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3.2.2 Third Party Rights Lecture

PART ONE: NOTICES

Notices are the primary means of protecting third party rights in registered land. This is distinct from the doctrine of ‘notice’, a concept that relates to unregistered land.

Under the Land Registration Act 2002, a Notice may be entered onto the register to protect most types of interests in land. Examples include easements, restrictive covenants, and short leases.

The Land Registration Act 2002 intends to:

  • Maximise the knowledge of current interests for purchasers
  • Protect third party rights in the land.

Once interests are registered, priority is given to the interest so protected. This means that in a subsequent registered disposition of the registered title, the third party interest will bind that disposition, meaning the purchaser of the land will be bound by that interest (Land Registration Act, s.32). If the underlying interest is not valid then the entry of the Notice will not validate the interest.

A Notice may be either ‘agreed’ or ‘unilateral.’

  • An Agreed Notice has to satisfy a number of conditions in order to be entered on by the Land Registrar. The Agreed Notice has to be applied for by a registered proprietor or a person entitled to be registered as such; alternatively, the registered proprietor agrees to the Notice being entered on to the Register; or, the Land Registrar is satisfied by evidence that he applicant does have a valid interest which is now claimed for.If the registered proprietor objects, they may apply for the Notice to be cancelled, upon provision of appropriate evidence.
  • A Unilateral Notice can, like Agreed Notices, be applied for without the consent of the registered proprietor of the land. To be successful in their application, the applicant must provide evidence of the existence of their interest in the land. Upon the application being made, the Land Registrar must inform the registered proprietor of the application.

Restriction

These are third party interests in land which cannot be protected by Notice, and are instead listed as restrictions (Land Registration Act 2002, s.33). Restrictions include, among other things: freezing injunctions granted over a registered property; noting that the registered proprietor, typically a corporation or statutory body, has limited powers of disposition; where the chargor under a registered charge agrees with the chargee to exclude his or her statutory power of leasing as per the Law of Property Act 1925, s.99.

PART TWO: UNREGISTERED LAND AND BONA FIDE PURCHASERS

Equitable rights for unregistered land are not enforceable against any and all bona fide purchasers of a legal estate for valuable consideration without notice.

Typically, where a purchaser seeks to purchase unregistered land that is hitherto subject to unregistered equitable interests, a third party seeking to enjoy their equitable interest can override by relying on the doctrine of notice (Holaw (470) Ltd v Stockton Estates Ltd(2001) 81 P. & C.R. 29). However, such overriding interests of the third party cannot take precedence over the rights of the bona fide purchaser so long as certain requirements are met:

  1. The purchaser’s absence of notice was ‘genuine and honest’ (Midland Bank Trust Co Ltd v Green (No. 1) [1981] A.C. 513);
  1. The purchaser has to take a legal, not equitable, estate in the land;
  1. The purchaser took ownership via the act of another person, such as an act of transfer, meaning the bona fide purchaser must be bound by the third party’s equitable interest if the purchaser took ownership by an operation of law;
  1. They take ownership of the property without notice.

In order to show that the bona fide purchaser has taken the property without notice, their conduct will be assessed with respect to three kinds of notice: actual notice, constructive notice; and imputed notice.

If an interest of a third party is held to be non-binding and not operative against a bona fide purchaser, then if the bona fide purchaser subsequently transfers the land to another party, then the interest of the third party will also be non-binding and not operate against the latest owner of the land, even if that latest owner has actual notice of the arrangements (Wilkes v Spooner [1911] 2 K.B. 473).

PART THREE: RESTRICTIVE COVENANTS

No restrictive covenant can bind third parties unless the restrictive covenant is intended by those who created it to have a wider than purely personal effect (i.e. one which is between two parties. Typically, for covenants created in or after 1 January 1926, unless a covenant is phrased in such a way that it clearly and expressly binds the original covenantor only, there is a statutory presumption that any restrictive covenant relating to land of the covenantor was intended to be made on behalf of the covenantor’s successors in title, on behalf of all persons deriving title from him or them, as well as ‘owners and occupiers for the time being’ (Law of Property Act 1925 s.79(1)-(2)) of the land affected.

This means that the covenantor effectively binds any party that subsequently takes ownership of the title formerly owned by the covenantor. Therefore, ordinarily, a restrictive covenant is not simply a contract between two parties: it also binds subsequent third parties that take the place of the covenantor.

In order that a covenant may bind third parties, other conditions need to be fulfilled.A party seeking to enforce a restrictive covenant against a third party must establish two things:

  • He, the person enforcing the covenant, is entitled to the benefit of the covenant, and
  • The person against whom he is enforcing the covenant is subject to the burden of the covenant.

It is insufficient to prove only one of these elements. If only one, and not both, can be proven, enforcement of a restrictive covenant must fail (J Sainsbury plc v Enfield LBC [1989] 1 W.L.R. 590).

Restrictive covenants cannot rank as any category of overriding interest. For unregistered land, the transmission of burden now depends on the registration of the covenant against the name of the covenantor as a Class D(ii) land charge (Land Charges Act 1972, ss.2(5), 4(6)).

Discharge of restrictive covenants

Restrictive covenants are not necessarily perpetual and unlimited in duration, it possible to modify or discharge a restrictive covenant.

The Lands Tribunal has, under s.84 of the Law of Property Act 1925, a discretionary power to discharge or modify restrictive covenants, either with or without the provision of compensation. For third parties, therefore, it is possible that they can avoid being bound by restrictive covenants, so long as they are able to convince the Lands Tribunal of their case. The Tribunal may so discharge or modify a restrictive covenant of the following grounds:

  1. The restrictive covenant ought to be deemed ‘obsolete’ (Law of Property Act 1925 s.84(1)(a));
  1. The continued existence of the restriction impedes ‘some reasonable use of the land for public or private purposes’ (s.84(1)(aa)) and the restrictive covenant can no longer secure ‘any practical benefit of substantial value or advantage’ to the relevant dominant owners (i.e. those who have the benefit of the covenant) or has become ‘contrary to the public interest’ (s.84(1A));
  1. The persons entitled to the benefit of the restrictive covenant have agreed to its discharge or modification (s.84(1)(b)); or
  1. The proposed discharge or modification ‘will not injure’ the persons entitled to the benefit of the restriction (s.84(1)(c)).

Planning permission and discharges/modifications of restrictive covenants

The mere granting of planning permission in respect of a proposed development of land subject to a restrictive covenant does not mean the Lands Tribunal must discharge or modify the restrictive covenant in question (Re Martin’s Application(1989) 57 P & CR 119, CA; Re Cordwell’s Application [2008] 2 P & CR 570).

PART FOUR: EASEMENTS

Easements cannot be transferred independently of the land they are conceived to benefit: the right remains vested in the land, not the original parties to the easement.

Legal easements

The benefit of an easement needs to be entered in the property register of the dominant title. The proprietor of the estate in the registered land also becomes the proprietor of the ‘estate’ of the easement, and that proprietorship is to be set down in the register of title (Land Registration Act 2002, s.59(1), Schedule 2, paragraph 7(2)(b); Land Registration Rules 2003, rule 3(1)). Therefore, upon any subsequent transfer of the dominant title, the benefit of the easement, having become an intrinsic part of the relevant property register (Land Registration Rules 2003, rule 5(b)(ii)) automatically passes to the transferee. This applies to implied and prescriptive easements also (Land Registration Rules 2003, rule 73A).

In unregistered land also, the benefit of the easement passes with a subsequent conveyance by deed of the land concerned (Law of Property Act 1925, s.62 (1) - (2)).

Other third parties can benefit from an easement: any occupier for the time being of the dominant land can enjoy the benefit, even if they are a mere lessee of the land (Thorpe v Brumfitt(1872-73) L.R. 8 Ch. App. 650) or are a subtenant.

For servient land, the position is much the same: successors in title will be bound by the easement to their detriment, just as successors in title of the dominant land would take on the benefit of the easement. In order for them to be bound in the case of registered land, the registered estate’s status as servient land must be recorded in the charges register of that (servient) estate. Such registration binds every subsequent transferee of the servient estate (Land Registration Act 2002, ss. 29(1), (2)(a)(i)).

Note that if an easement has failed to fulfil the registration requirement, any disposition of an expressly created easement cannot take place by ‘operation of law’, and the effect takes place only in equity (Land Registration Act 2002, s.27(1)).

For easements that arise by way of implication or prescription, the easement would ‘override’ a registered disposition of the land, so long as the easement would have been ‘obvious on a reasonably careful inspection of the land.’ Therefore, if a third party takes ownership of the servient land, they are bound by the easement, whether implied or made by prescription. As for unregistered land, a third party taking ownership of the estate in the servient land is bound by the easement, just as in registered land.

Profits à prendre

For both registered and unregistered land, the benefit of a profit à prendre which is appurtenant to the dominant tenement land will ordinarily pass to the subsequent owner of the dominant tenement land upon its transfer. It is capable of being registered as a ‘registered estate.’ Note that for profits in gross they may only be transferred as a ‘piece of real property’ (Lovett v Fairclough(1991) 61 P. & C.R. 385).

As for servient tenement land, the burden if expressly created out of a registered estate will be included in the charges register of the servient estate, and therefore binds all subsequent transferees of the land over which it is can be exercised (Land Registration Act 2002, s.29(1), (2)(a)(i)). As with legal easements, profits à prendre that exist by way of implication or prescription constitute and overriding interest in the land (Land Registration Act 2002, s.29(1), (2)(a)(ii), Schedule 3, paragraph 3(1)). In the case of unregistered land, the burden of a legal profit will automatically bind any subsequent purchasers of the servient tenement.

Equitable easements

Any transfer of the dominant land, whether registered or unregistered, is sufficient to transfer the benefit of equitable easements to the transferee (Law of Property Act 1925, s.62(1)-(2)), because these equitable rights are part of the dominant realty no less than the legal rights (Leech v Schweder(1873-74) L.R. 9 Ch. App. 463). Equally, the burden of equitable easements is capable of being passed to third parties where they are the transferee of the servient land.

For registered land, equitable easements are binding on a transferee even if they take land without valuable consideration (Land Registration Act 2002, s.28(1)). In all other cases, however, the relevant burden is enforceable against a registered disponee of the servient land only if the burden was the subject of a Notice that had been entered in the charges register of the servient land prior to the disposition in question (Land Registration Act 2002, s.29(1),(2)(a)(i)).

For unregistered land, equitable easements created after 1 January 1926 can be rendered enforceable against subsequent purchasers of the servient estate via the registration of a Class D(iii) land charge against the name of the estate owner who granted the right in question (Land Charges Act 1972, s.2(5)). Any equitable easements created prior to 1 January 1926 are governed by the equitable doctrine of notice.

PART FIVE: LICENCES

Licences are relevant to third parties because they have a perpetually binding effect. Licences bind not only the licensor (the party who granted the licence over their land) but also all the licensor’s successors in title (Webb v Paternosters Case(1619) 78 E.R. 165), and are capable of assignment to third parties (Muskett v Hill and Tozer(1839) 132 E.R. 1267).

Contractual licences

Licences coupled with grant of an interest or an equity will be those with greater proprietary significance, and will constitute an overriding interest (Land Registration Act 2002, s.116(a)). More of an issue regards contractual licences.

There has been some disagreement about the status of contractual licences. According to the court in several of the later cases, such licences ‘do not create a property interest’, and therefore cannot bind third parties (Ashburn Anstalt v Arnold [1989] Ch. 1 per Fox LJ; Lloyd v Dugdale [2001] EWCA Civ 1754 per Sir Christopher Slade). This applies to both registered and unregistered land.

Constructive trust

There may be limited circumstances where the disponee of an estate – registered or unregistered – is bound by a constructive trust that requires them to give effect to a prior contractual licence. This may arise where a purchaser of land has ‘burdened his own title’ with an independent conscientious obligation towards the contractual licence (Bahr v Nicolay(No. 2) (1988) 164 CLR 604 (HC of Australia).

Enforceability by register entry

In Donington Park Leisure Ltd v Wheatcroft & Son Ltd [2006] EWHC 904 a contractual licensee had been ‘guaranteed’ parking rights on a defined lot. The court held the licensee could legitimately expect that the parking right may be defined as a ‘restriction’ in the licensor’s register of title. The effect of that restriction was to protect the licensee against the loss of his rights by reason of a transfer of the lot in question. The result is that any subsequent third party purchaser of the licensor’s title would be subject to the restriction of the parking right.

Invoking licences against third parties

The original position was that a licensee, lacking both exclusive possession of the land and the proprietary estate, cannot sue to recover possession from a stranger (Allan v Liverpool Overseers (1873-74) L.R. 9 Q.B. 180; Street v Mountford [1985] A.C. 809 per Lord Templeman).

However, exceptions have emerged to this rule. For example, a licensee may sue in trespass if they have exclusive possession (Hounslow LBC v Twickenham Garden Developments Ltd [1971] Ch. 233).


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