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In registered conveyancing, the fact that a person is in actual occupation of land that he does not own serves to make his rights stronger against a person to whom the owner wishes to sell the land. His occupation does not, in itself create rights where none existed before (although in cases ofadverse possession it can appear to), it merely makes whatever rights he has overriding, that is, enforceable against the new owner, even if they are not registered (see overriding interest). This article compares the actual occupation rights under the Lra (1925) with those under the Lra (2002), which came into force in October 2003.






UK LAW





Land and Property Law


The pre-2003 situation

s.70(1)(g) of the 1925 Act states that the interests of persons in actual occupation of land, or in receipt of the rents or profits thereof, are overriding, unless enquiries are made of the right-holder, and the rights are not disclosed. That is, these interests are capable of being enforced whether or not they are noted on the Register. The 1925 Act does not distinguish between interests that are capable of overriding first registration of the land, and those that override subsequent registered dispositions. As a result, it must be assumed that s.70(1)(g) rights are enforceable, to the extent that they enforceable at all, against the first registered owner of an estate in land, as well as later owners. Paragraph (g) clearly has the potential to create problems for purchasers of estates in land. Its inclusion could be justified on the basis that many rights would otherwise be unprotected, particular informally-created ones.

s.70(1)(g) does not, in itself, grant any interest in land to its occupiers: it merely makes overriding any interest that may already exist. Some rights that might otherwise be capable of falling within the the ambit of paragraph (g) are specifically excluded. For example, s.31(10)(b) of the Family Law Act (1996) states that the rights of a spouse to occupation of the matrimonial home, as manifested in that Act, cannot be overriding. Where the exclusion is less clear, and the provision of paragraph (g) appears to conflict with other statutory provisions, then the House of lords' decision in Williams & Glynns Bank Ltd v Boland seems to suggest that paragraph (g) should take priority. In Boland the rights acquired by spouses under trusts for sale were deemed to be capable of being enforced against mortgagees of the property, despite such rights being defined as 'minor interests', and incapable of being overriding, under s.3(xv) of the 1925 Act.

So for s.70(1)(g) to be engaged, there must be preexisting interests in the land. The paragraph does not state what interests come within its scope, but it seems they must be proprietary rights in the full sense - enduring and capable of being transmitted - rather than merely personal. In National Provincial Bank v Ainsworth the House held that a woman who had been deserted by her husband did not have a proprietary interest in the property that was capable of engaging paragraph (g). Her interest was only personal, being incapable of independent transmission. It follows that contractual rights and licences ought not to be overriding, for the same reason.

A person who seeks to rely on paragraph (g) must show not only that the interest he claims is within its scope, but that he is in 'actual occupation' or 'in receipt of rents or profits' for the purposes of that paragraph. He will lose the overriding status of his interests if he fails to disclose those interests when requested by a purchaser, but is otherwise under no obligation to make disclosure.

The Act does not define what constitutes 'actual occupation', and might not even be capable of doing so. Therefore we must turn to the case law for examples of occupation that qualify. It is clear from Boland that 'actual occupation' is not a term of art, but a fact situation to be assessed in each case. Occupation must be intentional and ongoing, but need not be continuous. In Chhokar v Chhokar a woman who was in hospital giving birth to a child was held to be in actual occupation during that period of the house she shared with her husband. The presence of a person's possessions or accoutrements of business may amount to actual occupation, even if the occupier himself is absent for an extended duration (Kling v Keston Properties Ltd [4]), but parking a car - even for an extended period - will not suffice (Epps v Esso Petroleum Co). It appears that a person may occupy land through an agent (Strand Securities v Caswell), but probably only as part of a commercial agreement.

A particularly controversial issue is the extent of the land over which paragraph (g) rights extend. An option to purchase, for example, is capable of extending over a larger area of land than the owner of the option occupies, and frequently does. The difficult question is whether the option is an overring interest in respect only of the part of the land actually occupied physically, or the whole of the land subject to the option. For many years it was believed that the correct view was that the extent of occupation was determined by the nature of the occupation. For example, the leasee of an office block need not use every room in the block to be in actual occupation of the whole of the registered title - he holds the title as occupier, and so long as he factually occupies part of it, he legally occupies all that he holds in the same capacity. In Ferrishurst v Wallcite (1988), however, the Court of Appeal decided that the capacity in which a person occupied land was distinct from the rights he held in that land. In that case, the tenant of an office building had an option to purchase his landlord's title to the office, and also to an adjacent garage. The Court decided that the option was enforceable against the purchaser of the garage, even though the claimant had never physically occupied it. This decision attracted a great deal of criticism, not least because in principle it allows unlimited legal occupation to be estblished from a very small factual occupation.

A person can lose his rights under paragraph (g) if he fails to disclose his rights when inquiries are made. However, although it was argued in Boland that paragraph (g) operates in the same was as the doctrine of notice in unregistered conveyancing, the House was clear that this is not the case. If a purchaser is unaware of an overriding interest, even after reasonable enquires, it is still capable of binding him. This applies equally if the overriding interest is founded on the receipt of rents or profits, rather than occupation, and such rights might be even more difficult for a purchaser to elucidate.

Actual occupation under the 2002 Act

s.70(1)(g) has given rise to a great deal of litigation over the years, and it is probably the case that it has a larger scope than originally envisaged. The burden of investigation placed on the purchaser of registered land could even be greater than in unregistered conveyancing, which was the opposite of what the registration system set out to achieve. In preparing the Land Registration Bill, the Law Commission's consultation document 'Land Registration for the 21st Century' [8] made several suggestions about how protection of actual occupation rights might be modified. Consideration was given to the possibility of removing overriding status from these interests altogether, but this was felt to be impractical. Most of the proposals were accepted by the respondents to the consultation, and duly included in the Bill. One proposal, which would have had the effect of creating a new overriding interest, was not accepted. This proposal would have made overriding the interest of the tenant for life under a Settled Land Act trust. Since these trusts are now obsolete, and are usually protected by restrictions on the registered title, the respondents felt that this was an unnecessary development. Of the proposals that made it into the Bill, not all survived the legislative process. In summary, the 2002 Act does made substantial changes to the protection of actual occupation rights, but not as substantial as originally proposed. For example, the draft Bill included at least a partial definition of 'actual occupation': Clause 2(2) of Schedule 1 defined a person as being in 'actual occupation' if 'he, or his agent, is physically present there'. This provision would have put into statutory form the principles of recent case law, in particular Boland and Caswell. However, the Act does not include this provision, so 'actual occupation' remains largely undefined.

The most obvious change in the 2002 Act is probably that the interests of a person not in occupation, but in receipt of rents and profits, are no longer capable of being overriding. From its commentary on the draft Bill [9] it appears that the Law Commission was expecting objections to this proposal but, in the end, there were none. It points out that a purchaser of a registered leasehold title ought to be alerted to the potential existence of such interests wherever the grade of title is 'good leaseholder' rather than 'absolute leasehold'.

Aside from removing the separate provision for persons in receipt of rents and profits, the 2002 Act makes a number of other significant changes to the rights of persons in occupation. In common with other overriding interests, actual occupation interests are treated differently on first registration than on subsequent disposition. This is a more sophisticated approach than taken by the 1925 Act and is included because, as the commentary on the draft Bill points out, these two situations are fundamentally different. First registration is not dispositive; it is merely administrative. The person applying for first registration will already have been bound by any third-party rights that affect his estate under the ordinary principles of unregistered conveyancing; no new rights are created. Moreover, it is hoped that between first registration and the next registered dispostion, any other rights that are created over the registered title with themselves be entered on the register. Consequently, the scope of interests that are capable of overriding first registration (Schedule 1) is greater than that of interests that can override a disposition.

According to Schedule 1, paragraph 2, the rights of persons in actual occupation are capable of overriding first registration. Except for the exclusion of Settled Land Act interests, there are no limitations on this provision. However, on a registered disposition, Schedule 3, paragraph 2 denies overriding status to certain rights arising from actual occupation. First, para 2(b) removes overriding status if the interest was not disclosed when disclosure 'could reasonably have been expected'. Second, an occupier's interest will not override if the purchaser has notice of it, or if the occupation would not be obvious on 'reasonably careful inspection of the land' (para 2(c)). The other interest that is prevent from being overriding is a lease that takes effect more than three months after grant (para 2(d)); such a lease is now substantively registerable whatever its length.

Paragraph 2(b) appears to say no more than s.70(1)(g) in the 1925 Act, but in fact its wording has the potential to increase, rather than decrease, the scope of overriding interests. This is because a person who fails to disclose a right he holds will only lose that right if disclosure could reasonably have been expected. Under the 1925 Act, non-disclosure was fatal to assertion of the occupier's right against the purchaser. While this change in policy should have the effect of preventing occupiers losing rights of which they are completely unaware -- such as rights arising from proprietary estoppel -- there is also the potential for argument over what constitutes 'reasonable expectation'. It could be construed as 'unreasonable' to expect a person to disclose a right if disclosing it will have the effect that the purchaser will seek to have it extinguished. However, taking this position means that disclosure can never be expected if the right disclosed would be lost, and this surely is contrary to the spirit of the paragraph, if not to the letter. Nevertheless, it will require litigation to establish the scope of 'reasonable expectation'.

Paragraph 2(c) is even more controversial, because it appears to favour the purchaser over the occupier as a matter of policy. An interest will not override if it could not have been discovered on 'reasonably close inspection', regardless of the reason why it was not so discoverable. There are, of course, cases in which a purchaser has turned out to be bound by interests of which he could not possibly have been aware, through absolutely no fault of his own. Chhokar is a particularly striking example. In a system of registered conveyancing the whole notion of overriding interests is potentially at odds with the 'mirror principle', but the existence of interests that override even where the purchaser could not possibly have been aware of them is particularly galling. However, there clearly is a need to protect the rights of the innocent occupier as well as of the innocent purchaser. In a case like Chokkar it is not clear who should bear the burden of the vendor's mendacity -- the purchaser or the occupier -- but it appears now that it will be the occupier as a matter of law, and Chokkar would have to be decided differently.

Much has been made of the fact that it is the occupation, not the interest, which must be obvious on reasonable inspection. If it were the interest which must be obvious, 2(c) would look disconcertingly like a reintroduction of the doctrine of notice. The Law Commission was adamant that the inclusion of 2(c) did not equate to a doctrine of notice [11] but, as Dixon [12] points out, it is open to the judiciary to interpret the paragraph in terms of constructive notice if this is necessary to achieve fairness. In any case, there is no statutory definition of 'reasonably close inspection', so litigation may be required to clarify the meaning of the paragraph.

The Law Commission was very definite that the 2002 Act should reverse Ferrishurst, but one of the provisions that would have done so -- paragraph 2(2) of schedule 3 -- was not enacted. This would have equated 'actual occupation' to 'physical occupation', and the land 'occupied' in Ferrishurst was only occupied in a legal, rather than physical, sense. However, 2(1)(c) may still have the effect that Ferrishurst would be decided differently, because the occupation would not have been obvious on inspection.

In summary, the 2002 Act significantly reduces the scope of overriding interests defined in s.70(1)(g) of the 1925 Act. Rights of persons in receipt of rents and profits are no longer overriding in their own right, and rights of persons in actual occupation are less likely to override a registered disposition. The overriding effect of these interests of first registration is unchanged. The changes to the overriding status of occupiers rights are not as extensive as the Law Commission originally proposed, and may even grant increased protection to interests that are not disclosed. However, it appears on balance that it is the purchaser who will be favoured by the changes, over the rights of the occupier