Clause 10: Titles to leasehold estates

39.     A person applying to be registered as proprietor of a leasehold estate may be registered (in substance, as now), as proprietor with an absolute, good leasehold, qualified or possessory title. Absolute title may be given if the registrar considers that the title is such as a willing buyer could be properly advised to accept, and approves that the lessor had good title to grant the lease. It is, therefore, only appropriate where the superior title is either registered with absolute title, or, if unregistered, has been deduced to the registrar's satisfaction. Again, even defective titles can be registered as absolute, if the registrar considers that the defect will not cause the holding under it to be challenged. A good leasehold title is such that a willing buyer could properly be advised to accept. It will be appropriate where the superior title is neither registered nor deduced. It can be given in the case of a defective title, if the defect will not cause the holding to be challenged. Qualified title may be registered if either the applicant's title or the lessor's title to the reversion can only be established for a limited period, or is subject to reservations. The circumstances for registration of a possessory title are the same as with freehold.

Effect of first registration

Clause 11: Freehold estates

40.     Clause 11 sets out the effect of first registration as the proprietor of a freehold estate. Subsections (2) to (5) prescribe the effect of registration of a freehold with absolute title. Where a person is first registered as proprietor of a freehold estate, subsection (3) provides that the legal estate is vested in him or her together with all interests subsisting for the benefit of the estate. The legal estate will therefore vest in the first registered proprietor together with such interests as (for example) the benefit of any easement and profit ... prendre that is appurtenant to the estate.

41.     Subsection (4) provides that on first registration with absolute title, the estate is vested in the proprietor subject only to the following interests affecting the estate at the time of registration :

i)     Interests which are the subject of an entry in the register in relation to the estate. As this provision only applies to first registration under the Bill, the interests which may be subject to an entry in the register will be registered charges, notices and restrictions.

ii)     Unregistered interests which fall within any of the paragraphs of Schedule 1 (that is, those that override first registration).

iii)     Interests acquired under the Limitation Act 1980 of which the proprietor has notice. This provision is new and is designed to meet the following situation. A takes adverse possession of unregistered land belonging to B. After 12 years' adverse possession, B's title is extinguished and A becomes owner of the land. A then abandons the land and B resumes possession of it. Before B has been back in possession of the land for 12 years he sells it to C. B sells as paper owner in accordance with the title deeds, but A is in fact the true owner. The sale triggers compulsory registration and C applies to be first registered proprietor. Subject to the transitional provisions contained in Schedule 12 paragraph 7, the rights of a squatter will not under the Bill take priority on first registration or on a registered disposition without the need for registration, as they presently do. By virtue of clause 11(4)(c), C will take free of A's rights unless, at the time of registration, he had notice of them. If C is registered as proprietor even though he has notice of A's rights, A will be able to seek alteration of the register. C is bound by her rights and so alteration of the register will not involve rectification. As the register is inaccurate it may be altered to give effect to her rights by registering her as proprietor in place of C, as provided in Schedule 4, paragraphs 2 and 5.

42.     Subsection (5) deals with the situation where the first registered proprietor is not entitled to the estate solely for his or her own benefit. The effect of subsection (5) is that where the first registered proprietor holds the land on trust, the estate will be vested in him or her subject to the rights of the beneficiaries under that trust.

43.     Subsections (6) and (7) prescribe the effects of registration with qualified or with possessory title.

Clause 12: Leasehold estates

44.     Clause 12 makes provision for the effect of first registration of a person as the proprietor of a leasehold estate. Subsections (2), (3), (4) and (5) prescribe the effect of registration of a lease with absolute title. In most respects, the registration of a leaseholder with absolute title has the same effect as registration of a freeholder with absolute title. The only difference is that where a leasehold estate is registered with absolute title, it is vested in the leaseholder subject to implied and express covenants, obligations and liabilities incident to the estate as provided by subsection (4). Thus the first registered proprietor of a lease will take subject to such proprietary interests as restrictive covenants relating to the premises leased.

45.     Subsections (6) to (8) prescribe the effects of the registration of a lease with good leasehold title, qualified title and possessory title respectively.

Dependent estates

Clause 13: Appurtenant rights and charges

46.     Clause 13 empowers the Lord Chancellor to make rules in relation to the registration of dependent legal estates. First, rules may make provision for the entry in the register of a registered proprietor as the proprietor of an unregistered legal estate which subsists for the benefit of a registered estate. Rules made under this provision are meant to cover the situation where, on or subsequent to first registration, a registered proprietor has, or is granted, the benefit of a legal estate, such as an easement or a profit ... prendre, over unregistered land. Rules will enable the benefit of such an estate to be entered in the register.

47.     Secondly, rules may make provision for the registration of a person as the proprietor of an unregistered legal estate which is a charge on a registered estate. Rules under this provision are intended to cover the situations where:

i)     On first registration, the land is already subject to a legal mortgage.

ii)     Subsequent to first registration, a charge is created that does not have to be registered to have effect at law, as in relation to certain local land charges (cf Clause 55 below).

In such circumstances, rules may enable the registration of the mortgagee as the proprietor of a registered charge.

Supplementary

Clause 14: Rules about first registration

48.     Clause 14 confers a power to make rules in relation to various matters concerning first registration. As clause 125 provides, rules made under this provision will be land registration rules and will be laid before Parliament only.

Chapter 2: Cautions against first registration

49.     Cautions against first registration provide a means by which a person with an interest in unregistered land can be informed of an application for first registration of the title to an estate in that land. Under the present law, persons having or claiming to have an interest in unregistered land of a kind that entitles them to object to a disposition being made without their consent, may apply to lodge a caution with the registrar. In practice, in relation to the circumstances when the applicant's consent is required, this provision has been interpreted by the registrar to enable almost any person interested in the unregistered land to apply to lodge such a caution. Once a caution against first registration has been entered, no registration of the estate affected will be made until notice has been served on the cautioner and an opportunity given to appear before the registrar and oppose the application for first registration. There is no mechanism for "warning off" cautions against first registration. The cautioner will only be required to defend his or her caution when an application for first registration is made. Cautions against first registration are recorded on the index map and may be discovered by an official search of that map.

Clause 15: Right to lodge

50.     Clause 15 confers a right on any person who owns or who has an interest in a qualifying estate to lodge a caution. A qualifying estate is a legal estate which relates to land to which the caution relates, and is one of the four registrable estates i.e. an estate in land, a rentcharge, a franchise or a profit ... prendre in gross. Subsection (3) provides that the owner of a freehold estate, or of a leasehold estate with a term of more than seven years, cannot lodge a caution in respect of that estate. This is a new provision. The reason for it is that cautions against first registration are not intended to provide a substitute for first registration. The goal of total registration requires that a person with an unregistered legal estate that is registrable should register it. This prohibition will, however, not apply for two years after the provisions are brought into force. Under the transitional arrangements in paragraph 13 of Schedule 12, the new provision will have effect two years after the rest of the clause is brought into force. At the end of the two year period, subsisting cautions against first registration lodged by the landowner will cease to have effect unless an application has been made for first registration.

Clause 16: Effect

51.     A caution only gives the right to be notified of an application for first registration, so enabling an objection to be made. It has no effect on the validity or priority of any interest that the cautioner may have in the legal estate to which the caution relates. Where the cautioner objects, the matter must be referred to the adjudicator, unless the registrar is satisfied that the objection is groundless, or the matter can be determined by agreement. Subsection (4) enables an agent for the applicant for first registration to give notice, and for this notice to be treated as having been given by the registrar. This enables a solicitor or licensed conveyancer acting for an applicant to give notice at the time the application is made, and so help to expedite the process. Those entitled to give such a notice will prescribed by rules.

Clause 18: Cancellation

52.     This clause provides a procedure for the cancellation of cautions. Only the owner of the relevant estate, or such people as are prescribed by rules, can apply for cancellation. Owners who have consented to the lodging of a caution are generally prohibited by subsection (2) from applying for it to be cancelled. Rules will, however, be able to specify circumstances in which owners should be entitled to apply (where, for example, the interest protected by the caution had terminated).

Clause 19: Cautions register

53.     This clause requires the registrar for the first time to keep a register of cautions against first registration. Details of cautions against first registration are currently kept on a 'caution title'. The rules about the information to be kept in the register, and its form and arrangement, will enable it to be translated into electronic form, in due course.

PART 3 : DISPOSITIONS OF REGISTERED LAND

Powers of disposition

54.     One way in which a title to land may be defective is that owners can have limited powers, and may purport to make a disposition beyond them. The current legislation does not clearly establish that a person can rely upon the register to say whether there are any limitations on the powers of a registered proprietor, and safely act in reliance upon it. This section of the Bill corrects that.

Clause 23: Owner's powers

55.     This clause states the unlimited powers of an owner. It makes one change to the current law. Under the existing law, there is a presumption that a registered charge takes effect as a charge by way of legal mortgage, unless there is clear provision to the contrary, or it is made or takes effect as a mortgage by demise or sub-demise. Mortgages by demise or sub-demise are now in practice obsolete, because of the advantages of a charge (that enables freeholds and leaseholds to be made the subject of a single charge rather than separate demises or sub-demises; the grant of a charge of a lease is not thought to amount to a breach of the common-form covenant against subletting without the landlord's consent; and the form of legal charge is short and simple). Subsection (1)(a) therefore abolishes them, with prospective effect.

Clause 24: Right to exercise owner's powers

56.     Owner's powers can be exercised both by the registered proprietor, or someone entitled so to be registered, such as the personal representatives of an owner who has died.

Clause 25: Mode of exercise

57.     Subsection (1) enables the Lord Chancellor to prescribe the form and content of any registrable disposition of a registered estate or charge. This subsection would cover, for example, prescribing the form of a transfer. It is wider than the powers in the Land Registration Act 1925 in that it would be possible for the Lord Chancellor to prescribe the form of any registered charge. Subsection (2) provides that the Lord Chancellor may make rules as to form and content covering any kind of disposition (i.e. not just registrable dispositions) which depends upon its effect on registration.

Clause 26: Protection of disponees

58.     The effect of clause 26 is that a disponee is entitled to proceed, in the absence of such an entry, on the basis that there are no limitations on the owner's powers and the disponee's title cannot be called into question. Under subsection (3), however, the disposition will not be rendered lawful. Disponors who have acted beyond their powers can, therefore, be called to account, and a disponee may not escape liability if privy to the disponor's conduct.

59.     For example, where the disposition is in fact unlawful, the consequences of that unlawfulness can be pursued so long as these do not call into question the validity of the disponee's title. The example may be given of trustees of land, A and B, who had limited powers of disposition, but who failed to enter a restriction in the register to reflect this fact. If they transferred the land to a buyer, C, in circumstances that were prohibited by the trust, they would commit a breach of trust. Furthermore, although C's title could not be impeached, the protection given by the clause does not extend to any independent forms of liability to which she might be subject. Thus if C knew of the trustees' breach of trust when the transfer was made, she might be personally accountable in equity for the knowing receipt of trust property transferred in breach of trust.

60.     Although cautions are being abolished, cautions entered in the register under the existing legislation will continue in force under the transition arrangements in Schedule 12, and may be a means by which an underlying limitation on the proprietor's powers is reflected in the register.

Registrable dispositions

Clause 27: Dispositions required to be registered

61.     This clause sets out those dispositions of registered land that must be completed by registration if they are to operate at law. There are similar, but not identical provisions in the current legislation (in particular, sections 18 and 21 of the 1925 Act). Registrable dispositions, when registered, confer a legal estate, and are therefore given special priority provided for in clauses 28 to 30. In principle, all dispositions that create or transfer a legal estate by express grant should be subject to some form of registration, whether with their own titles or by the entry of some form of notice on the title which is subject to them. The clause therefore provides that any transfer of, or the grant or reservation of any legal estate out of, registered land, is a registrable disposition. This includes dispositions by operation of law, but with some limited exceptions.

62.     Subsection (2)(a) provides that transfers of a registered estate, i.e. a legal estate which has registered title and is not a registered charge, must be entered on a register. There are three exceptions. The first is where is a sole individual proprietor dies, where title to the estate vests by operation of law in the executors, if there are any, or in the Public Trustee until such time as there is a grant of administration. Personal representatives can apply to alter the register to bring it up to date by registering the applicant as proprietor. Secondly, when a sole individual proprietor becomes bankrupt, his or her estate will vest without any conveyance or transfer in the trustee for bankruptcy immediately on appointment (or in the Official Receiver in default of any such appointment), who can then apply to be registered. Thirdly, when a company is dissolved, its property is deemed to be bona vacantia and therefore vests in the Crown (or Royal Duchies). These exceptions are inevitable, and apply also to the transfer of registered charges dealt with in paragraph 65.

63.     An explanation of the categories of lease which are registrable under subsection (2)(b) is to be found in paragraphs 30 to 32. An explanation of the two categories of lease granted out of the registered estate that are not registrable (a lease of less than seven years or less, or a London Transport Public/Private Partnership Lease) is to found in paragraphs 26 and 145.

64.     Lease out of franchises and manors are made registrable under subsection (2)(c). They are both incorporeal rights of such a nature that the existence of a lease of them may not be apparent unless the lease affected is registered. The registration requirements vary. Where the term of the lease is for more than seven years, the grantee or successor in title must be entered in the register as the proprietor of the lease, and a notice in respect of the lease must also be entered (Schedule 2, para 4). If the term is seven years or less a notice in respect of the lease must be entered in the register. (Schedule 2, para 5).

65.     Subsection (2)(d) relates to easements and profits ... prendre, whether in gross or appurtenant to an estate. There are two exceptions. The Commons Registration Act 1965 prohibits the registration under the 1925 Act of rights of common that are registrable under the 1965 Act. This prohibition will continue under the Bill. Secondly, an easement, right or privilege granted under the operation of Section 62 of the 1925 Act (a so called 'word-saving provision' that is taken to import certain words into a conveyance unless its effect is excluded) is not regarded as an express grant for these purposes, so as to require registration. Under subsection (2)(e), both:

i)     a rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute;

ii)     a right of entry exercisable over or in respect of a legal term of years absolute, or annexed, for any purpose to a legal rentcharge;

are made registrable dispositions (these being the interests provided for in section 1(2)(b) and (e) of the Law of Property Act 1925).

66.     Most grants of a legal charge are registrable dispositions. Subsection (5)(c) exempts local land charges. A local land charge operates at law without the need for registration. Nor does the priority of a local land charge need to be protected by registration. But a local land charge which secures the payment of money cannot be realised unless it is a registered charge. Clause 55 provides that a charge over registered land which is a local land charge may only be realised if the title to the charge is registered.

It should be noted that one of the effects of the introduction of electronic conveyancing as provided for in Part 8 will be that dispositions will be simultaneously executed, communicated electronically to the registrar, and registered and Clause 93 contains powers for that to be made compulsory. The general principle set out in subsection (1) of this clause is likely, in time, to be superseded.

Effect of dispositions on priority

67.     Clauses 28 to 30 provide a clear statutory statement of the principles that determine the priority of interests in registered land. The essence of the present law is that the priority of interests in registered land is normally determined by the date of their creation, regardless of whether or not they are protected in the register. This has been laid down in relation to minor interests on the basis that such interests are equitable, and the rules that determine the priority of competing minor interests are therefore the traditional rules relating to competing equitable interests. The general maxim is that 'where the equities are equal, the first in time prevails'. That maxim is not always easy to apply, because of uncertainty as to when the equities are not equal, namely in cases of negligence or gross carelessness. As an exception to the general principle, registered dispositions are given special effect or priority when made for valuable consideration: any interests not protected in the register are subordinated to a registered disposition, unless the unregistered interests override.

68.     Under the proposals on electronic conveyancing, it will not be possible to create or transfer many interests in registered land expressly except by simultaneously registering them or protecting them by a notice in the register. In time, therefore, the register will become conclusive as to the priority of such interests, because the date of their creation and their registration will be the same. The provisions of these clauses will therefore, over time, also become obsolete.

Clause 28: Basic rule

69.     This clause provides that the priority of an interest affecting a registered estate or charge is not affected by a disposition (whether or not the interest or disposition is registered). The priority of any interest in registered land is therefore determined by the date of creation. Unlike the current rule, this is an absolute one, subject only to the exceptions provided for by the Bill.

Clause 29: Effect of registered dispositions: estates

Clause 30: Effect of registered dispositions: charges

70.     Clause 29 preserves the principal exception to the basic rule to be found in the current law. If a registrable disposition of either a registered estate or a registered charge is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate or charge immediately before the disposition whose priority is not protected at the time of registration. The disponee in the later disposition will take the estate free of the unprotected interest (which may not be destroyed, and may remain valid against interests other than that of the disponee under the registered disposition).

71.     The principle applies only to dispositions made for valuable consideration. As under the current law, that will not include a nominal consideration in money, where the general rule of priority applies.

72.     Under the current law, valuable consideration does include a transfer of land in consideration of marriage. The Law Commission and the Land Registry recommend that this should not continue on the grounds that it is an anachronism. Such a transfer is normally a wedding gift, and there is no reason for treating it differently from gifts in general. The clause therefore amends the current law by leaving out this exception.

Clause 31: Inland Revenue charges

73.     Clause 31 provides that the effect of a disposition of a registered estate or charge on an Inland Revenue charge under section 237 of the Inheritance Tax Act 1984 is to be determined in accordance with the relevant provisions of the Act, and not under clauses 28 to 30 of the Bill.

PART 4: NOTICES AND RESTRICTIONS

74.     Part 4 of the Bill contains provisions on notices and restrictions. It is concerned primarily with the protection of third party rights over or in relation to a registered estate or charge. At present, a person may lodge a caution against dealings with a registered estate or charge in respect of interests which under the Bill can be protected by a notice and other types of interest. A caution does not confer priority; only the right to receive notice of dealings with the affected registered estate or charge and to raise objections. Under the Bill it will no longer be possible to lodge such a caution but existing cautions will remain in the register by virtue of the transitional provisions contained in paragraphs 1 and 2(3) of Schedule 12.

Notices

Clause 32: Nature and effect

75.     This clause explains that a notice is an entry, made in the register, in respect of the burden of a third party's interest. The entry is to be made against the registered estate or registered charge that is said to be burdened. As under the Land Registration Act 1925, if the interest is not valid (for example, if parties had entered into an agreement that was not a valid contract) the entry of a notice will not validate it.

Clause 33: Excluded interests

76.     Clause 33 provides that there are five kinds of interest which cannot be the subject of a notice. The five categories set out in this clause cover:

• Interests under either a trust of land or a settlement - any interest under any form of trust is excluded because the purpose of a notice is to protect an interest in registered land by binding any person who acquires the land. An interest under a trust will not bind, say, a buyer of land if the buyer pays the purchase money to the trustees and there are at least two of them or a trust corporation. (A restriction is a proper form of entry to ensure that this occurs.)

• A lease granted for three years or less - at present, subject to certain statutory exceptions, a lease granted for 21 years or less cannot be a registered estate and a notice cannot be entered in respect of such a lease but it is protected as an overriding interest, even though not mentioned in the register. Under the Bill, again subject to statutory exceptions, a lease granted for seven years (rather than for 21 years as at present) or less cannot be a registered estate, but will override first registration and registered dispositions, even though not mentioned in the register. As explained in paragraph 188, clause 116 gives the Lord Chancellor power to reduce the qualifying time for the registration of leases, and this Clause anticipates a reduction by providing that notices cannot be entered for leases of 3 years or less (the likely minimum qualifying period).

• Restrictive covenants made between a lessor and lessee, so far as relating to the property leased. Such covenants are normally apparent from the lease, so it is unnecessary for them to be noted in the register. At present the exception includes a restrictive covenant over land not comprised in the lease, such as adjacent property owned by the landlord. This means no notice can be entered in respect of a restrictive covenant that relates to land that is not comprised in the lease, such as other adjacent property owned by the landlord. The Bill removes the difficulties created by the current law.

• An interest capable of being registered under the Commons Registration Act 1965.

• An interest in any coal or coal mine, the rights attached to any such interest or the rights of any person under section 38, 49, or 51 of the Coal Industry Act 1994. This exception is as at present. Under the Bill these interests override first registration and registered dispositions, even though not mentioned in the register, as provided for in paragraph 7 of Schedule 1, and paragraph 7 of Schedule 3.