A question of ownership versus possession

The registrar's powers of refusal to order an alteration of the register to correct a mistake were considered in Derbyshire County Council v Fallon [2007] EWHC 1326 (Ch). The judge upheld the decision of the adjudicator that, although the boundary had been drawn in the wrong place on the filed plan attached to the Fallons' registered title, there were exceptional circumstances that justified not altering the boundary.

The Fallons had built a garage and other works on a strip of land which was shown on the filed plan as being included in their registered title. They had an arguable defence to any proceedings that the council might take for the removal of the garage (proprietary estoppel or because damages would be an adequate remedy). However, the council had not brought such proceedings, instead making an application to the registrar for alteration pursuant to paragraph 5, Schedule 4 of the Land Registration Act 2002. The council had argued whether or not the garage was susceptible to removal was irrelevant to the question of whether the register should be altered '“ the purpose of the Act is to deal with registration of title while the purpose of the register is to be an accurate reflection of ownership rather than possession.

The judge upheld the decision of the adjudicator refusing to alter the register on the grounds of exceptional circumstances under paragraph 6(3). Alteration of the boundary would of its own achieve nothing. There was no point in altering the register because in those circumstances it would not make the plan more accurate.

The real question was whether in practice the council would ever be able recover the disputed strip. If the council were to bring proceedings for recovery and removal of the garage, and were to fail under Jaggard v Sawyer [1995] 2 All ER 189, it was probable that the court would also refuse to order alteration of the register.

Consider matter in the round

The decisions both below and on appeal reflect the unusual circumstances of this case. Alteration will normally follow proof of mistake under paragraph 5 (1) a). The court may well have concluded that if the council had any serious intentions of obtaining the removal of the garage it should have brought the proceedings before the court rather than apply to alter the register. The court's wider powers would have enabled it to consider the matter in the round '“ whether to order the removal of the garage and whether to order any alteration of the register in the light of that decision. To seek only an alteration of the register without resolving the situation on the ground was to seek something of no practical value.

The dispute and its outcome illustrate the limited powers of the registrar when compared to those of the court. It will generally be prudent for applications for the alteration of the register to be included within proceedings issued in court for the determination of all connected and relevant relief. Contentious applications for alterations to the boundary which do not resolve matters in dispute or potentially in dispute between adjoining landowners may encounter pitfalls of this kind if not brought before the court rather than the registrar.

The judgment also contains an analysis of the interplay between paragraphs 5 and 6 of Schedule 4 and the distinction between the (now limited) powers of rectification and the wider powers of alteration.

In particular paragraph 6 (2) b) did not assist the Fallons as it only applied to alterations amounting to rectification, such as, that affected the title of the registered proprietor in possession.

An alteration would not affect the Fallons' paper title; rather it would produce another general boundary in a more accurate position than that shown on the filed plan. Hence the deployment of paragraph 6 (3) and exceptional circumstances.

In Business Environment Bow Lane Ltd v Deanwater Estates Ltd [2007] EWCA Civ 622 the Court of Appeal reaffirmed the restrictive approach to allowing collateral contracts into the field of contracts for the sale or lease of land. In the course of negotiations for a new lease the lessor's solicitors had stated that no terminal schedule of dilapidations under the new lease would be served.

Further negotiations resulted in the grant of a new lease containing a proviso that any action taken by the lessor upon entering the premises would not result in the lessor serving an interim or final schedule of dilapidations. The lessee objected when the lessor's successor in title served such a schedule. The judge ruled in favour of lessee.

The court, allowing the appeal, emphasised the need for caution in applying the law of collateral contracts to conveyancing transactions. The usual course with solicitors for both parties is to ensure that all agreed terms are in the contract, conveyance, transfer or lease.

Five test propositions

Those who assert a collateral contract must show that it was intended to have effect apart from the normal conveyancing documents.

Otherwise it will be invalidated by s2 Law of Property (Miscellaneous Provisions) Act 1979. Whether this can be surmounted must be tested against the five propositions identified in Inntrepreneur Pub Co Ltd v East Crown Ltd [2000] 2Ll.L.R 611 at p 615, namely:

'(1) a pre-contractual statement will only be treated as having contractual effect if the evidence shows that the parties intended this to be the case. Intention is a question of fact to be decided by looking at the totality of the evidence;

(2) the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;

(3) in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have a contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;

(4) a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal; and

(5) a representation of fact is much more likely intended to have contractual effect than a statement of future fact or future forecast'.

Approval given

The case is fact specific and few general conclusions can be reached. Approval is clearly given for the five propositions set out in Inntrepreneur. Although the decision was unanimous there was some difference between the members of the court when identifying which of the five propositions was the most significant. For the Chancellor it was proposition (5) '“ that the statement related to future events in unforeseeable circumstances. For Lloyd LJ it was proposition (3) '“ that the statement was followed by further negotiations which led to an amendment of the draft lease.

The real moral is that is that it is very difficult to establish reliance on a collateral contract where real property is involved, particularly in a commercial context with solicitors involved, and that those acting for parties during negotiations should ensure that all material terms are included in the relevant contract, conveyance transfer or lease.

Practitioners may also care to note Wall v Collins [2007] EWCA Civ 444, where two questions concerning easements and equivalent rights fell for decision. The first was whether merger of the dominant owner's leasehold title with the freehold will extinguish an easement. The second was whether, if so extinguished, an equivalent right to that enjoyed prior to merger would pass on a subsequent conveyance under s62 Law of Property Act 1925.

Two adjacent plots of land, subsequently built upon, were subject to long leases to different parties, with plot A having the benefit of a right of way over plot B to the street at the rear. The freehold of both plots was in common ownership until 1986, when the leaseholders of plot A acquired the freehold and also established adverse possession to other land on which they built a garage and to which they gained access over the right of way.

The occupiers of plot B contended that the right of way, granted for the benefit of the original leasehold interest, had been lost when the plot A lease merged with the freehold interest. The first instance acceptance of this proposition was overruled on appeal.

While the point was not specifically addressed in 'Gale on Easements', a passage in 'Sara, Boundaries and Easements', supported the proposition. However, Carnwath LJ disagreed.

He pointed out that while the original parties to the plot A lease could not have granted or accepted a right in excess of the length of the lease, it did not follow that the easement was 'attached to' the leasehold interest. An easement must be appurtenant to a dominant tenement, but not necessarily to any particular interest for the time being. All that matters is that the grantee has an interest at least co-extensive with the period of the easement.

On the s62 point, (which was academic following the decision on the merger point), the conveyance was silent on the point and therefore the 'right or advantage' passed with the conveyance.

The unsuccessful respondent had argued that the right was specifically related to the leasehold and could not be attributed to the freehold. However, the principle was and is that the key to the operation of the section was enjoyment in fact, not title, and thus the nature of the lease (if any) was immaterial.

A matter of fairness

The court was troubled by the fairness of the notion that the dominant owner should be in a worse position merely by acquiring a larger interest in the dominant land. After all, a servient owner could not escape the burden of the easement by merging a leasehold interest with the freehold or by other dealings to which the dominant owner was not party. That apart, the judgment contains a useful consideration of authorities on connected areas such as the effect of merger on restrictive covenants and draws some support from Kent v Cavanagh [2006] EWCA Civ 162 in relation to leasehold enfranchisement.