The High Court has recently handed down their judgment in Knight v Fernley and another [2021] EWHC 1343 (Ch) which concerns the consequences of a purchaser failing to register their interest with the Land Registry.
The judgment applies the well-established principle that following the sale of registered freehold land, the legal estate remains vested in the seller until the purchaser is registered as the proprietor at the Land Registry. Until then, only the equitable (i.e. beneficial) interest in the property passes to the purchaser.
The judgment also serves as an important reminder of doctrine of ‘overreaching’. The reasons behind this doctrine are technical but its practical effect is that someone who purchases property for capital from at least two trustees cannot have their legal interest in the property overridden by an occupier of the property or anyone else with an equitable interest in the property.
Case Summary
Pars Developments were the registered owner of a site under a single title. They developed the site which comprised three houses (known as Plot 1, Plot 2 and Plot 3) and a small plot deemed unsuitable for development known as “Plot A”.
Pars Developments sold each of the three houses using Transfers of Part (TP1s) but, in error, the transfer of Plot 1 to Mrs Knight was not registered at the Land Registry.
Pars Developments then sold the remainder of the site to Mr and Mrs Fernley using a Transfer of Whole (TR1). This was then registered at the Land Registry meaning that, as Mrs Knight’s interest had not been registered, Mr and Mrs Fernley became the registered proprietors of both Plot A and, unintentionally, Plot 1.
Mrs Knight applied to the court to alter the register to substitute her name for Mr and Mrs Fernley as the registered proprietor of Plot 1 at the Land Registry.
Judgment
The High Court confirmed the following:
- Mrs Knight’s interest must be registered at the Land Registry in order for legal title of Plot 1 to pass to her. As the TP1 was not registered at the Land Registry, she only ever possessed an equitable interest in Plot 1 buttressed by her actual occupation of the property. Pars Developments held the legal interest as ‘bare trustees’.
- Pars Developments sale of Plot 1 to Mr and Mrs Fernley was subject to Mrs Knight’s overriding interest given her occupation of the property. However, Mrs Knight’s interest was ‘overreached’ because the proceeds of Plot 1 had been paid to two trustees (the developers) for capital. Mrs Knight’s equitable interest was therefore translated into an equivalent interest in the premium paid by Mr and Mrs Fernley to Pars Developments which effectively unburdened the legal title giving Mr and Mrs Fernley the full legal and equitable title to both Plot A and Plot 1.
- The value of the premium paid by Mr and Mrs Fernley to Pars Developments was inadequate given the value of Plot 1 but there was no authority which indicated that this could prevent overreaching.
- The transfer to Mr and Mrs Fernley was not void for mistake because both Pars Developments and Mr and Mrs Fernley sought to transfer the legal estate in the remainder of the site title which is what happened. It was irrelevant that both parties wrongly believed the site title comprised only of Plot A.
- Although they dismissed her appeal, the High Court did invite Mrs Knight to amend her particulars of claim to plead rectification of the register (as opposed to alteration of the register which was in fact applied for by Mrs Knight). The register can be ‘rectified’ where it (i) involves the correction of a mistake and (ii) prejudicially affects the title of a registered proprietor. The judgment made clear that an application for rectification should be made in this instance given that the amendment clearly prejudicially affects the title of a registered proprietor.
Commentary
This judgment highlights the importance for purchasers (or, in practice their solicitors) to ensure that their Transfer Deed is registered at the Land Registry within their priority period.
If a transfer of land is not registered with the Land Registry within the relevant period and the Land Registry therefore have no knowledge that the transfer has taken place, the consequence could be that the purchaser’s equitable interest is overreached by a subsequent purchaser of the same property meaning that the initial purchaser loses their registrable title to the property.
However, all may not be lost for purchasers who find themselves in this position given the judge’s clear invitation for Mrs Knight to amend her Particulars of Claim to bring a claim to rectify the register. We are not aware that any further hearing has yet taken place but watch this space to see if Mrs Knight is successful!