Land Registration: Purchaser protection

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General

Section 29 LRA 2002 enacts that a registered interest defeats any prior claim unless it is 'protected'.

There has to be consideration, but Midland Bank shows that this is not a demanding requirement, though nominal consideration does not suffice.

Note contrast with first registration: need for valuable consideration introduced, and no special protectin for trust interests of adverse possession (though may constitute AO overriding interests).

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How does the system deal with forgeries?

Three situations are distinguishable:

 1)  A forges P (original registered proprietor)’s signature on a transfer to himself and is then registered. Seems obvious that A cannot be protected as a result of his fraudulent and criminal conduct, even though there is nowhere clearly stated in the legislation.

2) A forges P’s signature on a transfer to himself and, having obtained registration, later sells land to B. B will receive good title (presuming he is unaware of forgery) because s29(1) provides that unprotected interests (claim of P) are defeated by a registered transfer.

3) Where A forges P’s signature on a transfer direct to C, where C is registered and believes in good faith that she is buying from P.

 C faces two problems in relying on s29. First is that Malory Enterprises Ltd v Cheshire Homes held that, under pre-2002 law, there was no disposition when there was a forgery. Applied to 2002 Act by Newey J in Fitzwilliam v Richall Holding Services Ltd holding that he was bound by Malory and there was no basis for applying a different approach post-2002 Act. Need another case on it, because it was noted that the approach of critics of Malory had ‘considerable force’.

 Secondly, s29 protects against unprotected interests ‘affecting the estate immediately before the disposition’. In this scenario, P is registered prior to transfer: there is no unprotected interest affecting P’s estate to defeat! Conclusion – somewhat surprising – is that the purchaser will not get a good title.

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Actual knowledge and lack of good faith

No good faith requirement: Law Commission and no expression in the 2002 legislation that good faith is relevant. Peffer (good faith requirement) relied upon LRA 1925 section 59(6) but there is now no such provision.

 

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Fraud

Was held to affect the purchaser of registered land in Lyus v Prowsa Developments Ltd (note that line can be difficult to draw between fraud and lack of good faith).

In Lyus, purchaser obtained a transfer by promising to respect an unprotected interest. Dillon J held that it was fraudulent for the purchaser to plead that the interest was not on the register and that a statute cannot be used as an instrument of fraud. However, some argue that fraud does not exclude the statutory protection, which makes no reference to fraud.

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Personal obligations

Any difficulty over fraud may be sidestepped by arguing that fraud gives rise to a personal obligation affecting the purchaser. The basic idea is that a registered disposition defeats unprotected property rights, but has no effect on other, personal obligations.

Ie. Constructive trust

Graham J used this as an alternative ground for deciding against the purchaser in Peffer, although without any explanation. Lyus also employed a constructive trust, but this is more readily justified by the purchaser’s promise in that case. The limits of the constructive trust in property transfers have been clarified by the CA in Ashburn Anstalt v Arnold, approving Lyus. Ashburn turned on the effect of a promise to buy land ‘subject’ to an interest. Was stressed that a purchaser who buys ‘subject to’ an interest is likely to intend no more than that he will not complain to the seller if the interest turns out to exist. This will not suffice. It is only if the purchaser promises that he will respect the interest that a constructive trust will be imposed. Confirmed by CA in Chaudhury, stressing that Lyus (while correct on its facts) is an exceptional case and has never been successfully appealed so as to avoid the effects of failure to protect an interest on the register. Whether a constructive trust can ever be justified in simple cases of actual notice or bad faith depends upon the law relating to ‘knowing receipt’ of trust property.

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Non-registered dispositions

Priority disputes between other interests (two minor interests, for example) are dealt with by a simple first in time rule (LRA Section 28).

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Establishing time order

Some interests may arise at the same time. The problem usually involves the priority of a charge, when the money lent is necessary for the land to be bought (often called an aquisition mortgage).

Cann - HL held that an acquisition mortgage always comes first, ahead of other interests arising on purchase.

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