LEVEL 6 - UNIT 9 – LAND LAW
SUGGESTED ANSWERS – JANUARY 2013
Note to Candidates and Tutors:
The purpose of the suggested answers is to provide students and tutors with
guidance as to the key points students should have included in their answers to
the January 2013 examinations. The suggested answers set out a response that
a good (merit/distinction) candidate would have provided. The suggested
answers do not for all questions set out all the points which students may have
included in their responses to the questions. Students will have received credit,
where applicable, for other points not addressed by the suggested answers.
Students and tutors should review the suggested answers in conjunction with the
question papers and the Chief Examiners’ reports which provide feedback on
student performance in the examination.
SECTION A
Question 1
The decision of the Supreme Court in Kernott v Jones (2011) is the latest in a
long line of judicial decisions seeking to establish the nature of implied trusts of
the family home.
Where cohabiting couples have considered the division of property on sale or the
breakdown of the relationship and have expressed the nature of the trust, there
can be little problem. An express trust of land will be recognised so long as the
relevant formality requirements are satisfied (s53 Law of Property Act 1925): it
is made in writing and signed by the settlor or settlors. It is often the case that
such trusts appear on the face of the transfer of the property to the trustees.
Where such an express trust is not found a resulting or a constructive trust may
be implied.
A presumption is raised that the people who advance the purchase money at the
time of acquisition of property are entitled to a proportion of the value of that
property equivalent to the proportion they paid towards the purchase price (Dyer
v Dyer (1788)). The presumption can be rebutted by evidence that the money
was a gift or loan, or by express wording to the contrary (Re Sharpe (1980),
Cowcher v Cowcher (1972)).
Where there has been contribution to the purchase price by both parties, the use
of the resulting trust provides some remedy to both parties. The resulting trust,
however, may not provide a fair division of value where the purchase price was
paid wholly or mostly by one party, or where the other party has made a
significant contribution to the running of the household after purchase, or has,
for instance contributed towards the building costs of an extension.
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A constructive trust is, in theory, imposed when it is unconscionable for the legal
owner to deny the beneficial interest. According to Lloyds Bank plc v Rosset
(1990), the person claiming to be the beneficiary of a constructive trust must
show either: an express common intention at the time of purchase that the
property be owned jointly together with detriment; or a common intention
implied from the circumstances together with a contribution to “bricks & mortar”.
Thus in Grant v Edwards (1986), the express intention was manifested by the
defendant’s assurance that the legal estate would be in joint names but for that
it would complicate his divorce, and detriment was shown by bringing money in
to the household and paying some of the bills (note that there was not direct
contribution to “bricks and mortar”).
It seems that the detriment required following proof of an express common
intention need not be great. In Hammond v Mitchell (1991) it amounted to
demurring in the legal owner granting a charge over the property, although in
the absence of the claimant having a demonstrable interest in the property
before that point, it is difficult to see how she might have prevented the property
being charged.
Where there is no express common intention, the courts will look at all of the
circumstances to see if such an intention can be implied. Here the claimant will
have to show a direct contribution to “bricks and mortar”. In Passee v Passee
(1988), making payments towards the mortgage was sufficient, but, tellingly, in
Burns v Burns (1984) giving up work to keep the house and raise children was
not.
More recent decisions (Oxley v Hiscock (2004) and Stack v Dowden (2007), for
instance) have demonstrated a greater willingness by the courts to impose a
constructive trust (even where a resulting trust might be normally be presumed)
on the breakdown of a cohabiting relationship. In those cases the courts seemed
to recognise that the imposition of a resulting trust was a “blunt instrument” in
determining the distribution of the asset. But this can only be done where the
common intention and detriment or contribution can be demonstrated. If the
parties have never discussed the matter, no express common intention arises
and thus the claimant faces the high hurdle of showing contribution: this creates
problems in the cases which seem most to require justice, where one party has
given up work and career to raise a family.
Earlier decisions concerned the “sole ownership” cases. More difficult have been
the situations where the parties are joint legal owners, but where no express
trust is in place. Historically, equity would follow the law, and the parties were
deemed to be beneficial joint tenants. Following Stack, this approach could
rebutted by strong evidence of a contrary intention between the parties. Judged
against the unusual facts of that case (that the parties had punctiliously
separated their respective finances throughout their relationship), it seemed that
few couples would be in a position to rebut.
In Jones v Kernott (2011) the Supreme Court made it clear that a resulting trust
should not be applied to disputes concerning the family home (whether solely or
jointly owned). Instead, the starting point in joint ownership cases would be a
joint tenancy, but the bar appears to be lowered in comparison with Stack, as if
the objective common intention is otherwise, the presumption will be rebutted
and a constructive trust applied.
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In sole ownership cases, a constructive trust will be applied where the claimant
can demonstrate a right to beneficial ownership (whether by contribution to
purchase price or pursuant to a common intention constructive trust).
Once the Court is satisfied that a constructive trust should be imposed, the
claimant’s remedy is a share “that is fair having regard to the whole course of
dealing” between the parties.
Significantly, the Supreme Court held that the parties’ intentions could change
through the course of the relationship and the ownership of the property, and
that the parties’ respective shares could change in consequence.
In Gallarotti v Sebastianelli (2012) the Court of Appeal confirmed that Jones
applied in all “domestic” cases: in that case, the co-owners were friends who
could not afford to buy their own homes independently; they were no cohabitees.
It is arguable that Kernott has brought clarity to the area; the blunt instrument
of a resulting trust is no longer to be considered; and the approach to single and
joint ownership cases is largely common, and clearly stated in the judgment.
Set against this is the loss of certainty arising from resulting trusts. The
recognition that the parties’ intentions can change over time, and the apparently
“ambulatory” nature of the modern constructive trust, combined with the broad
brush approach to quantification must, it is argued, be the most significant factor
in the argument that the doctrine is considerably less certain that was the case
following Rossett.
Question 2(a)
Section 205 of the Law of Property Act 1925 defines “land” as including, inter
alia, all corporeal and incorporeal hereditaments. This includes the land itself,
buildings, and things forming a physical part of the land and buildings, as well as
rights appurtenant to the estate.
Assuming that the transfer is of only the estate (i.e. there is no provision in the
contract for the transfer of fixtures and fittings), the purchaser will acquire, in
terms of corporeal hereditaments, fixtures (but not fittings) and fructas naturales
(not fructas industriales).
The original test to distinguish fixtures (land) and fittings (chattels) is the
"degree of annexation test", although problems can arise with "temporary" or
"lean to" buildings. Other things attached to land were seen as land so long as
they were firmly attached. Thus if a one ton statue was bolted down, it was land,
if not, a chattel (compare Holland v Hodgson (1872) and Berkeley v Poulett
(1977)).
The courts recognised the problem and addressed issues with consideration of
whether things on the land formed a part of an "architectural scheme of decor".
Thus a tapestry nailed to the wall which was in keeping with a theme of
decoration was land, whilst one simply nailed to the wall so it could be seen, was
not (Compare Leigh v Taylor (1902) and Re Whaley (1908)). The narrow
application of the idea of a “scheme of décor” is of limited utility in the context of
modern home ownership, however.
The more modern test is the "purpose of annexation" test. This test asks why the
object has been attached: for its own purpose, or for the enhancement of the
land.
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The case of TSB Bank plc v Botham (1996) casts some light on its application to
things one expects to find in a modern home. Botham invites the court to
distinguish fixtures and fittings on the basis of permanence & lasting
improvement and relevance or utility and ease of removal. In that case, kitchen
and bathroom units were considered fixtures, whereas white-goods and gas fires,
given their limited annexation and short working lives, were considered fittings.
Similarly, unless recessed (that is “built in”) light fittings were to be considered
fittings.
The case of Elitestone v Morris (1997) confirms that a common-sense approach
should be taken to the application of the degree and purpose tests. In that case,
a free-standing wooden bungalow was held to be a fixture, not least because it
would be destroyed if any attempt was made to remove it.
Following the decision in Duppa v Mayo (1669), it is accepted that fructus
naturales (naturally growing plants) form land, but that fructus industriales
(cultivated plants) do not. The distinction is drawn by human cultivation; thus,
for example, "wild" mushrooms deliberately grown are not land.
Incorporeal hereditaments are those rights which benefit the estate, such as
easements and restrictive covenants. The benefit of these rights will be deemed
to form a part of any conveyance of the estate in the absence of words to the
contrary (s62 Law of Property Act 1925).
The inclusion of incorporeal hereditaments rarely causes the courts any difficulty.
The rather inappropriate degree of annexation test has given way in part to the
purpose test, which it is clear is governed by a “common sense” approach
leading to fewer obviously perverse results.
2(b)
The theory that the owner of land owns the estate to the depths of the earth (ad
inferos) and to the heavens above (ad coelum) has proved problematic,
particularly since the advent of manned flight.
In Bernstein v Skyviews (1978) the court held that an estate owner had no
greater right than any member of the public to altitudes above that “necessary
for the ordinary and reasonable enjoyment of the land.” Furthermore, s76 Civil
Aviation Act 1982 provides that no action in trespass lies against aircraft flying
over the estate a reasonable height. This will, of course, depend on the use of
the land and the height of any buildings on it.
The law recognised that mines and minerals, certain water-courses and "treasure
trove" (now “treasure” governed by the Treasure Act 1996) were not a part of
the estate. Statutory powers for utility and transport organisations to lay pipes,
wires and tunnels further mitigated the notion that the estate ran to the depths
of the earth.
The maxim is still essentially true, in that the estate owner owns it to the depths
and to the heavens. But the reality is such that his or her ownership rights are
nugatory given the number of circumstances which can arise in which those
rights are unenforceable.
Question 3
A lease is one of the estates that is capable of existing at law (s1 Law of Property
Act 1925).
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Section 52 of the LPA25 provides the prima facie rule that in order to be legal, an
estate must be created by deed. Such deed must comply with the requirements
of s1 Law of Property (Miscellaneous Provisions) Act 1989.
There is, however, a limited exception for short legal leases to be created other
than by deed. Per s54(2) LPA25, such a lease, which can be created orally or in
writing, must take effect in possession, be for best rent, and for a term of no
more than three years.
An equitable lease must be compliant with s2 Law of Property (Miscellaneous
Provisions) Act 1989 (be in writing, containing all express terms, and be signed
by or on behalf of the parties).
Furthermore, in order to be recognised as a lease, three “certainties” are
required: Certainty of term; exclusive possession; and certainty of rent.
The term must be certain both as to commencement of possession and as to
determination of the term from the date of grant. Hence in Lace v Chantler
(1944), a term stated to determine on the cessation of the Second World War
was not certain as to determination, as at the date of the lease it was not
possible to know when the War would end.
Certainty of rent requires that, if the “lease” requires periodic payments by way
of rent, the amount falling due must be certain on the date it is payable. This is
only the case if the lease requires payment of periodic rent. It is possible to
create a lease without such periodic rent (Prudential Assurance v London
Residuary Body (1992)).
Exclusive possession requires that the tenant have the right to exclude the
world, including the landlord, from the estate (Street v Mountford (1985)). The
identification of exclusive possession has troubled the courts in the past.
The courts have recognised for some time that landlords draft “sham”
agreements to avoid any suggestion that a lease has been granted. Thus, for
example, in Aslan v Murphy (1990), where the agreement, for the occupation of
a very small room, required the occupier to vacate for an hour a day, and to
share the premises if required. In such cases, the courts have closely scrutinised
the label attached to the agreement: in Addiscombe Gardens Ltd v Crabbe
(1958) the court confirmed that the existence of exclusive possession was a
matter of construction of the agreement, not of nomenclature or label.
Originally, the intention of the parties was considered the key: Somma v
Hazelhurst (1978). This meant that only a sham agreement would be closely
scrutinised. However, the reality was that the landlord’s intention would often be
to grant a licence, and the landlord often drafted the agreement – the reality
would be that a potential occupier could “take it or leave it”.
Following the decision in Street, it was recognised that basing the matter on the
intention of the parties (where the landlord’s intention would inevitably prevail)
would allow “a coach and horses” to be driven through the various pieces of
legislation which protected residential tenants, but not residential licensees.
Street confirmed that the agreement and surrounding circumstances should be
considered to determine whether there was exclusive possession. This approach
is clearly illustrated in the contrasting decisions in the joined appeals in
Antoniades v Villiers and AG Securities v Vaughan (1988). In the first, a
cohabiting couple signed so-called “licences” for the “shared” occupation of a
bed-sit, which permitted the landlord to share the occupation: this was held a
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sham. In the second, occupiers of a four bedroomed flat each had a licence
agreement. Each agreement had been signed on different dates, for different
rents, and required the occupier to share with the others. This was held to be a
licence as there was no genuine joint tenancy.
Even where there is exclusive possession, the law may find that the occupier is a
mere licensee (such as a service occupier; lodger; or a purchaser taking
occupation prior to completion).
The courts approach to finding a lease ultimately turns on whether exclusive
possession has been granted. Even so, the exceptions above mitigate the general
rule. Moreover, in the absence of compliance with formality requirements, the
putative tenant will be at best a periodic tenant, at worst a mere licensee.
Question 4
In order to claim title to either a registered or an unregistered estate by adverse
possession, the claimant must first show that the basic requirements for such a
claim have been met.
Powell v MacFarlane (1979) confirms that the claimant must demonstrate factual
possession (effectively exclusive possession), together with the intention to
possess (that is to exclude the world: not necessarily an intention to own (Pye v
Graham (2002))) for the requisite period, without the consent of the true owner,
to be entitled to the estate. The intention must be demonstrated by evidence of
outward conduct (Prudential Assurance Co Ltd v Waterloo Real Estate Inc
(1999)).
Factual possession requires evidence that the claimant has an appropriate degree
of physical control of the land, and has been using it as an occupying owner
would (Powell v MacFarlane). The “degree” required will depend on the nature
and quality of the land in question (West Bank Estates Ltd v Arthur (1967)). The
strongest evidence of factual possession is likely to be enclosure by a fence or
wall (Seddon v Smith (1987)).
For unregistered estates, once the squatter has been in adverse possession for
the period required by the Limitation Act 1980 (usually 12 years, although
subject to exceptions for crown land, foreshore, and land owned by patients
under mental health legislation), the paper owner’s title is extinguished, and the
squatter becomes the legal owner. If the basic requirements and the requisite
period are made out, a claim to adverse possession of an unregistered estate is
all but indefeasible.
Prior to the Land Registration Act 2002, this also applied to registered land: the
proprietor, per s75 Land Registration Act 1925 (which has been repealed), held
the estate on trust for the adverse possessor.
Schedule 6 of the Land Registration Act 2002 now provides that a person can
apply to be registered as proprietor after ten years provided he or she can show
possession of land (with the necessary intention and without consent).
When the application is made, the registered proprietor is given notice of the
application (as are any other interested parties: mortgagees, for instance). The
Registered Proprietor (RP) has 65 days within which he or she can object
(perhaps on the basis that adverse possession is not made out: the squatter
lacks the necessary intention); consent to the squatter's registration; or respond
requiring the Registrar to deal with the application in accordance with Sch 6.
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If such a response is received the squatter can only be registered as proprietor of
the land if the registrar is satisfied that he or she should be registered on one of
three bases: first, entitlement by some estoppel; secondly, some other reason
(perhaps an non-completed contract for purchase where the money was paid
over - if it was a long time ago, the Limitation Act 1980 may prevent the
occupier enforcing the contract in itself); or, thirdly, where the matter amounts
to a claim over the boundary between two estates (the schedule provides that
the claimant must reasonably have believed the land belonged to him; and that
the boundaries have not be determined by the Land Registry).
If the RP (or other interested party) makes no response, the squatter will be
registered as proprietor.
The RP has a further two years to take action to repossess if the application is
rejected. If the squatter is still in possession after two years, he or she is entitled
to be registered as proprietor (subject to limited exceptions, including ongoing
possession actions).
A claim of adverse possession of registered land will only succeed in the face of
objection from a person interested in the land under narrow grounds. In the
absence of an abandonment of the estate by the registered proprietor, or his or
her failure to remove the squatter within two years of the first application, a
claim is doomed to fail.
It can, therefore, be said that on the same facts, unless one of the exceptions
applies, a claim to the adverse possession of an unregistered estate is far more
likely to succeed than it would if the same estate were registered.
Question 1
SECTION B
An easement is a right to do something on someone else's land falling short of a
right to possession. In order to be an easement a right must fall within the
criteria laid down in Re Ellenborough Park (1955). The right must:
relate to a dominant and servient tenement;
which are owned or occupied by different persons;
accommodate the dominant tenement;
and "be capable of forming the subject matter of a grant".
An easement will accommodate the dominant tenement where there is sufficient
proximity between dominant and servient tenements and where the rights
benefit the estate (and any owner of it) rather than being a personal right. Thus
in Hill v Tupper (1863), where the claimed right benefited the dominant
tenement owner’s business rather than the land, the right was incapable of being
an easement.
The final point takes in both the capacity of the grantor and grantee and that the
right claimed falls within the range of rights recognised by the courts as being
capable of amounting to easements. Such rights must not be vague or indefinite
(see Webb v Bird (1863)).
Rights to park have troubled the courts. It was long settled law that a right
claimed by way of easement cannot exclude the servient tenement owner from
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his own land (Copeland v Greenhalgh (1952)). Thus it was held in Newman v
Jones (1982) that a right to park cannot amount to an easement if the right
refers to a specific parking space.
Rights to park in a larger area are more problematic. London & Blenheim Retail
Parks v Ladbrokes (1993) suggested that a right to park in a non-specified
space, in common with others, in a larger parking area may be capable of being
an easement. The decision in Batchelor v Marlow (2001) held that the key is
whether the user is exclusive and whether it deprives the servient tenement
owner of the reasonable use of his land.
This approach was not followed by the Lords in the Scottish case of Moncrieff v
Jamieson (2007). If the ratio is followed by English courts, a right to park may
qualify as an easement provided the servient tenement owner retains possession
and control of the land (even if he cannot practically use the land).
Rex’s claimed right of way is clearly capable of being an easement; his claimed
right to park depends on the court’s approach to Moncrieff. If followed, he may
succeed in convincing a court that it is capable of being an easement.
In the absence of an express or implied grant a claimant may rely on long user
to claim a prescriptive easement.
A prescription claim has three basic requirements.
The user must be nec vi. That is without force; this connotes unlawful acts,
rather than violence per se. In Brandwood and others v Bakewell Management
Ltd (2004), a claim for a prescriptive right of way was resisted on the basis that
the user, involving driving on commons land, was unlawful. The court took the
point that it was an offence to drive on commons land only in the absence of
lawful authority. The fiction of prescription gave the user lawful authority.
There is no suggestion of force in Rex’s use of the service road, and his use of
the parking would appear to fall within the exception in Brandwood.
The user must be nec clam (without secrecy; this connotes that the user is
readily apparent to the servient tenement owner, rather than any intent to
deceive – see, for instance, Diment v NH Foot Ltd (1974)), and, finally nec
precario (without permission).
The user must also be continuous (infrequent user will not suffice: Hollins v
Verney (1884)) and by the fee simple owner of the dominant tenement against
the fee simple of the servient tenement.
There is nothing to suggest that Rex cannot make out these points.
Once the basic requirements are made out, a claim may be brought under one or
more of three bases.
Under the common law doctrine, if the claimant can show twenty years user, a
presumption arises that there is a prescriptive easement. This is easily rebutted
by evidence that the user cannot have existed since time immemorial (since
1189). Thus in Duke of Norfolk v Arbuthnot (1880), the presumption of a right of
way toa church was rebutted by evidence that the church was built (only) in
1380.
Since it is most unlikely that any piece of land has been used in the same way
Page 8 of 15
for nearly 1000 years, a claim in common law is almost inevitably doomed to
failure.
The doctrine of lost modern grant relies on the fiction that a grant was once
made, but that the deed has been lost. Provided the claimant can show twenty
years user, and the defendant cannot show that such a grant was impossible
(perhaps because at the relevant time there was no capable grantor) the claim is
made out.
The requirements for a claim under the Prescription Act 1832 depend on whether
the claimant can show 20 or 40 years long user (unless the claim is for a right to
light, where there is only one period of 20 years). Where a user has been
enjoyed without interruption for 20 years “next before action”, it will not be
defeated by proof that it commenced later than 1189, but it may be defeated in
any other way possible at common law, for instance by establishing that the use
had not been “as of right” (s2 PA 1832). Where an easement has been enjoyed
without interruption for a period of 40 years “next before action”, it will not be
defeated unless it appears that the user was enjoyed by some consent or
agreement expressly given for that purpose by deed or in writing (s3 PA 1832).
Interruptions must be “hostile” (in that they interfere with and prevent the
exercise of the claimed right) and of at least a year in duration.
The Act provides for deductions from the period (for example if the servient
tenement owner lacked capacity during the relevant period).
Rex can evidence user of the road from June 1985 to November 2012. He can
make out his claim based on both lost modern grant and under the shorter
period of the Act. He must, though, act promptly to save his claim under the Act,
as the gate amounts to an interruption.
His claim to park can certainly succeed based on lost modern grant, as he can
evidence 20 years user prior to the land being dedicated as commons (Hayling v
Harper (2003)). He cannot succeed in an action under the Act irrespective of any
allegation of illegality, as he has acquiesced in the interruption of the user for
more than a year.
Question 2
Proprietary estoppel is an equitable device by which a person with a legal estate
in land is estopped from denying the interest of another.
The basic requirements for such claim derive from Wilmott v Barber (1880), and
required that:
(i)
(ii)
(iii)
(iv)
(v)
the claimant made a mistake as to his or her legal rights;
the claimant expended money or did some act on the faith of that
mistaken belief;
the defendant was aware of the true position;
the defendant was aware of the claimant’s mistake; and
the defendant encouraged the claimant in making the expenditure of
money or acts of reliance.
The mistake on the part of the claimant is inevitably the claimant’s ignorance of
the need to comply with statutory formality requirements for the creation or
transfer of the claimed interest.
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Modern cases have tended to be less strict about the Wilmott requirements,
preferring to address issues of representation or assurance; reliance; and
detriment (Thorner v Major (2009)).
In Greasely v Cooke (1980), detriment was made out by the claimant nursing
the defendant’s daughter, and in Pascoe v Turner (1970) acting as unpaid
housekeeper and mistress.
The encouragement can be active (in Inwards v Baker (1965) a father
encouraged his son to build a house on the father’s land) or passive (in Steed v
Whitaker (1740) the defendant mortgagee stood by whilst the claimant built on
land he did not own).
Reliance is presumed once the claimant has made out detriment (Grant v
Edwards (1986)).
It was, though, thought following Taylor v Dickens (1998) that the knowledge of
the claimant that a will could be changed obviated any reliance on the
defendant’s promise to leave property by will. This decision was criticised in Gillet
v Holt (2001), where the court pointed out that the claimant was relying on the
promise (to leave property by will) not on the will itself.
In the past, the remedy awarded to a successful claimant was based on the
claimant’s expectation, which in turn derived from the promisor’s promise or
representation. Thus in Pascoe, the claimant received the fee simple having been
promised, “the house and everything in it”. More recently, following the decision
in Jennings v Rice (2002) the courts have recognised that the remedy should be
“the minimum required to satisfy the equity”. In that case, the award to the
claimant reflected his detrimental acts, and not what he was promised by the
promisor.
Ashraf has been encouraged to act on his belief that his aunt will leave the
property to him by her words. He has acted to his detriment by caring for her
and lately by moving in. His reliance is presumed. The extent of the remedy he
received will depend on the detriment he suffered. This will be in part a reflection
of the care he has provided his aunt. It is not clear from the facts whether, for
instance, he has suffered greater detriment by, for instance, giving up lucrative
employment. Such factors will impact on the amount required to satisfy his
equity. Following Jennings, however, which was decided on similar facts, he is
unlikely to see his expectation of receiving the whole property realised, but
instead will receive a compensatory financial award.
Difficulties have arisen where the facts of a proprietary estoppel claim are based
on an apparently commercial agreement between the parties which does not
comply with the statutory requirements for the creation or transfer of interests in
land (s2 Law of Property (Miscellaneous Provisions) Act 1989).
The courts began to engage in a debate about the relationship between estoppel
and constructive trusts (s2 of LP(MP)A 1989, providing an exception to formality
requirements for interests arising under a constructive trust). In Godden v Mythr
Tydfil (1997), the court suggested that a proprietary estoppel claim would
prevail, as it was “independent” of the formality requirements. However, in
Yaxley v Gotts (1999) the court held that an estoppel would have to give way to
statutory formality requirement unless a constructive trust arose (which, in that
case, it did). This approach was stretched to the extreme in Kinane v MackieConteh (2005), where it was held that the estate was subject to a mortgage by
way of constructive trust.
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The House of Lords in Cobbe v Yeomans Row (2008), albeit obiter, suggested
that, in future, courts should be reticent to permit the use of equitable concepts
such as estoppel and unconscionable conduct to evade formality requirements;
such is required to provide certainty in commercial relations. It is fair to say,
however, that inferior judges have been quick to distinguish Cobbe (see, for
instance, Herbert v Doyle (2010)) and to permit the claim of estoppel to succeed
notwithstanding the informality of the agreement.
So far as Zander is concerned, the apparent commerciality of the arrangement
may mean that his claim is unsuccessful if Cobbe is followed. In any case, it is
difficult to see how an easement could be the subject of a constructive trust,
although he might persuade the court to follow Kinane by way of analogy.
Question 3(a)
The rules for determining the priority of interests affecting a registered estate
(ss28 to 30 Land Registration Act 2002 (LRA02)) are that interests rank in order
of creation (irrespective of whether they are legal or equitable interests) unless
the instant transaction is a registered disposition for value completed by
registration, which is subject only to those matters on the register or which
override (per Schedule 3 LRA02).
A registrable disposition is one of the transactions listed in s4 of the Act,
including a legal charge. A failure to register such a transaction means that it
takes effect in equity only (s7).
A legal mortgage over registered land can only be created by deed (s23 LRA02).
In order to be effective, the deed must comply with s1 LP(MP)A1989. Such a
charge amounts to a registrable disposition. Thus, in order to take effect at law,
it must be substantively registered. If it is not so registered, it can take effect
only in equity. It is assumed, in the absence of suggestion to the contrary, that
the deeds in the instant case are compliant with s1.
A contract to mortgage is not capable of being a legal interest, but may take
effect in equity provided that it complies with the requirements of s2 Law of
Property (Miscellaneous Provisions) Act 1989.
Uxbridge’s charge is not a registrable disposition being equitable. It can be, and
has been, noted on the register. The effective date of priority of the Uxbridge
Finance Ltd equitable charge is 17th August 2008.
Victor’s charge is a registrable disposition which has been completed by
registration on 20th June 2008. Section 30 applies and, thus, as the Uxbridge
charge was not noted on the register at that date (and was otherwise
unprotected), Victor’s charge gains priority.
Wagontrail’s charge is a registrable disposition and, therefore, in the absence of
registration it takes effect in equity only. The s28 rule applies, and it takes
subject to both earlier charges.
Finally Xanadu’s charge, again a registrable disposition completed by
registration, takes free of Wagontrail’s unprotected charge, but is subject to
those of Uxbridge and Victor, as both are on the register.
The final order of priority is, first, Victor’s charge, followed by that of Uxbridge
Finance Ltd, then Xanadu Bank Ltd’s charge and, finally, that of Wagontrail Ltd.
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3(b)
Victor, as mortgagee, could enforce the loan in a number of ways.
First, it is settled law that a secured lender cannot be in a worse position that an
unsecured lender. Thus the bank could simply sue on the covenant to repay (Palk
v Mortgage Services Funding (1993)). This is unlikely to be a viable option if
Trevor has no other assets (noting that his business appears to be failing).
Traditionally, a secured lender might foreclose, but this is now rare. This involves
the debt being satisfied by the transfer of the whole of the beneficial interest in
the property to the lender. This might appeal to Victor if the property is in
“positive equity”, but any attempt to foreclose is likely to be met with a
successful application under s91 of the Law of Property Act 1925 for an order for
sale.
It is most likely that the Victor will wish to realise the security by selling it.
The mortgagee’s power of sale arises, per s101 Law of Property Act 1925 if the
mortgage is by deed; there is contrary provision in deed; and the legal date for
redemption (not for making of repayments) has passed. If this is an ordinary
institutional mortgage, the first two points are likely to be made out, and the
redemption date is likely to be the date of the deed or a few months after. The
power is likely, then, to have arisen.
It cannot be exercised, though, until s103 Law of Property Act 1925 has been
satisfied. This requires either three months default of payment after a notice has
been issued; two months default of payment of interest; or a breach of some
other covenant. Assuming that this is an interest bearing mortgage, so long as
there has been two months default of payment, Victor can exercise the power of
sale.
If he exercises the power, he holds the proceeds of sale on trust to pay expenses
and the outstanding debts secured against the property in order of their
respective priorities, with any balance reverting to the mortgagor. The advantage
to Victor is clear, in that his charge has first priority. Assuming that the value of
the property exceeds what he is owed, he will see the outstanding loan satisfied.
If ss101 and 103 are satisfied, Victor could consider appointing a receiver to
manage the property and to receive the income until the outstanding amounts
are satisfied. If the property is residential, it would seem pointless to appoint a
receiver. Thus, it may still be preferable to effect sale, rather than to incur the
liabilities inherent in appointing a receiver.
He will be unlikely to sell the property without vacant possession, so may wish to
exercise his inherent right to possession of the property securing the debt
(s95(4) LPA 1925). Common law states that this right may only be exercised
bona fide for the purposes of enforcing the security (Quennell v Maltby (1979)).
It is clear that Trevor is in arrears, so such possession would probably be
considered appropriate.
If Trevor does not surrender the property voluntarily, a court order will be
needed to evict him (as this is residential property, the Protection from Eviction
Act 1977 applies). Section 36 of the Administration of Justice Act 1970 gives the
court a broad discretion to adjourn, stay, suspend or postpone the order for
possession. Following the decision in Cheltenham & Gloucester Building Society v
Norgan (1996), and given that Trevor’s business appears to be failing
(presumably leaving him without income) it seems likely that the order will be
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given (barring extreme circumstances) as there is no reasonable prospect that
the arrears will be repaid in the short or long term.
Victor is advised to seek an order for possession in order to exercise the power of
sale.
Question 4
In order for the various obligations to be enforceable against the purchasers of
the houses, and against their successors, it will be necessary first to incorporate
the obligations as covenants into the transfers of the houses.
As between the original covenantee and covenantors, the obligations are
enforceable pursuant to privity of contract.
Ordinarily, a covenant can only be enforced against an assignee of the original
covenantor where the subsequent owner of the dominant tenement has the
benefit and the assignee has taken the burden. The benefit and burden must
have passed to both in law or in equity.
The benefit of a covenant will pass at law where the covenant "touches and
concerns" (that is, it is not personal, but affects the mode of user or occupation
of the servient tenement), where the covenantee had the legal estate of the
dominant tenement and the assignee derives title therefrom, and where there
was an intention that the covenant bind the land (although now see s78 Law of
Property Act 1925, which deems such an intention).
In this instance, if Betta-Build retains land to benefit (the service road, for
instance) it will retain the original benefit. If it assigns such retained land, the
assignee (a management company, for instance) will have the benefit of all of
the covenants at law. They will be able to enforce them against the original
covenantees so long as they remain the servient tenement owners.
The burden of covenants does not, subject to some exceptions, run with the
servient tenement's ownership at law (Austerberry (1885), affirmed in Rhone v
Stevens (1994)).
It follows that, prima facie, that the burden of the various obligations/covenants
will not run to successors of the original covenantors at law.
The exceptions to this rule include circumstances where there is an estate
rentcharge, or where the rule of mutual benefit and burden applies. This last
rule, deriving from the case of Halsall v Brizell (1957), provides that a covenant
to pay the cost of maintaining a facility on the dominant tenement binds the
owner of the servient tenement where the servient tenement benefits from rights
to use that facility. It is clear from Thamesmead v Allotey (1998) that the cost
must relate directly to the facility. In Thamesmead, a covenant to pay for the
maintenance of landscaping had insufficient nexus with the right to use estate
roads for the rule to apply.
Provided the transfers of the houses contain rights to use the service roads, then
the obligation to pay a share of the cost of maintenance will run to successors of
the original covenantors and be enforceable by Betta-Build or its successors.
The benefit will run in equity where it is annexed or assigned. A covenant will be
deemed annexed in the absence of words to the contrary, by s78 LPA 1925.
Thus, per the ratio in Federated Homes Ltd v Mill Lodge Properties Ltd (1980),
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the benefit will run unless the conveyance states otherwise. For covenants
created before 1926, the covenant must be expressly annexed (by wording in
the deed creating it) or assigned (by wording in the transfer from the original
covenantee to the next owner of the dominant tenement).
Any successor of Betta-Build will, then, take the benefit of all of the covenants in
equity.
The burden will run in equity pursuant to the rule in Tulk v Moxhay (1848): the
covenant must be restrictive in nature (the "hand in pocket" test - a test of
substance not form); the covenant must "accommodate the dominant
tenement", in effect "touch and concern"; the covenantee must have owned the
dominant tenement at the date of the covenant's creation; and, the covenant
must have been intended to run with the land, although this will be deemed to
be so by s79 LPA 1925 in the absence of words to the contrary.
Only the residential user obligations could be drafted in the transfers as
restrictive covenants which touch and concern the estates and therefore burden
successors of the original covenantor in equity. The other obligations could only
be positive, and therefore will not ordinarily bind successors of the original
covenantor in equity.
It may also be possible to enforce covenants indirectly where there is a chain of
indemnity covenants by successive assignees of the servient tenement. The
dominant tenement owner can take enforcement action against the original
covenantor, who, in turn, will seek an indemnity from his or her successor and so
on. There are two weaknesses inherent in chains of indemnities: first, that the
chain “breaks”, in that one or more assignees in the chain has died, become
insolvent or undiscoverable; and secondly that the dominant tenement owner’s
only remedy is damages, where it is compliance with the covenant which is
sought.
It is possible to incorporate a further obligation by which the transferor of the
burdened estate procures a direct covenant from the transferee in favour of the
dominant tenement owner, but this can be unwieldy.
An alternative approach would be to create a building scheme. For a building
scheme to be effective, the rule in Elliston v Reacher (1908) must be satisfied:
•
•
•
•
Claimant and defendant must both derive title from a common
owner
The common owner must have, prior to the sale of plots, laid out a
definite scheme of development
There existed an intention to impose a scheme of mutually
enforceable restrictions on all owners of land in the development
Every buyer of land knew of the scheme and intended to be bound
by the covenants
Following the decision in Reid –v- Bickerstaff (1909), the area affected by the
scheme must be clearly defined.
The advantage of a building scheme is that restrictive covenants are mutually
enforceable. This means that Betta-Build need not retain land after the last plot
is sold, but could still be sure that the owners could enforce the obligations
should they wish to.
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If a building scheme were created, the obligation to contribute to the cost of
maintaining the road would be effective in law per the rule in Halsall v Brizell,
and the user covenant mutually enforceable. The fencing covenant, being
positive, could still not be enforced against successors of the original
covenantors.
Achieving its full aims will be difficult for Betta-Build, but a relatively simple
solution would provide for the covenants other than the fencing obligation to
remain enforceable.
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