Determination of indemnity by court

281.     Paragraph 7 sets out the entitlement of a person to apply to the court to determine if indemnity is payable, and if so, how much. There is no need to obtain the registrar's prior consent to the costs of the court action (see paragraph 3 above).

Time limits

282.     Paragraph 8 A claim for indemnity will be barred by lapse of time. Paragraph 8 states that for the purposes of the Limitation Act 1980, the liability to pay indemnity is a simple contract debt. The claim will therefore be barred six years after the cause of action arose. The cause of action arises at the time when the claimant knew, or but for his or her own default might have known, of the existence of his or her claim.

Interest

283.     Paragraph 9 makes provision for the payment of interest, which is not found expressly in existing legislation. Rules can be made to deal with the circumstances in which interest is payable, and the period and rates of interest that are to be paid. It is likely that the rules will provide for the payment of interest from the date of a mistake where the maximum sum recovered in respect of the loss of an estate, interest or charge is taken to be its value at the date when the mistake was made (see paragraph 6).

Recovery of indemnity by registrar

284.     Paragraph 10 replicates the current position, which is to enable the registrar in three circumstances to recover from a third party the amount of any indemnity (plus interest) paid to the claimant. The first situation is when that person caused or substantially contributed to the loss by fraud. There is no requirement that the recipient of the indemnity payment could have sued the perpetrator of the fraud, although it is likely that he or she would have been able to do so. Secondly, akin to an insurer's right of subrogation, the registrar may enforce any right of action whatsoever that the claimant would have been entitled to enforce had the indemnity not been paid. Lastly, where the register has been rectified, the registrar may enforce any right of action whatsoever which the persons in whose favour the register was rectified would have been entitled to enforce if the register had not been rectified. The third right of recourse goes beyond the insurer's right of subrogation. These rights are given to the registrar in addition to any other rights and remedies that he has otherwise.

SCHEDULE 9: THE ADJUDICATOR

Holding of office, Remuneration, and Parliamentary disqualification

285.     Paragraphs 1, 2 and 9 The adjudicator will hold office on the terms determined by the Lord Chancellor, including pay, expenses and allowances. Pension provision will be dealt with either under the Judicial Pensions and Retirement Act 1993, or otherwise as the Lord Chancellor determines. The adjudicator will have judicial terms and conditions. He or she may resign or be removed from office on the grounds of incapacity or misbehaviour. The adjudicator will continue in office until the term of the appointment ends. When the appointment ends, he or she is eligible for reappointment. The appointment is subject to the provisions of JUPRA which provide for a compulsory retirement age of 70 years, subject to the possibility of annual extensions until the appointee is 75 years of age. If there are special circumstances on the termination of the appointment, the Lord Chancellor has power to pay compensation. Like the office of Chief Land Registrar, the office of adjudicator becomes an office which disqualifies from membership of the House of Commons, the Scottish Parliament, and the Welsh and Northern Ireland Assemblies.

Staff and Conduct of business

286.     Paragraphs 3,4 and 5 Like the registrar, the adjudicator is supported by staff who may be authorised to carry out any of his or her functions. The only exception to this is that for tasks that are not administrative, such as presiding over hearings, the member of staff must meet the same requirements of ten years' legal qualification under the Courts and Legal Services Act 1990 as the adjudicator. Like the registrar, the adjudicator may choose staff and appoint them on such terms and conditions as he or she, with the approval of the Minister for the Civil Service, sees fit. The Lord Chancellor can make regulations to cover the situation when a vacancy arises in the office of adjudicator.

Application of Tribunals and Inquiries Act 1992

287.     Paragraph 8 states that the adjudicator is to be under the supervision of the Council on Tribunals. At present, the Solicitor to HM Land Registry is not.

SCHEDULE 10: MISCELLANEOUS AND GENERAL POWERS

288.     This Schedule contains specific rule-making powers in respect of: dealings with estates subject to compulsory first registration; title matters between sellers and buyers; implied covenants; land certificates; form, content and service of notices; applications; and statutory statements required under any enactment to be included in an instrument effecting a registrable disposition or a disposition which triggers the requirement of registration. It also contains a residual power to make any other provision which it is expedient to make for the purpose of carrying the Bill into effect. This residual power follows in the foot steps of section 144 (1) (xxxi) of the Land Registration Act 1925.

SCHEDULE 11: MINOR AND CONSEQUENTIAL AMENDMENTS

Settled Land Act 1925 (c. 18)

289.     Paragraph 1 Section 119(3) makes the Settled Land Act 1925 subject to the Land Registration Act 1925 and is no longer required as a result of the passing of the bill.

Law of Property Act 1925 (c. 20)

290.     Paragraph 2 Section 44 of the Law of Property Act 1925 currently provides that under a contract for the grant of a lease, an intending lessee is not entitled to see the leasehold title out of which it is being granted (if any) or the title to the freehold of that land. The amendment to section 44 removes that restriction for contracts to grant leases that will result in first registration of title. Section 87 is amended to make it clear that although a registered proprietor of land can no longer create a mortgage by demise or sub-demise over registered land, the operation of section 87 is unaffected. The amendment has no application to leases granted out of registered land, even if the title to the registered estate out of which the lease is being granted is registered with less than absolute title. Section 94, which relates to tacking and further advances, is amended to make the regime under clause 49 applicable to all charges over registered land and for the scheme under section 94 to apply to all other charges. The other amendments to the Law of Property Act are consequential.

Inheritance Tax Act 1984 (c. 51)

291.     Paragraph 17 amends section 238(3) of the Inheritance Act 1984. Section 238, amongst other things, provides that a purchaser of registered land (or an interest in it) does not take subject to an Inland Revenue charge (to secure the payment of Inheritance Tax) if at the time of the disposition the charge was not protected by a notice in the register. "The time of the disposition" is defined in subsection (3) and currently means in relation to registered land, the time of registration of the disposition. This amendment replicates this but additionally deals with dispositions in relation to registered land which are not required to be completed by registration (for example, a lease out of a registered freehold title not exceeding seven years). In such cases the time of the disposition is the time of completion.

Housing Act 1985 (c. 68)

292.     Paragraph 18 amends the Housing Act 1985. Section 37 provides that a conveyance, grant or assignment executed, under section 32, of a house situated in a National Park or in certain other areas shall contain a covenant limiting the freedom of the purchaser to dispose of the house (as therein provided). At present if a disposition of registered land contains such a covenant then the registrar is under a duty if registering the disposition to enter a restriction. The effect of the amendment to section 37(5) is that the registrar will also be under a duty to enter a restriction when he is registering the purchaser's title under a disposition of unregistered land and the instrument effecting the disposition contains the covenant (for example, a conveyance of the unregistered freehold estate to the purchaser).

293.     The substitutions of paragraphs 4 and 5(2) of Schedule 9A to the 1985 Act are intended to have the effect of replacing the existing provisions with similar but clearer provisions.

294.     Paragraph 5(3) will cease to have effect. That provision removes the necessity for the land certificate to be produced under section 64(1) of the Land Registration Act 1925 if a qualifying person applies for entry of a notice or restriction. Section 64(1) is (along with the remainder of the 1925 Act) repealed by Schedule 13 to the Bill and the circumstances when land certificates are to be produced to the registrar are left to rules under the Bill.

295.     The words substituted for paragraph 6(1) will have the equivalent effect under the Bill in that if the rights of qualifying persons are not protected by notice in the register they will be liable to lose their priority to a registered disposition under clause 29.

Building Societies Act 1986(c. 53)

296.     Paragraph 19 will amend paragraph 1 of Schedule 2A to the Building Societies Act 1986 to refer to the Bill - paragraph 1 will only deal with discharges of mortgages of unregistered land.

Landlord and Tenant Act 1987 (c. 31)

297.     Paragraph 20 will substitute references to the Bill for references to the Land Registration Act 1925

Judicial Pensions and Retirement Act 1993

298.     Paragraph 28 adds the Adjudicator to HM Land Registry to the list of judicial officers in Schedule 5 to this Act. Its effect is to apply section 26 under which there is a compulsory retirement age of 70 with the possibility of annual extensions up to the age of 75 (see paragraph 1 of Schedule 9).

Law of Property (Miscellaneous Provisions) Act 1994 (c. 36)

299.     Paragraph 31 amends section 6 of the Law of Property (Miscellaneous Provisions) Act 1994. Under section 6 of that Act, a person making a disposition is not liable under the covenants implied by the Act for anything that was within the prior knowledge of the person to whom the disposition was made. A new subsection is added to exclude liability for any information that was entered in the register of title relating to that interest at the time of the disposition, the register of title being open to public inspection.

SCHEDULE 12: TRANSITION

Existing entries in the register

300.     The Bill will replace cautions against dealings, inhibitions, existing notices and restrictions with notices and restrictions. The transitional provisions ensure that such existing entries have a continuing effect.

301.     So, under paragraph 2, existing notices are to have effect as against notices under the Bill. Similarly, restrictions and inhibitions are to have effect as entered under the Bill as against restrictions under the Bill.

302.     Sections 55 (effect of cautions against dealings) and 56 (general provisions as to cautions) of the Land Registration Act 1925 will continue to have effect in relation to cautions against dealings, so that, (depending on any rules made under paragraph 2(4)) the present system of "warning-off" a caution could continue.

303.     The entries referred to in paragraph 3 are notices of deposit or notices of intended deposit of the land or charge certificate entered in the register prior to 3 April 1995 which operate as a caution under section 54 of the 1925 Act.

Existing cautions against first registration

304.     Paragraph 4(1) provides that section 56(3) of the 1925 Act shall still apply to cautions against dealings. Under section 56(3) any person who lodges a caution without reasonable cause is liable to pay such compensation as may be just to any person who may sustain damage from such lodging.

Pending applications

305.     Paragraph 5 provides that he 1925 Act will continue to apply to an application for a notice, registration, inhibition or caution against dealings which is pending immediately before the 1925 Act is repealed.

306.     Paragraph 6 provides that subsections (1) and (2) of section 53 of the 1925 Act shall continue to apply to applications for cautions against first registration which are pending when those subsections are repealed. The subsections deal with who may apply and the evidence to be lodged.

Former overriding interests

307.     Paragraph 7 is discussed below under Adverse possession.

308.     At present, the unregistered interest of both a person in actual occupation and also one in receipt of rents and profits is protected as an overriding interest, unless enquiry of that person is made and the rights are not disclosed (section 70(1)(g) of the 1925 Act). The Bill confines protection of this class of interest to those in actual occupation. Paragraph 8, however, provides that an interest which, immediately before the coming into force of Schedule 3, was an overriding interest under section 70(1)(g) of the 1925 Act by virtue of a person's receipt of rents and profits is to be an unregistered interest that overrides registered dispositions under Schedule 3, but it will cease subsequently to be such an interest if that person ceases to be in receipt of rents and profits.

309.     Under paragraph 9, where an easement or profit ... prendre is an overriding interest at the time when the Bill comes into force, but would not be under the provisions of paragraph 3 of Schedule 3, its priority will be protected without the need for registration. So, those who have the benefit of such rights are not at risk of losing them.

310.     Under paragraph 10, for three years after the Bill is brought into force any legal easement or profit ... prendre that is not registered will have protected priority. Apart from those easements and profits that fall within paragraph 9, that overriding status will cease three years after the date on which the Bill is brought into force. There will, therefore, be a period of three years' grace before the new arrangements take effect, except in relation to equitable easements and profits. Any equitable easements and profits created after the Bill is brought into force will need to be protected by registration.

311.     Paragraph 11 is discussed below under Adverse possession.

312.     Under section 70(1)(k) of the 1925 Act leases granted for a term not exceeding 21 years are overriding interests. The effect of paragraph 12 will be that where before the coming into force of Schedules 1 and 3 a lease was an overriding interest under section 70(1)(k) it will be taken to be a lease within paragraph 1 of the appropriate Schedule and so continue to override first registration or a registered disposition.

313.     Similarly, where a local land charge whose status as such was preserved by the Local Land Charges Act 1975 is presently protected under section 70(1)(i) it will, by virtue of paragraph 13, be protected under paragraph 6 of Schedule 1 or Schedule 3

Cautions against first registration

314.     Paragraph 14 modifies section 15 (right to lodge) so that for a two-year period beginning on the day that section 15 comes into force a person claiming to own a freehold estate in land or leasehold estate in land having more than seven years to run may lodge a caution against first registration.

315.     Paragraph 15 has the effect that Her Majesty may lodge a caution against first registration in respect of Her demesne land for a ten year period (or such longer period as rules may provided) beginning on the day that section 15 comes into force.

316.     Paragraph 16 has the effect that the Bill will apply to cautions against first registration lodged under section 53 of the 1925 Act as if they had been lodged under section 15 of the Bill.

Applications under clause 34 or 43 by cautions

317.     Paragraph 17 provides that a cautioner in respect of a caution against dealings under the 1925 Act may only apply for a notice or restriction if at the same time he or she applies to withdraw the caution.

Adverse possession

318.     It is necessary to make transitional provisions to accommodate the very substantial changes to the law relating to adverse possession and registered land that the Bill will make, and to ensure that vested rights are preserved.

319.     Where, immediately prior to the coming into force of the Bill, a squatter has been in adverse possession for the requisite period, the registered proprietor will hold the registered estate on a bare trust for the squatter under section 75 of the 1925 Act. Such a squatter will have become entitled to be registered as proprietor of an estate under section 75. The Bill adopts a double strategy. It preserves the rights of those who are entitled to be registered prior to its coming into force, but it also abolishes the trust in their favour.

320.     The trust is abolished by the repeal without replication of section 75 of the 1925 Act. Instead, the Bill confers, by paragraph 18(1), on a squatter who is a beneficiary under a trust under section 75 immediately before it comes into force an entitlement to be registered. That entitlement will be a proprietary right. As such, as long as the squatter is in actual occupation the priority of his right will be protected in relation to registered dispositions. It will also constitute a defence to any proceedings for possession (paragraph 18(2)). If a squatter does establish this defence in such proceedings, the court must order the registrar to register him or her as proprietor of the estate to which his entitlement relates (paragraph 18(3)).

321.     Although the right to be registered will be an overriding interest if the squatter is in actual occupation, a squatter's rights will, for a period of three years beginning on the day on which Schedule 6 (registration of adverse possessor) comes into force, be protected even if he or she is not in actual occupation where:

• in respect of first registration, the squatter has acquired a right under the Limitation Act 1980 before the coming into force of Schedule 1 (paragraph 7)

• in respect of a registered disposition, the squatter was immediately before the coming into force of clause 96 entitled to be registered as the proprietor of an estate under section 75 (paragraph 11).

322.     As with rentcharges generally (see paragraph 14 of Schedule 6) transitional provisions for rentcharges held on trust under section 75 may be the subject of rules (paragraph 18(4)).

Indemnities

323.     Under paragraph 19 the provisions in Schedule 8 (Indemnities) applies not only to claims arising after the Bill comes into force but to those made before then but not by then settled by agreement or finally determined.

324.     Prior to the coming into force of the Land Registration Act 1997 on 27 April 1997 the registrar's consent to incurring costs only applied to costs incurred in taking or defending any proceedings (other than an application to the court for indemnity). The 1997 Act introduced the wider requirement of consent for costs and expenses of whatever nature but preserved the pre-27 April 1997 position in relation to proceedings, negotiations or other matters begun before 27 April 1997. The effect of paragraph 19(2) is to preserve this position.

Implied indemnity covenants on transfers of pre-1996 leases

325.     In relation to leases granted prior to 1996, a tenant who assigns a lease remains liable to the landlord on the covenants in that lease for its entire duration notwithstanding any assignment by him or her of that lease. Such "first tenant liability" has been abolished for leases granted after 1995 by the Landlord and Tenant (Covenants) Act 1995. However, leases granted prior to 1996 will continue in existence for many years. As regards such leases, section 24(1)(b) and (2) of the Land Registration Act 1925 made provision for implied indemnity covenants on the part of the transferee in favour of the transferor, and, in relation to a transfer of part, an implied indemnity covenant on the part of the transferor in favour of the transferee. Section 24(1)(b) and (2) of the Land Registration Act 1925 were repealed prospectively by the Landlord and Tenant (Covenants) Act 1995, but only in respect of "new tenancies" - in essence those granted after the Act was brought into force.

326.     Paragraph 20 replicates in more comprehensible form the effect of section 24(1)(b) and (2) in relation to the assignment of leases which are not "new tenancies" for the purposes of the 1995 Act.

SCHEDULE 13: REPEALS

Land Registration and Land Charges Act 1971

327.     This Act has been superseded apart from its provisions for the designation of areas of land as "Souvenir Land" outside the terms of the land registration system. Although one or two areas of souvenir land have been designated, the Land Registry has found a more effective way of dealing with the plots within the land registration system. These provisions are therefore no longer required.

FINANCIAL AND MANPOWER EFFECTS OF THE BILL

Public sector cost implications

328.     The Land Registry is a Trading Fund. It meets its current expenditure entirely out of fee income. Other than as mentioned below no expenditure is expected to fall on the Consolidated Fund or the National Loans Fund as a result of the Bill. In relation to the Land Registry it is expected that the cost of the implementation of the Bill generally and the development of electronic conveyancing services will be paid for out of fee income. Since obtaining Trading Fund status in 1993 the Land Registry has reduced its fees by 40%. It seems likely that the rate of future reductions will be lower as the new systems are developed and brought into operation over the next ten years or so. Thereafter it is expected that further reductions will be possible as the benefit of the new technology is felt.

329.     The cost of the creation and funding of the office of adjudicator will be met by fees. It is expected that the creation of a specialised office will create a more cost efficient adjudication and dispute resolution service than the present arrangements in the Land Registry.

330.     Public Sector bodies required to register short leases because of the Bill will have to pay land registration fees. They will gain the benefit of registered title. This will save future expenditure. Public sector landowners generally will benefit from more efficient land transaction systems and from the greater protection given to registered rights not least against squatters.

Public service manpower

331.     There is not expected to be any additional requirement for public service manpower as a result of the Bill. Planned efficiencies will enable additional applications for registration to be accommodated within existing resources. Although not solely a consequence of the Bill the introduction of electronic conveyancing is expected to reduce the requirement for staff at the Land Registry by about 1200 over the period 2002/3 to 2009/10. There may also be some further savings resulting from other investment and efficiencies made by the Land Registry. Some or all of those staff may be redeployed on other projects to improve the quality and range of services offered by the Land Registry. After electronic conveyancing is fully introduced further savings may be possible.

COMMENCEMENT

332.     The provisions of the Bill will be brought into force by commencement orders made by the Lord Chancellor for England and Wales. Commencement orders may bring all provisions into force, or may bring only certain provisions into force. Different provisions may be brought into force on different dates.

SUMMARY OF THE REGULATORY IMPACT APPRAISAL

333.     The objective is to maximise the land registration system's contribution to the improvement of the conveyancing process; the property market and the wider economy.

The principal problems which have been found are:

• the law is unduly complicated and out of date;

• some valuable property rights cannot be registered;

• registration gives no extra protection against squatters; and

• too many rights over land do not have to be registered.

334.     The solutions will aim to move the land registration system from its roots in the paper-based procedure and technology of the nineteenth century to electronic communications systems of the twenty-first.

RISK

335.     The risk of failing to make changes is considered to be that an opportunity to improve the speed and transparency of the conveyancing process significantly will be lost.

WHO WILL BE AFFECTED?

336.     Landowners (including homeowners, businesses, farmers, charities and the public sector) and prospective landowners will be affected, as will those who lend on the security of land and those who own or claim rights over land. The changes will also affect those who trade in information about property. Most affected, however, on a day to day basis, will be conveyancing professionals, such as solicitors and licensed conveyancers, and the Land Registry.

PROBLEMS AND PROPOSALS: COSTS AND BENEFITS

The state of the current law

337.     Clear modern law will benefit the users and the providers of the land registration system. The Land Registry should recoup its additional outlay in less than five years. Other users should gain proportionate benefits. The benefit of new law should outweigh the cost of change.

Some valuable property rights cannot be registered

338.     Extending registration to short leases may be broadly cost neutral at current fee levels but will enable quicker conveyancing and open the way to greater savings in the future. It will also reduce the number of interests that can exist off the register. With the advent of electronic registered conveyancing the advantage of registered land will increase.

339.     Voluntary registration of short leases is unlikely to lead to sufficient growth to deliver a transparent market. Against this the benefits of registration are considered greater for longer leases. It is possible that a reasonable balance could be struck by requiring leases over 7 years to be registered. This would exempt the large class of very short residential lease owners whilst catching the majority of the commercial market where property is both valuable and regularly traded.

340.     It is expected that voluntary registration will bring the benefits of land registration to those owners of profits ... prendre and franchises who wish to take advantage of it. We consider compulsory registration would be inappropriate in such a small specialist market.