of a beneficiary’s interest, even if the interest is not protected by a notice or restriction?
4. How does the two-trustee rule protect purchasers in property transactions?

Introduction

Overreaching is a statutory mechanism in English land law that allows certain equitable interests in land to be detached from the land and transferred to the proceeds of sale. This ensures that purchasers can acquire land free from those interests, while beneficiaries retain a right to the sale money. Overreaching is central to the protection of purchasers and the smooth operation of the land registration system. It underpins the “curtain principle” of registered land: beneficial interests behind trusts are kept off the register, and purchasers need only ensure statutory conditions are satisfied to take free of them.

Key Term: overreaching
The process by which an equitable interest in land is removed from the land and attaches instead to the proceeds of sale, provided statutory conditions are met.

Key Term: trust of land
A situation where the legal title to land is held by trustees for the benefit of one or more beneficiaries who have equitable interests.

The statutory basis for overreaching

Overreaching is governed by the Law of Property Act 1925 (LPA 1925) and applies to both registered and unregistered land. The relevant provisions are:

Section 2(1) LPA 1925 provides that a conveyance of a legal estate by trustees to a purchaser will overreach any equitable interests, provided the purchase money (also called capital money) is paid to at least two trustees or a trust corporation (section 27(2) LPA 1925). This is often called the “two-trustee rule”. A “conveyance” for these purposes includes a transfer on sale and also a mortgage or the grant of a legal lease. In practice, overreaching commonly occurs on a sale or on the grant of a legal charge.

Key Term: two-trustee rule
The requirement that purchase money must be paid to at least two trustees (or a trust corporation) for overreaching to be effective.

Key Term: capital money
Money arising on a sale, mortgage, or other disposition of land by trustees; includes purchase money and mortgage advances.

Key Term: trust corporation
A body (typically a corporate trustee meeting statutory criteria) capable of acting as sole trustee to receive capital money so that payment to it alone can satisfy the two‑trustee requirement.

The Land Registration Act 2002 (LRA 2002) complements overreaching. Section 40 LRA 2002 enables restrictions to be entered to control how dispositions are registered where a trust of land exists, thereby alerting purchasers and ensuring compliance with overreaching. Section 33 LRA 2002 expressly prohibits protecting a trust of land by notice, reinforcing that beneficiaries behind trusts rely on overreaching rather than entries on the register.

When does overreaching apply?

Overreaching applies where:

• The land is subject to a trust of land (express, implied, resulting, or constructive; it also applies to strict settlements under the Settled Land Act 1925).
• The trustees are selling or mortgaging the legal estate to a purchaser for value (a purchaser includes a mortgagee).
• The purchase money is paid to at least two trustees or a trust corporation.

If these conditions are satisfied, any equitable interests under the trust are “overreached”—they no longer bind the land, but instead attach to the sale proceeds. The purchaser’s title is not affected by the beneficiaries’ interests, even if beneficiaries are in actual occupation at completion.

Two important clarifications:

• Trustees must have the power to convey and the power to give a valid receipt for capital money. Usually, co‑owning trustees have these powers, but if consent requirements exist under TOLATA 1996 s 10, these are typically managed by restrictions; a disposition in breach of a restriction may still pass good title and overreach, leaving trustees liable in breach of trust.
• Although section 27(2) LPA 1925 refers to “capital money” being paid to two trustees, the courts have accepted that overreaching may occur even where no new capital money is actually paid on completion (for example, where a charge secures an existing indebtedness), as explained below.

Worked Example 1.1

Scenario:
A property is held by Alice and Ben as trustees for themselves and Carol, who has a 50% equitable interest. Alice and Ben sell the property to David. The purchase money is paid to both Alice and Ben.

Answer:
David takes the property free of Carol’s equitable interest. Carol’s interest is overreached and attaches to the sale proceeds. She can claim her share from Alice and Ben, but cannot assert any right against David or the land.

The effect of overreaching

When overreaching occurs, the purchaser acquires the land free from the beneficiaries’ equitable interests. The beneficiaries’ rights are converted into a right to the sale money. This protects purchasers from being bound by hidden or unregistered equitable interests and fosters confidence in the land registration system. It also means that an equitable interest that might otherwise qualify as an overriding interest (such as the interest of a person in actual occupation) cannot bind the purchaser if overreaching has taken place.

Key Term: purchaser
A person who acquires a legal estate in land for value (money or money’s worth). This includes mortgagees and, where applicable, lessees of legal leases.

A leading authority is City of London Building Society v Flegg [1988] HL, where a mortgage advance paid to two trustees overreached the parents’ beneficial interests despite their actual occupation. The mortgagee took priority, and the parents’ rights attached to the mortgage monies held by the trustees.

Requirements for overreaching

The key requirements for overreaching are:

1. There must be a trust of land (express or implied).
2. The trustees must have the power to sell or mortgage the land.
3. The purchase money must be paid to at least two trustees or a trust corporation.

If the purchase money is paid to only one trustee, overreaching does not occur. In that case, the purchaser may be bound by the beneficiary’s equitable interest if it is protected as an overriding interest or the purchaser has notice of it (in unregistered land). The trustees’ duty to consult beneficiaries under TOLATA 1996 s 11 does not prevent overreaching; failure to consult is a matter of trustee liability, not purchaser protection.

A further point arises where no capital money is paid at completion. In Bank of India v Sood [1997], a legal charge was granted by two trustees to secure existing indebtedness; no new money was advanced on completion. The Court of Appeal held that overreaching still occurred. This confirms that the “two trustees or trust corporation” requirement is central; the existence of fresh capital money at completion is not always essential for overreaching to take effect.

Where there is only one legal owner, a purchaser’s conveyancer will ordinarily insist on the appointment of a second trustee before completion so that payment can be made to two trustees and overreaching achieved. This is standard practice in both registered and unregistered land.

Worked Example 1.2

Scenario:
Emma is the sole legal owner of a house, but holds it on trust for herself and Fiona. Emma sells the house to George, who pays the purchase money to Emma alone.

Answer:
Overreaching does not occur because the money was paid to only one trustee. If Fiona is in actual occupation, her equitable interest may bind George as an overriding interest (in registered land) or under the doctrine of notice (in unregistered land).

Overreaching in registered and unregistered land

Overreaching operates in both registered and unregistered land. In registered land, it is particularly important where a beneficiary has an equitable interest under a trust and is in actual occupation. If the purchase money is paid to two trustees, the beneficiary’s interest is overreached and cannot be protected as an overriding interest. This sits alongside the LRA 2002 priority rules: a purchaser for valuable consideration takes subject only to registered charges, protected interests (by notice), and overriding interests; but overreaching ensures that qualifying trust interests do not bind at all if the two‑trustee rule is satisfied.

Key Term: overriding interest
A property right that binds a purchaser of registered land even if not entered on the register, such as the interest of a person in actual occupation.

Key Term: restriction
An entry in the proprietorship register that controls registration of dispositions unless stated conditions are met, commonly used to alert buyers to a trust of land and the need to pay capital money to two trustees or a trust corporation.

Key Term: notice
An entry in the charges register protecting a minor interest (other than a trust interest) against purchasers under s 32 LRA 2002. Trust interests cannot be protected by notice (s 33 LRA 2002).

Trust interests in registered land are normally flagged by a restriction (s 40 LRA 2002). A standard form restriction may prevent registration of a disposition for value unless there are two registered proprietors or a trust corporation, thereby enabling overreaching. A trust cannot be protected by notice (s 33 LRA 2002), so beneficiaries rely on overreaching rather than register entries.

In unregistered land, overreaching removes the need for a purchaser to investigate equitable interests under a trust, provided the statutory requirements are met. If overreaching fails, equitable co‑ownership interests are not registrable as land charges and priority is governed by the doctrine of notice.

Worked Example 1.3

Scenario:
A bank lends money to two trustees who hold a property on trust for themselves and a third party. The bank takes a mortgage and pays the loan to both trustees. The third party is in actual occupation.

Answer:
The third party’s equitable interest is overreached. The bank’s mortgage takes priority, and the third party cannot claim an overriding interest. The equitable interest attaches to the money received by the trustees.

Worked Example 1.4

Scenario:
Two trustees grant a legal charge over trust property to secure an existing overdraft. No fresh advance is paid at completion; the charge secures existing indebtedness.

Answer:
Overreaching still occurs. Although no new capital money was paid at completion, the charge was granted by two trustees. The beneficiaries’ equitable interests are overreached and attach to the trust’s financial position rather than the land. This accords with Bank of India v Sood.

Worked Example 1.5

Scenario:
Registered land is owned by a sole registered proprietor who holds on trust for herself and her sister. A Form of restriction warns that capital money must be paid to two trustees or a trust corporation. Before completion, a second trustee is appointed. Purchase monies are paid to both trustees.

Answer:
Overreaching occurs and the buyer takes free of the sister’s equitable interest. The restriction did its job: it prevented registration unless the two‑trustee requirement was met, thereby protecting the buyer and ensuring the beneficial interest shifted to the sale proceeds.

Consequences of failing to overreach

If the purchase money is not paid to at least two trustees, overreaching does not occur. In registered land, a beneficiary in actual occupation may have an overriding interest that binds the purchaser under Schedule 3, paragraph 2 LRA 2002. Leading cases illustrate that actual occupation is fact‑sensitive:

• In Williams & Glyn’s Bank v Boland [1981], the wife’s equitable interest coupled with actual occupation bound the bank because the legal estate was conveyed by a sole trustee; overreaching failed.
• In Abbey National v Cann [1991], actual occupation must exist at completion; preparatory steps are insufficient.
• In Chhokar v Chhokar [1984], temporary absence (hospital) did not prevent a finding of actual occupation given the intention to return and the presence of possessions.

In unregistered land, the purchaser may be bound by the beneficiary’s interest under the doctrine of notice. Constructive notice will often be imputed where reasonable inspection or enquiries would have revealed the interest (as in Kingsnorth Finance Co v Tizard [1986]).

Exam Warning

If a beneficiary’s interest is not overreached, and the beneficiary is in actual occupation, the purchaser may be bound even if there is no entry on the register. Always check if the two-trustee rule has been satisfied.

Worked Example 1.6

Scenario:
Henry is the sole legal owner and trustee of registered land. He mortgages the property, paying the money to himself alone. His partner, Isla, has contributed to the purchase price and remains living at the property.

Answer:
Overreaching fails because capital money was paid to only one trustee. Isla’s beneficial interest may bind the mortgagee as an overriding interest due to actual occupation, following Boland.

Worked Example 1.7

Scenario:
Unregistered land is sold by a sole legal owner to a purchaser. The owner’s adult child has a beneficial interest under a resulting trust and lives at the property. The purchaser pays the price to the single trustee without appointing a second trustee.

Answer:
Overreaching fails. The child’s equitable interest is not registrable as a land charge and may bind the purchaser under the doctrine of notice, particularly if occupation and contributions were discoverable on reasonable enquiries (cf. Kingsnorth v Tizard).

Overreaching and the protection of purchasers

Overreaching is designed to protect purchasers and facilitate the free transfer of land. It allows purchasers to take land free of equitable interests under a trust, provided they pay the purchase money to two trustees or a trust corporation. This is a key reason why most conveyancing transactions involving co‑owned land require at least two legal owners to receive capital money, and why restrictions are used to ensure the two‑trustee rule is met before registration of a disposition for value.

In practice, a buyer’s solicitor should:

• check the proprietorship register for restrictions indicating a trust of land
• insist that capital money is paid to two trustees or a trust corporation
• where there is a sole proprietor, arrange appointment of a second trustee before completion
• ensure mortgage advances are paid to two trustees on completion of the charge, to secure overreaching in favour of the lender

Overreaching and beneficiaries

For beneficiaries, overreaching means that their rights are not lost, but are transferred from the land to the sale proceeds. They can claim their share from the trustees, but cannot assert any right against the purchaser or the land itself. Trustees must consult beneficiaries (TOLATA 1996 s 11), but a failure to consult does not prevent overreaching if statutory conditions are otherwise met; it may expose trustees to liability in breach of trust.

If trustees misapply or dissipate the proceeds, beneficiaries have personal and proprietary remedies against the trustees, including claims for breach of trust and tracing into assets acquired with trust money. However, overreaching may still have practical consequences for beneficiaries, particularly where sale proceeds are insufficient to rehouse them.

Overreaching and mortgages

Overreaching also applies where a mortgage is granted by two or more trustees. The mortgagee’s interest takes priority over the beneficiaries’ equitable interests, which are overreached and attach to the mortgage money (or, where relevant, to the secured indebtedness). In City of London Building Society v Flegg, paying the mortgage advance to two trustees meant the lender took priority over the parents’ equitable interests despite actual occupation. In Bank of India v Sood, overreaching occurred even though the charge secured existing indebtedness and no fresh capital money was paid on completion, because the disposition was by two trustees.

The practical consequence is that lenders who lend against co‑owned property should ensure the advance is paid to two trustees or a trust corporation. Where the registered proprietor is a sole owner, lenders will typically require a second trustee to be appointed or obtain an appropriate restriction and consents to ensure priority.

Overreaching and court-ordered sales

A sale ordered by the court under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996) will also overreach beneficiaries’ interests, provided the statutory requirements are met (payment to two trustees or a trust corporation). Under s 14, any person interested in property subject to a trust of land may apply for orders relating to the trustees’ functions, including orders for sale. Consent requirements can be incorporated into the trust instrument (s 10), and trustees must consult beneficiaries (s 11), but these provisions do not prevent overreaching if the disposition is completed by two trustees and capital money is properly paid.

In registered land, consent requirements are typically reflected by restrictions. If a disposition is registered contrary to a restriction, the better view is that title passes and overreaching occurs, leaving trustees liable in breach of trust. In unregistered land, s 16 TOLATA 1996 confirms that a purchaser without actual knowledge of a consent requirement is not affected by non‑compliance, preserving the effectiveness of overreaching.

Limitations of overreaching

Overreaching does not apply to all equitable interests. It applies mainly to beneficial interests under a trust of land and to equitable interests under strict settlements. It does not apply to:

• equitable easements or profits (these should be protected by notice in registered land; in unregistered land they are registrable as land charges)
• restrictive covenants (protected by notice in registered land; registrable as land charges in unregistered land)
• estate contracts (protected by notice in registered land; registrable as land charges in unregistered land)
• home rights under the Family Law Act 1996 (protectable by notice; not overreachable)
• most proprietary estoppel rights and equities unless they operate as or behind a trust of land

These interests must be protected by registration where applicable, or may bind as overriding interests if the statutory criteria are met. Conversely, equitable co‑ownership interests behind a trust of land are the classic case for overreaching and are typically kept off the register in line with the curtain principle.

Key Point Checklist

This article has covered the following key knowledge points:

• Overreaching is the statutory process by which equitable interests under a trust of land are detached from the land and attach to the sale proceeds.
• Overreaching requires payment of purchase money to at least two trustees or a trust corporation.
• When overreaching occurs, purchasers take the land free of beneficiaries’ equitable interests; an interest that might otherwise override cannot bind once overreached.
• If purchase money is paid to only one trustee, overreaching does not occur and the purchaser may be bound by the beneficiary’s interest (e.g., as an overriding interest in registered land or under the doctrine of notice in unregistered land).
• Trust interests cannot be protected by notice in registered land (s 33 LRA 2002); they are instead managed via restrictions (s 40 LRA 2002) and overreaching.
• Overreaching operates in both registered and unregistered land, including mortgage transactions; the two‑trustee rule protects purchasers and lenders.
• A court‑ordered sale under TOLATA 1996 can overreach if statutory conditions are met; failure to consult beneficiaries affects trustee liability, not purchaser protection.
• Overreaching does not apply to all equitable interests—mainly to beneficial interests under a trust of land and strict settlements; other equitable interests require different protection.

Key Terms and Concepts

• overreaching
• trust of land
• two-trustee rule
• purchaser
• overriding interest
• restriction
• notice
• trust corporation
• capital money