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"( ) For the purposes of section 12A of the Stamp Act 1891 (c. 39), an instrument to which section 7(1) applies shall be treated as having been accidentally spoiled."

The noble Baroness said: My Lords, this is a probing amendment, which would ensure that if an instrument were avoided by a failure to apply for registration, the stamp duty paid on it could be used on any replacement instrument executed to give effect to the original transaction. The Bill contemplates that, in some cases--we agree that they are likely to be rare--a second instrument may be executed to replace one that was ineffective because it had not been registered.

In Committee, the Minister said that she would investigate the issue and return to it on Report. We want to ensure that this point is not overlooked.

Lord Bassam of Brighton: My Lords, the noble Baroness is right. The amendment was tabled in Committee and we agreed carefully to consider it. If the responsible estate owner fails to apply for first registration of title within the period of registration stipulated in Clause 6, the transfer, grant or creation of the legal estate becomes void as a result of the application of Clause 7(1). It is therefore necessary for the legal estate to be re-transferred, re-granted or recreated by a new and additional document.

Stamp duty should not have to be paid on both the original document that dealt with the transaction and the subsequent, replacement document. I am therefore delighted to be able to confirm that the Stamp Duties Management Act 1891 already addresses that issue. Section 9 of that Act states that, subject to the production of evidence as to the facts, and to compliance with stamp duty regulations, allowance is to be made by the Commissioners for stamps spoiled in certain situations. Section 9(7)(d) then explains how such an allowance is to be made, by providing that,

I can therefore reassure your Lordships that no amendment needs to be made to the Bill, as the necessary provision is already made by existing legislation. I trust that, with that warm reassurance and careful recollection of Victorian legislation, the noble Baronness will feel able to withdraw her amendment.

Baroness Buscombe: My Lords, I thank the Minister for his reassurance, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Clause 11 [Freehold estates]:

Baroness Buscombe moved Amendment No. 16:

    Page 7, line 20, at end insert ", or, as the case may be, the other persons,"

The noble Baroness said: My Lords, I shall speak to Amendments Nos. 16 and 17 together. The provision is intended to cover cases in which the proprietor has no beneficial interest and in which he shares that interest. Without the words that the amendments would insert, the provision appears to apply only where the proprietor has no beneficial interest. The amendments are drafting amendments with grammatical purpose, so we hope that the Government will respond positively.

Baroness Scotland of Asthal: My Lords, I thank the noble Baroness for her assiduous consideration of grammar in tabling the amendments. On this occasion, it is unnecessary further to clarify the Bill as drafted. In our view, the clauses as drafted are clear. Clause 11 states:

    "If the proprietor is not entitled to the estate for his own benefit, ... then, as between himself and the persons beneficially entitled to the estate, the estate is vested in him subject to such of their interests as he has notice of".

Clause 12 states:

    "If the proprietor is not entitled ... solely for his own benefit, then, as between himself and the persons beneficially entitled to the estate, the estate is vested in him, subject to such of their interests as he has notice of".

The amendments are therefore unnecessary. The clauses are considerably clearer than Sections 5(c) and 9(d) of the Land Registration Act 1925, which they replace. Those sections do not suggest that there are two different situations to consider. The clarity sought by the noble Baroness through the amendments is already achieved by the clauses as drafted. With that reassurance, I invite the noble Baroness to withdraw the amendment.

Baroness Buscombe: My Lords, I thank the Minister for her response. The fact that the clauses as drafted may be clearer than the related sections of the 1925 Act does not necessarily make them clear; they may be only an improvement. I will re-read the clauses and the Hansard report of what she had to say, to reassure myself that the amendments are unnecessary. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 [Leasehold estates]:

[Amendment No. 17 not moved.]

Schedule 1 [Unregistered interests which override first registration]:

[Amendment No. 18 not moved.]

Baroness Buscombe moved Amendment No. 18A:

    Page 46, line 10, leave out from "occupation" to end of line 11.

The noble Baroness said: My Lords, in moving Amendment No. 18A, I shall speak also to Amendments Nos. 20A, 41, 43, 44 and 45 and refer to government Amendments Nos. 19 and 43.

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On Amendments Nos. 18A and 20A, a person in actual occupation of land who possesses an interest under a trust of land is entitled by virtue of his occupation to protection in respect of that interest. Paragraphs 2(1) of Schedule 1 and 2(1)(a) of Schedule 3 withhold that protection if the person in actual occupation is entitled to an interest under a strict settlement.

When we moved the amendments in Committee, we saw no justification for the discriminatory treatment of the beneficiary under the strict settlement, and we see none now. We accept that under existing legislation, interests under strict settlement do not constitute overriding interests. But, as the Law Commission pointed out at paragraph 2.69 of its third report on land registration in 1987, the distinction in the treatment of beneficiaries under strict settlements and beneficiaries under trusts of sale--now trusts of land--was probably unintended and was in principle unjustifiable. In the recent consultative document, at paragraph 563, the Law Commission and the Land Registry both readily accept that rights under strict settlement should be capable of existing as overriding interests. We agree wholeheartedly with that view.

There is a further important consideration to which the Law Commission refers in its 1987 report. The strict settlement was the classical type of landed settlement, designed to preserve family estates from generation to generation. In that context, the need to protect the beneficial interests of persons in actual occupation will seldom, if ever, arise. However, one unintended consequence of the Settled Land Act 1925 has been the unintentional and informal creation of strict settlements in circumstances in which the machinery of the Act is inappropriate and often not properly implemented.

In that context, the exclusion of beneficiaries under strict settlement who are in actual occupation of land is capable of operating unjustly. For example, a widow entitled to a life interest in the former matrimonial home under the will of her husband will be entitled to protection if in actual occupation only if the property were subject to a trust of sale. In the absence of that magic formula, which may well have been omitted in a handmade or informal will, the widow will be entitled to no protection. When she is evicted, it will be cold comfort to her to know that she is one of comparatively few people who will be affected by the abandonment of the Law Commission's recommendation to extend the protection to persons in her position.

The fact that a widow under a strict settlement unintentionally created by a homemade will is one of a diminishing band is not a good reason for depriving her of the protection of the law, which the law accords to someone with almost identical rights under a trust of land.

I want now to refer briefly to Amendments Nos. 19 and 43, tabled by the Government. They appear to replicate the amendments which we tabled in Committee. We congratulate the Government on bringing them forward at the Report stage, albeit under their name. They are most welcome.

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I now turn to Amendments Nos. 41 and 44. In Committee, there was a discussion on the exact shades of meaning of the word "obvious" and of our suggested alternative, "apparent". We want to close off the unmeritorious argument that, although someone's occupation or, under paragraph 3 of Schedule 3 an easement, would have come to light on a reasonably careful inspection, it would not have been obvious and therefore not binding because the person undertaking the inspection would have had to think about what he saw in order to realise what the position was.

We believe that the reformulated amendments now proposed will avoid both that possibility and the semantic points raised in Committee. The amendments now have the simple effect of making an occupation or an easement binding if someone inspecting with reasonable care would find it. And common law principles will continue to govern what is a "reasonably careful inspection". Our reasoning is the same as, we believe, the Government's thinking in adopting our suggestion of deleting Schedule 1, paragraph 2(2) and Schedule 3, paragraph 2(2); that is, that in this area it is correct to rely on the interpretation which has been settled by the common law.

I now turn to Amendment No. 45. It is similar to an amendment we tabled in Committee, slightly redrafted to clarify its purpose. The point we want to deal with is that an inspection of land may show a used pathway across it or a window overlooking it. However, it will not be possible to say merely from looking at the land whether whoever uses the path or receives light to the window is entitled to do so as of right under an easement, or merely has the landowner's temporary or revocable permission to do so. We suggest that in such circumstances, a reasonably careful inspection should include asking whatever questions arise naturally from the facts observed.

The Government's reference in Committee to the case of Yandle v. Sutton and to patent defects in title appears to indicate that in their view as the Bill stands not only the relevant activity but also the fact that it is "as of right" and not merely permissive has to appear from mere visual inspection or be a "necessary" consequence of what is found by such inspection. If so, the saving for easements which would be revealed by inspection will never apply to anything, because merely looking at a path does not reveal whether anyone has an easement to use it.

The effect will be that paragraph 3(1)(b) appears to promise but does not deliver and even a clear but undocumented right of way over a well defined route will be lost on a sale of the land affected unless the person having the right can prove that it was used at some time in the previous year. I beg to move.

4.45 p.m.

Lord Bassam of Brighton: My Lords, the majority of these amendments relate to how obvious occupation has to be to constitute an overriding interest. In discussing them, it is my intention first to discuss the

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Government's Amendments Nos. 19 and 43, and then move to discuss Amendments Nos. 41 and 44 and finally Amendment No. 45. After that I shall discuss Amendments Nos. 18A and 20A, which relate to settled land and the rights of those in actual occupation.

As regards Amendments Nos. 19 and 43, concern was expressed during Second Reading and in Committee as to the meaning of "physically present" in relation to the protection of an interest by a person being in actual occupation; so that the interest overrides first registration or a registrable disposition. At that stage, the Government undertook to consider further. We have concluded that the proper course is to remove the partial definition of "actual occupation" in paragraphs 2(2) of Schedules 1 and 3. By doing so, I am pleased that we have adopted the approach contained in two of the amendments brought forward by the noble Baroness, Lady Buscombe, in Committee.

At present, paragraph 2(2) of each schedule provides that for the purposes of those paragraphs, a person is to be regarded as in actual occupation of the land only if he or she, or his or her agent or employee, is physically present there. "Actual occupation" is a term used in the existing legislation at Section 70(1)(g) of the Land Registration Act 1925. There is no statutory definition of the term but key elements of it have been explained by case law.

The intention behind the provisions in paragraphs 2(2) of Schedules 1 and 3 to the Bill was to codify certain of those key elements. They were, first, that there must be physical presence on the land of some kind, not just entitlement. Secondly, that physical presence does not have to take the form of residence. It might, for example, take the form of using a workshop. Thirdly, that physical presence does not have to be continuous. A person is no less in actual occupation if he or she only sleeps in the house and is out to work during the day. Finally, that the actual occupation may be that of the person who has the right, or it may be that of his or her agent or employee.

The Government do not seek to change any of those key elements provided by case law. However, we have concluded that there is a real risk in trying to add the glossing words "physically present". The additional words might create new scope for argument, and for expensive litigation, about the extent to which they might have been intended to alter the meaning of "actual occupation" as interpreted by the courts.

I turn to Amendments Nos. 41 and 44. The common thread of these two amendments and the Committee debates is the test to be applied in deciding whether something is patent on a reasonably careful inspection. In the first amendment, the test is in relation to whether a person's occupation is obvious and in the second, the test is in relation to legal easements and profits a prendre.

The amendments tabled in Committee sought to replace the word "obvious" with "apparent". These amendments seek to replace the words "obvious on" with "disclosed by", a reasonably careful inspection.

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The overall aim is to reduce interests which override registration as far as practicable and to ensure that they are restricted to interests which it would be impracticable or impossible to register.

I think it is agreed that if a buyer knows of a legal easement or profit because it is patent, then he should be bound by it. Such easements will be discovered from a reasonably careful inspection of the property and the seller would not be under a duty to disclose them. Secondly, any legal easement or profit which is not known to the buyer and is latent should not bind the buyer (although there should be an exception where the right has been exercised in the past year). This protects buyers from undiscoverable easements and profits, which are virtually impossible to get rid of once established.

The noble Baroness considers that the words "disclosed by" will achieve our common objective better than "obvious on". While I am grateful to her for that suggestion, I believe that little may turn on the different phrases. Noble Lords will recall that earlier and in Committee I referred to easements that will be discovered from a reasonably careful inspection. However, I am not aware of any judicial gloss on the word "discovered", while the term "obvious" has been the subject of considerable judicial use. It seems to us that the wisest course, and the one that makes our intentions clearest, is to echo language that is already familiar in case law.

The Oxford English Dictionary also suggests that "obvious" may be, as we would wish, a bit clearer and more evident than "disclosed". I would be worried in this difficult area, which has been the subject of much litigation in the past--no doubt also in future--to rely on very fine shadings of semantics. I very much welcome the thought which has gone into the noble Baroness's amendment. I agree that there is the finest of shadings between the rival versions. I would certainly hesitate to argue strongly for the original wording were it not for the closer correspondence to other areas of the Bill and the cases. On that basis I suggest to your Lordships' House that on balance it is the one to be preferred. The debates on these topics have undoubtedly been useful for this difficult area. They alone will, I hope, have done much to clarify the intention of Parliament in the event of a dispute.

As to Amendment No. 45, in debating Amendments Nos. 41 and 44 I said that if buyers knew of a legal easement or profit because it was patent they would be bound by it. Such easements will be discovered from a reasonably careful inspection of the property, and the seller will not be under a duty to disclose them. The amendment seeks to spell out that if it is obvious that there has been activity on the land, or advantage enjoyed over it, the buyer will take it subject to the easement or profit, whether or not that is disclosed. The test of what is "obvious" on a reasonably careful inspection is to be interpreted as the case law relating to the question of a patent defect in title, namely one

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that does not have to be disclosed to a buyer of land prior to contract. In the leading case the learned judge said:

    "I think [the purchaser] is only liable to take property subject to those defects which are patent to the eye, including those defects which are a necessary consequence of something which is patent to the eye".

Therefore, if it was patent to the eye that, say, a private right of way existed the disponee would be bound even if he did not know the particular right under which the way was used or who all the users were. A legal easement will override a registered disposition if it is one that a seller of the land burdened by it would not have to disclose before contracting to sell the land. If the amendment was accepted there would be a danger that that simple test, which is perfectly familiar to conveyancers, might be obscured.

I turn finally to Amendments Nos. 18A and 20A. When we debated the same amendments in Committee the Government said that they had considerable sympathy with the arguments which the noble Baroness had advanced for removing the exceptions for settled land in the Bill as it currently stood. However, having considered the matter further, and despite the very eloquent arguments advanced by the noble Baroness, we believe that the Bill is right to continue the present position. We take that view because one of the aims of the Bill is to keep the number of overriding interests to a minimum given the responses to the 1998 consultation paper, and there appears to be no evidence that the present provision has caused hardship.

In its 1998 consultation paper the commission originally suggested that the right of a beneficiary under the Settled Land Act 1925 should cease to be, as now, simply a minor interest and become an overriding interest on first registration and in relation to registrable dispositions. Although comparatively few people responded on this point, most thought that these rights should not be overriding. Since 1996 it has been impossible to create new settlements under the 1925 Act as a result of the Trusts of Land and Appointment of Trustees Act 1996. This will, therefore, be an issue of rapidly diminishing significance. Consultees thought it very curious that the commission should seek to improve the protection of such rights and extend the scope of overriding interests at this stage when the general view was that the range of overriding interests should be cut back.

Any settlements of registered land expressly created before 1997 should have been protected by the entry of the prescribed restrictions on the register. The Law Commission, therefore, thought it likely that little or no hardship would be caused by the abandonment of the recommendation. It is therefore recommended that there should be a continuation of the present situation under which a beneficiary under a settlement cannot protect his or her interest by virtue of his or her actual occupation of the settled land.

In the 75 years since the Land Registration Act 1925 came into force the present situation does not appear to have caused any problems, and I am not aware of any case where the lack of protection as an overriding

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interest has prejudiced a beneficiary under a strict settlement. While what I say must in part be speculation, it would not surprise me if a reason for this is that the beneficiary, who would normally be in possession, is the tenant for life (in the technical sense) and normally he will be the registered proprietor (the trustees of the settlement usually being registered only if they are the statutory owners where there is no tenant for life).

I apologise for the length at which I have dwelt on these amendments, including those tabled by the Government, but I believe that it is important to deal in some detail with the various concerns raised by the noble Baroness. I hope that she will, therefore, be able to withdraw her amendment.

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