Can Land Register rectification be retrospective?

In Gold Harp Properties Ltd v Macleod & Others [2014], a pair of teachers bought leases of three floors of a building for the care of autistic children.

The plans did not come to fruition and a property developer acquired the ground and
first floors and turned them into four flats. However, the two leases of the undeveloped
roof space remained in the hands of the respondents. The property developer also wanted
to redevelop and sell long leases of the roof space

The freehold of the building was bought by the property developer’s son, who tried to forfeit the two existing leases of that undeveloped roof space by peaceable re-entry based on slightly late payment of the ground rents.

The freeholder managed to get the leases removed from the register and the freeholder re-let the roof space to a company whose director was the property developer’s associate.

The new lease was then assigned to another company and then straight away onto Gold Harp. Both those companies belonged to the property developer.

Valuable consideration

The courts saw no evidence that the new lease was either granted or assigned for valuable consideration, so inferred that this was all part of a collusive arrangement to divest the respondents as leasehold proprietors of the roof space.

The county court ruled that the respondents had tendered the rent arrears in time and ruled that peaceable re-entry had not occurred. The court ordered their leases to be restored to the Land Register as if never forfeited.

The effect of the county court’s order was that:

n the new lease remained in place and registered on the freehold title, but as a lease reversionary to the restored leases with those leases noted against its title;

n so, the ultimate tenant by transfer of the new lease (Gold Harp) became the new immediate landlord of the restored leases;

n the respondents, and their successors in title, would enjoy the right to occupy the roof space under their respective restored leases in priority to Gold Harp. Its interest being reversionary only was now practically valueless, unless the respondents’ leases could be otherwise terminated before they expired.

The appeal to the Court of Appeal here was against that part of the county court’s order. There were a number of issues to consider.

1. Was the appellant protected by being a ‘purchaser’ of the new lease?

No. Section 28 of the 2002 Act meant that the priority of the respondents’ rights to the re-registration of the leases as they affected the freehold had not been postponed to the grant or transfer of any later lease granted out of the freehold because (section 29) the further lease had neither been granted, nor transferred, for valuable consideration.

2. Which of two competing interests was to have priority over the other when it came to rectifying the Land Register?

Was it the respondents’ earlier leasehold interests that had been wrongly removed from the register, or the appellants’ later interest acquired and registered during their absence?

At first, things looked good for the appellants. Paragraph 8 of schedule 4 of the 2002 Act says: “The powers under this schedule to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned.”

The appellants claimed the words ‘for the future’ precluded rectification operating retrospectively to remove the priority that the new lease had got over the restored leases, because they were off the register when the new lease was registered.

The appellants relied heavily on academic and Law Commission views (see box).

Indefeasible principle

The Court of Appeal said that the principle of the indefeasibility of the register had always had its qualifications.

Indeed, the editors of Ruoff and Roper had said, at para 46.030: “If… a mistake is proved, the full correction of that mistake may involve the correction of both the original mistake itself and the consequences of that mistake.”

Endorsing that view of schedule 4, the Court of Appeal said the rectification would otherwise be incomplete and worthless, unless that power so extended, and included re-prioritising derivative interests which had been created during the period of mistaken de-registration.

Paragraph 8’s talk of changing for the future the priority of any interest affecting the registered estate was referring to the future exercise of proprietary rights after their restoration to the register by court order (but no earlier).

Indeed, schedule 4 of the 2002 Act recognised rectification could prejudice bona fide third-party interests acquired in reliance on the Land Register being temporarily clear of adverse earlier land interests.

So, the county court’s order restoring the two leases meant that from then on the respondents could exercise their leasehold rights to occupy the roof space in priority to Gold Harp’s new lease, and to the exclusion of Gold Harp.

But, until that order, they had no such rights and indeed Gold Harp and its predecessors, under the new lease, could have occupied the roof space until that order and the respondents could not have claimed ‘mesne profits’ for that occupation up to that date.

The collusive nature of the arrangements and failure to give valuable consideration also precluded the court finding any exceptional circumstances that would justify the court departing from the presumption in favour of rectification that would otherwise apply under paragraph 3(3) of schedule 4 of the 2002 Act.

Accurate snapshot

Paragraph 1.5 of the 2001 Law Commission report said that, under the 2002 Act, the register should be a complete and accurate snapshot of the state of the title to land.

This was to assist investigation of title on line ‘with the absolute minimum of additional enquiries and inspections’ and thereby ease the shift to electronic conveyancing.

This would be undermined were the 2002 Act to allow the retrospective removal or postponement of existing entries.

While the decision here was fair and just on
its particular facts, making the effect of rectification retrospective undermines the basic rule that the state of the Land Register, at any given time, is conclusive and can be relied on and is indefeasible.

In enacting the 2002 Act, parliament preferred certainty of title even over the property rights of those who had been the victims of fraud. Section 58 reflects the balance struck. They would be compensated under the indemnity provisions of schedule 8.

The Law Commission has announced it will be looking at the Land Registry’s guarantee of title, rectification and alteration of the register and the impact of fraud. The Law Commission expects to publish its report, recommendations, and draft bill, by late 2017.

The judgment means that the Land Register
is less indefeasible and to be relied on than was thought. People acquiring land interests are at greater risk of being divested, though public compensation is likely to be available.

Solicitors and conveyancers will have to be
very alert to the circumstances of any earlier dealings with the property and raise queries about any earlier interests which may recently have been cancelled from the register, or may,
by some mistake or omission, have been left off the register.

Presumably, the Commercial Property Standard Enquiries (CPSE 1) will be amended accordingly, although usually purchasers of interests for valuable consideration will have some protection from section 29 of the 2002 Act. SJ

 

Land register: what they say

 

• Paragraph 46-017 of Ruoff & Roper says: “When the register is rectified, the change takes effect for the future only [paragraph 8 of schedule 4]. Rectification does not operate retrospectively from the time of the original error. The priority of interests affecting the registered estate or charge in the period between the original error and the order for rectification is unchanged.  In this, the Land Registration Act 2002 continues the generally held view of rectification under the Land Registration Act 1925 (Freer v Unwins [1976])”.

• Paragraph 7-136 of Megarry and Wade (8th ed) says: “Rectification ….does not affect the priority of derivative estates and interests that were created between the time of the mistake and the order for rectification.”
• On the other hand, in Emmet and Farrand, para 9.029 says: “As to the effect of rectification, an issue of retrospectivity arising under the 1925 Act provisions has not necessarily been resolved by the 2002 Act.”
• In the 1980s, the Law Commission did not say much about it, but were in favour of retrospectivity due to the availability of public compensation for those who lost out. However, in the run up to the 2002 Act, the Commission appears to have thought the power should be prospective only.

Philip Taylor is sole principal ?at Taylor’s