Overriding Interests

Overriding Interests are rights that a 3rd party has over land but do not have to be registered to be enforceable on the purchaser of the property. They are found in Schedule 1 and 3 of the LRA 2002. Schedule 1 focuses on the overriding interest of a property going through first registration, and schedule 3 contain the only 3 remaining overriding interests binding on all property. Only schedule 3 is covered on my course therefore I will be focusing on that.

The creation of the LRA 2002 means the elimination of certain overriding interests, which is an advancement of the registered system. The register was meant to be a mirror of the land. Overriding interests was an exception to this, and meant that on purchase of land, the new owner may be subject to certain rights they did not know applied as they were not on the register.

Overriding interests also bind all 3rd parties that have rights over the land as well.

Paragraph 1 overrides legal leases under 7 years. This used to be 21 years from the LPA 1925, however was shortened in the creation of the LRA 2002, once again limiting the power of overriding interests.

Paragraph 2 is one of the most important overriding interests. This protects the interests of a person in actual occupation. For this overriding interest to be binding, it must for fill some requirements:

  • The occupation must be obvious on a reasonable inspection of the property
  • Or the purchaser has knowledge of the interest.
  • The person with the interest, if asked, reasonably disclosed information of their interest. The word Reasonable is key. If they did not know of their interest, they would have need been expected to disclose it.

Section 30 of the Family Law act states that FLA rights will under no circumstances be covered through an overriding interest.

To make the purchaser bind, the interest in the land must be proprietary. This is the reason a license would not bind a purchaser. Overriding interests will only ever give rise to Estate contracts and Trusts of land.

Paragraph 3 relates to Legal Easements that were not expressly made. Therefore, it gives rise to Perceptive and Implied Easements. For them to override they must:

  • The occupation must be obvious on a reasonable inspection of the property
  • Or the purchaser has knowledge of the interest
  • Or must have been used in the previous year prior to the sale of land.

All three overriding interests will be enforceable if they were created by the day of completion of the property. Any made after will not bind the new owner of the land.

 

Actual Occupation

Actual occupation is fairly ambiguous in the sense that it can be interpreted in different ways. Case Law has been used to furthur define the term.

The case of Williams v Boland made it clear that a physical presence is necessary on the land. It is not enough to just have a right to the land, they must actually have a presence on the land.

A number of cases have also further defined that land only needs to be ‘occupied’ for such use that is necessary. For example, in the case of Kling v Keston, a car being parked in a garage was deemed to be sufficient occupation as the garage was intended to be used as storage, not necessarily to be lived in.

Abbey National Bank v Cann allowed occupation to not be constant. It has to have some degree of ‘permanence and continuity’ however it does not have to be occupied ever second of every day.

Lloyds Bank v Rosset allowed builders on a derelict property who were working to be used as an agent for actual occupation. Even though they were not in occupation at that time, their presence was still on the land.

Link Lending v Bustard allowed possessions in a house to be in actual occupation, if the degree of possessions sufficiently suggested that the actual occupier would return to the property.

Chokar v Chokar was a case of a husband selling the house while his wife was in hospital giving birth. In this case, the court ruled that the intention for his wife was enough to quantify actual occupation.

All these cases are evidence that the court have further defined the term ‘actual occupation’ and there is some flexibility when it comes to deciding whether a party is in actual occupation. Ultimately it will be the courts discretion.

 

How to protect against an Overriding Interest

Express agreements can be made that will give priority over their interest, even if it was registered after theirs was registered. Mortgage companies do this, before granting a mortgage. They will get the owner to sign an agreement giving their mortgage charge priority over their right to occupy. Therefore, if there was a default in payment which resulted in taking possession, they would not be stopped by a person in actual occupation.

Implied agreements can be made to give priority over another right also. If the person set to dismiss the possession order fully knew about the interest and intended it to override any other interests, in order to stop possession, then it will be implied. Authority for this is Paddington v Mendelsohn.

Careful inspections are usually done and care to identify any interest on sale is usually done by both the purchaser or their agents, or the mortgage company and their agents. This is done in order to ensure there are no untoward infringements on possession orders, or surprises after purchase of the land.

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