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01st February 2017

The Importance of being Registered. - The case of Baker v Craggs [2016] EWCH 3250 [CH]

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A buyer recently bought part of a farm in Somerset. His purchase included acres of fields and some barn buildings including a yard area. The buyer was also granted a right of way over a driveway leading from the farm yard over some of the seller’s retained land. In the transfer transferring title to the buyer the seller failed to reserve to themselves any rights of way to cross the yard.
Having completed the purchase the buyer’s solicitor was left to complete the formal registration of the buyer as legal proprietor. The Land Registry raised a requisition (question) on the application, as the plan did not show the route leading to the yard area. The Land Registry give lawyers only limited time to reply to requisitions and, in this case, because the necessary amended plan was not supplied to the Land Registry within the required period, the application was cancelled.

A dispute arose because after the buyer had completed his purchase, the seller disposed of further land to a third party. The transfer document to that third party provided them with a right of way over the yard area which had already been sold to the first buyer and in respect of which no reservation of a right in favour of the seller had been made in the original transfer. Therefore, the seller seemed not to have the legal standing to grant such a right. Unfortunately the solicitors conducting this second transaction appeared not to have noticed this omission.

It is long established law that a buyer becomes the beneficial owner of property on the date of completion of the transfer, but he does not become legal owner until the registration of his title is completed at the Land Registry. The time between completion of the transfer and the completion of the registration is known as the “registration gap.” The legal ownership of the yard area would not have passed until the buyer became the registered proprietor and until it did so legal title remained registered to the seller. As the seller still held the legal registered title they still retained the powers of a legal owner, including the power to grant a right of way.

This would not have been an issue if the first buyer had completed its registration within the priority period, but as a result of the Land Registry cancelling the application for registration, the first buyer had in turn forfeited priority over any following transactions by the seller. Eventually, four months later, the first buyer did become the registered proprietor of the transferred property after a revised application was submitted, but found that this registration was subject to an unexpected right of way in favour of the third party crossing his newly acquired yard.

The buyer first contended that his purchase and right to use the yard “overrode” any subsequent grant of a right of way. Subsequent purchasers take subject to an interest in land if that prior interest is “overriding”. As a matter of established law, one such “overriding interest" is an interest of a person in actual occupation of land. This is why before exchanging contracts and before completion a purchasing client should always inspect property to see if there is anyone in actual occupation who may have an overriding interest in it. Rights of persons in actual occupation will usually override subsequent dispositions, unless that person’s occupation was not obvious or, when asked, the person with the interest failed to disclose it.

Yet in this case, although it was held that the first buyer did potentially have an overriding interest this interest was “overreached”. “Overreaching” is where the beneficial interest in land is transferred into a claim for money from the selling legal owners (because they have obligations as trustees to the beneficial owners whose property interest has been overreached). Beneficial interests will be overreached only if at least two trustees convey the legal estate to a buyer in good faith for valuable consideration and give a receipt for any capital money (sections 2(1) and 205(1)(xxi), Law of Property Act 1925). As there were two sellers here, it meant that any interest arising from the first buyer’s occupation had automatically been transferred into part of the sale proceeds. Therefore, although the first buyer was in actual occupation, because he had lost priority his ownership of the property became subject to the second purchaser’s right of way.

There are many lessons to be learned from this recent case which contained a catalogue of conveyancing mistakes. It is advised that buyers inspect property both immediately before contracts are exchanged and then again immediately before completion. Also, the parties should ensure that transfer plans are accurate and reflect all rights granted and reserved. You (usually) won’t acquire rights that have not been reserved to your predecessor in title. Finally, make sure that any Land Registry requisitions raised are responded to promptly in order that legal as well as beneficial title will pass to the buying client, because, as seen above, the doctrine of overreaching may mean that a buyer cannot rely on its actual occupation of the property as an overriding interest.

For further information please contact David Wells on 01604 463149 or click here to email David.