The Court of Appeal has held that using a stairway did not amount to actual occupation and so was not an overriding interest under the Land Registration Act 2002.

PLC Property

Summary. The Court of Appeal has held that using a stairway did not amount to actual occupation and so was not an overriding interest under the Land Registration Act 2002 (2002 Act).

Background. Overriding interests are unregistered interests affecting registered land which bind any person who acquires an interest in that land. Unregistered interests listed in Schedule 3 to the 2002 Act will override a registrable disposition made for valuable consideration. These include an interest that belongs, at the time of the disposition, to a person in actual occupation, so far as the interest relates to the land that the person occupies (paragraph 2, Schedule 3, 2002 Act).

Equity finds a constructive trust where it would be unconscionable to allow a legal owner to take free of a right or an obligation, or to prevent unjust enrichment. Liability depends on knowing that the trust exists. Knowledge can be imputed to someone who does not make enquiries, or wilfully ignores the obvious.

Facts. C constructed an external staircase and landing on its property (number 37), within an alleyway belonging to V who owned the neighbouring property (number 35). C asked V to execute a deed of easement granting rights to number 37 over the stairway, but did not register a unilateral notice at the Land Registry. V did not execute the deed.

V sold number 35 to Y. The sale contract incorporated the Standard Conditions of Sale (4th edition) providing that Y bought the property subject to incumbrances that were discoverable by an inspection of the property (the incumbrances provision).

Y removed the connection between the stairway and number 37. C sought a declaration as to its entitlement to use the stairway. The County Court held that an equitable easement had arisen between C and V, and that this was binding on Y because:

C had been in actual occupation of part of number 35, and so Cs right was an overriding interest.

A constructive trust arose between C and V, which bound Y because the terms on which Y bought the property made it unconscionable for Y to deny it.

Y appealed.

Decision. The court upheld Ys appeal, holding that Y acquired number 35 free of Cs rights, because:

C did not have any rights capable of acquiring overriding interest status. Occupation required a personal physical presence and using the stairway was insufficient to amount to actual occupation.

The right claimed by C was an incumbrance discoverable by an inspection. The incumbrances provision was included to protect V against a claim from Y, if a right existed that V had not disclosed; it was not intended to impose a new obligation on Y in relation to a third party.

There may be exceptional circumstances where it would be unconscionable for a buyer not to be bound to a third party, but otherwise the third party is expected to protect itself by registration. It is not unconscionable for a buyer to rely on lack of registration to defeat a claim to an interest in registered land, even where the buyer had express notice of the claim. The point of a system of land registration is to move away from a system where notice is relevant.

Comment. This is the first occasion on which the Court of Appeal has considered what is meant by actual occupation for the purposes of Schedule 3 to the 2002 Act. The court has given a relatively narrow and practical meaning. The notion that use is not to be confused with occupation will be helpful. The court also emphasised the importance of certainty in a registered land system. Where the system provides a person with methods to protect their rights, if they do not use those methods, it is at their risk.

Case: Chaudhary v Yavuz [2011] EWCA Civ 1314.