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LAND LAW

Solving Priority Problems in Registered Land


Priority issues arise whenever two or more people have competing or conflicting
property claims in relation to the same piece of land. A major part of land law is
concerned with the resolution of these competing or conflicting claims.
From the practical perspective of a person acquiring an estate or interest in land
(e.g. a purchaser or mortgagee), there are essentially two priority issues to be
considered. First, are there any existing estates or interests affecting the land which
will take priority over the estate or interest that is being acquired? Secondly, what
steps, if any, can or must be taken to protect the priority of the estate or interest
acquired against any future estates or interests that may be acquired by others?
The rules for resolving priority disputes vary according to whether the relevant land is
registered or unregistered. It follows that:
The first step in dealing with any priority issue is always to establish
whether the land in question is REGISTERED or UNREGISTERED.
This is of vital importance because mixing up the registered and unregistered land
priority rules is one of the ‘cardinal sins’ of land law and a common cause of
examination failure.
The following notes apply only to REGISTERED LAND
(see separate notes on priority in unregistered land).
The rules governing the priority of estates and interests in registered land are set out
in the Land Registration Act 2002, particularly sections 28 and 29. (Note that the
Land Charges Act 1972, the bona fide purchaser test and the doctrine of notice
have NO application to registered land).
Section 28
The priority rule contained in section 28 of the 2002 Act provides that estates and
interests in registered land take priority according to the chronological order in which
they are created (i.e. earlier estates and interests take priority over later estates and
interests). For the purposes of this section, it does not matter whether the estate or
interest is legal or equitable, or whether it has been protected by registration.
Although the rule set out in section 28 applies in some cases (e.g. where title to land
is transferred by gift), it is vital to note that, in practice, the majority of cases are
governed by the more complex provisions of section 29.
Section 29
Section 29 applies in all cases where a registrable disposition is made for valuable
consideration. In practice, this covers most transactions affecting land (i.e.
purchases and mortgages). Registrable dispositions are defined in section 27(2) of
the 2002 Act to include the following:
 Transfer of a registered estate or registered charge.
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 Grant of a term of years absolute (lease) of more than seven years.
 Express grant or reservation of an easement or a profit a prendre.
 Grant of a legal charge, including “a charge by way of legal mortgage”
In addition, section 132 of the 2002 Act specifies that valuable consideration “does
not include marriage consideration or a nominal consideration in money”.
In cases where a registrable disposition is made for valuable consideration and it has
been completed by registration (i.e. an application to register the disposition has
been lodged at HM Land Registry), then the disposition will take priority over “any
interest affecting the estate immediately before the disposition whose priority is not
protected at the time of registration”.
It follows that, in these circumstances, the priority of earlier estates and interests will
depend on whether they qualify as “protected interests”. Section 29(2) of the 2002
Act recognises several different categories of protected interests. However, the most
important categories are:
 Registered charges.
 Interests protected by entry of a notice in the Register.
 Unregistered interests which override a registered disposition.
(a) Registered charges
Registered charges (e.g. mortgages which have been registered on the Land
Register) will take priority over a registered disposition (unless they have been
discharged prior to the registration of the disposition).
(b) Interests protected by entry of a notice on the Register
Interests protected by entry of a notice in the Land Register will also take priority
over a registered disposition. As with registered charges, these are unlikely to raise
significant priority issues in practice because information about them is readily
available from inspection of the Land Register prior to a disposition.
There is no definitive list of interests which may be protected by entry of a notice on
the Land Register. In practice, a wide variety of interests may be protected by
means of a notice, including an estate contract or option to purchase, the burden of
an easement or restrictive covenant, a lease for more than three years but not more
than seven years, and a spouse or civil partner’s statutory rights of occupation under
the Family Law Act 1996.
However, section 33 of the 2002 Act specifically excludes from this category:
 Interests under a trust of land (i.e. beneficial interests); and
 Leasehold estates in land granted for a term of three years or less from the date
of grant.
The only way in which these interests can be protected, if at all, is as unregistered
interests which override a registered disposition.
(c) Unregistered interests which override a registered disposition
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This category of protected interests is far more controversial because it covers
property interests in land which do not appear on the Land Register. Continuing
recognition of the priority of these interests therefore conflicts with the “mirror
principle” (i.e. the idea that the Land Register should accurately reflect all estates
and interests affecting the relevant title).
The types of unregistered interests which override a registered disposition are listed
in Sch.3 of the 2002 Act. The most important categories are:
 Legal leases of seven years or less (Sch.3, para.1)
 Interests of persons in actual occupation of the land – note that this provision
may serve to protect a wide variety of property interests in land, but in practice is
most likely to apply to beneficial interests under trusts, estate contracts and
equitable leases where the owner of the interest is also in occupation of the
relevant land (Sch.3, para.2)
 Legal easements and profits à prendre acquired by means of implied grant or
prescription (Sch.3, para.3)
Note that paras.2 and 3 of Schedule 3 are subject to important exceptions. For
example, under para.2, where a person claims to have a property interest protected
by actual occupation, the legislation provides circumstances in which a registered
disposition may still take priority over that interest.
It is also important to note that some interests which are capable of protection by
entry of a notice may also be protected as unregistered interests which override a
registered disposition (“dual status” interests). These categories are not mutually
exclusive. Therefore, failure to protect an interest by entry of a notice does not
necessarily prevent the owner of the interest claiming protection as an unregistered
interest which overrides a registered disposition.
The key cases on overriding interests and actual occupation are: Hodgson v. Marks
[1971] Ch 892 (CA); William & Glyns Bank v. Boland [1981] AC 487 (HL); Abbey
National Building Society v. Cann [1991] 1 AC 56 (HL); and, more recently, Link
Lending Ltd v Bustard [2010] EWCA Civ 424.
Overreaching
It is important to note that beneficial interests under trusts of land (which are
commonly encountered in practice) may be overreached in registered land, in the
same way as in unregistered land. So, where a purchaser or mortgagee of the legal
estate complies with the statutory requirements in sections 2 and 27 of the Law of
Property Act 1925 (i.e. pays the purchase or loan money to a minimum of two
trustees or a trust corporation), his or her legal estate or legal mortgage will take
priority over any beneficial interest under a trust of land.
The key cases on overreaching in registered land are: City of London Building
Society v. Flegg [1988] AC 54 (HL); State Bank of India v. Sood [1997] Ch 276 (CA);
and, more recently, HSBC Bank Plc v Dyche [2009] EWHC 2954 (Ch).
Consent to a disposition

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It is also important to note that an interest which would otherwise qualify as an
overriding interest will lose priority to a registered disposition in circumstances where
the owner of the interest has expressly or impliedly consented to the disposition.
The key cases on express and implied consent to a registered disposition are:
Woolwich Building Society v Dickman [1996] 3 All ER 204 (CA); Paddington Building
Society v Mendelsohn (1985) 50 P & CR 244 (CA); Equity & Law Home Loans v
Prestidge [1992] 1 All ER 909 (CA) and Skipton Building Society v. Clayton (1993) 66
P&CR 223 (CA).
CHECKLIST FOR PRIORITY IN REGISTERED LAND

1. Is the disposition for which priority is claimed a registrable disposition that has
been made for valuable consideration and completed by registration?
If so, then the priority rule in section 29 LRA 2002 applies.
If not (e.g. registered estate was transferred as a gift), then the priority rule in
section 28 LRA 2002 applies (i.e. interests take priority according to the
chronological order in which they were created).

2. In cases where section 29 applies, does any interest claiming priority over the
registered disposition fall into one of the categories of “protected interest” under
section 29(2)? (i.e. did the interest exist at the time of the disposition and was it
protected at the time when the disposition was registered?)
If so, then the interest will generally take priority over the registered
disposition (but see 4 and 5 below).
If not, then the interest it will be postponed to the registered disposition (i.e.
disponee’s registered estate will take priority).

3. If the interest claiming priority is not protected on the Land Register (i.e. priority
is claimed on the basis that it is an unregistered interest which overrides a
registered disposition), does it qualify for protection under Sch.3 LRA 2002
(note carefully the exceptions and qualifications in Sch.3 paras.2 and 3))?
If so, then the unregistered interest will take priority (but see 4 and 5 below)?
If not, then the unregistered interest will take priority?

4. If the interest claiming priority over the registered disposition is a beneficial


interest under a trust which would otherwise qualify as a protected interest, has
the interest been overreached by the registered disposition?
If so, then the registered disposition will take priority.

5. Even if the interest claiming priority over the registered disposition would
otherwise qualify as a protected interest, has the owner of that interest expressly
or impliedly consented to the disposition?
If so, then the registered disposition will take priority.