Land Registration and its circumvention

Chaudhary v Yavuz [2011] EWCA Civ 1314

It is a basic principle of land registration, reinforced by the Land Registration Act 2002, that the holder of an adverse interest to a title should protect that interest by entering a notice on the register (unless they are unable to do so, for example because their interest is excluded).  Failure to do so means that the holder of the adverse interest is forced to fall back on the capriciousness of overriding interests, which do not appear on the register but bind the buyer.  This category was much reduced by the 2002 Act (on the basis of that formal protection principle).  Or the interest holder can rely on the more uncertain and nebulous category of “constructive trust”.  In essence, those were Mr Chaudhary’s arguments, as he had failed to protect his interest by the entry of a notice.

The circumstances were these.  Between two properties was an alleyway.  The alleyway was part of one of the properties (No 35).  There was a rotten staircase leading to the first floor of No 35.  The owner of the other property (No 37) wanted to extend that property and offered to build a metal structure giving access to the first floor of both Nos 35 and 37.  That was done and paid for by Mr Chaudhary, the effective owner of No 37.  Nothing was in writing, however.  An attempt to get the owner of No 35 to sign a formal document was to no avail and the owner of No 35 sold the property to Mr Yavuz.  Prior to that sale, Mr Chaudhary clearly could have entered the notice on the register, but did not do so.    Subsequently, Mr Yavuz refused to allow Mr Chaudhary and his tenants of the first floor properties to use the metal staircase.  The first floor of No 37 was effectively landlocked as a result.

At first instance, HHJ Cowell held that Mr Chaudhary had a right by virtue of proprietary estoppel against the former owner of No 35.  Mr Yavuz was bound by that right either because Mr Chaudhary and his tenants were in actual occupation of the staircase at the date of disposition (Sch 3, para 2) giving rise to an overriding interest against Mr Yavuz; or that Mr Yavuz was subject to a constructive trust by which he was bound to give effect to the rights to use the metal staircase.  Mr Yavuz conceded the proprietary estoppel point but appealed the other two points.

This is a classic land registration problem question (for our student readers) and the Court of Appeal judgment and reasoning (Lloyd LJ, with whom Ward and Kitchin LJJ both agreed) make for interesting reading.  The Court of Appeal overruled both findings of HHJ Cowell.

The first issue was whether Mr Chaudhary and his tenants were in actual occupation of the staircase under Schedule 3, Para 2, LRA 2002.  Lloyd LJ noted that, this right being in the nature of an easement, it was counter-intuitive that the owner of the dominant tenement (No 37) is in actual occupation of the servient land (at [28]).  He then went on to say that use of a right to pass and re-pass (as opposed to a car-parking easement) does not amount to actual occupation ([31]).  Counsel for Mr Chaudhary valiantly sought to argue that the actual metal structure itself constituted actual occupation, but Lloyd LJ made the point that this was a structure which became part of the land itself (referring to the point made by Lord Wilberforce in Boland about personal physical activity, not some entitlement in law.   Use of the metal staircase by Mr Chaudhary and his tenants was precisely that – use – not occupation ([32]).

This seems to me to be eminently appealable.  How does one actually occupy a metal staircase?  Lloyd LJ says that not everything needs to be actually occupied, but that doesn’t quite meet the point, I think, about this metal structure.  It was clearly there (although Mr Yavuz had suggested in evidence that he didn’t know of its existence) and so this claim raises the relationship between notice and actual occupation.  Now, of course, the scheme of land registration was designed to get rid of the hazards of the doctrine of notice, but the very notion of actual occupation is designed (at least in my view) to protect in/formally granted rights of which the buyer is or should be aware.  So, there is something quite interesting going on here.  The other interesting thing going on here was the argument (which Lloyd LJ noted, at [35], but did not have to answer) that there was only actual occupation of the balcony landing outside the first floor of No 37, and not the staircase – this relates to the change in the 2002 Act limiting the Sch 3, Para 2 claim only to the land of which the person is in actual occupation.

On the constructive trust point (nb for our student readers, this is an old-fashioned type of constructive trust based on the maxim that equity will not allow a statute to be used as an instrument of fraud, not the new model type of which Jones v Kernott forms part, although the basis for both is the same, ie unconscionable conduct), again Lloyd LJ found for Mr Yavuz.  This part of the judgment is equally significant because it seeks (properly, in my view) to limit the operation of the constructive trust in land registration cases.  The foundational case is Lyus v Prowsa Developments [1982] 1 WLR 1044, but, as Lloyd LJ noted, there were three key points about that case: (a) Ms Lyus’ right didn’t bind the bank, which sold the property; (b) Ms Lyus’ right was specifically identified in the bank’s contract of sale; and (c) Ms Lyus could not have done any more to protect her right.  Actually Lloyd LJ notes another salient fact about Lyus which I hadn’t remembered, and that is that buyer from the bank wrote to the bank’s agents giving an assurance that they would take all steps in their power to make sure that the interests of purchasers like Ms Lyus were dealt with quickly and to their satisfaction ([41]).  It was on those bases that Dillon J found that the buyer from the bank was bound.  Lloyd LJ reviewed the other authorities in which the Lyus constructive trust had been discussed (noting that HHJ Cowell had been junior counsel in one important such case, Ashburn Anstalt v Arnold [1989] Ch 1).

Here there was no specific identification of Mr Chaudhary’s right, merely the general stipulation in the Standard Conditions of Sale that the property was sold subject to incumbrances which were are discoverable by inspection of the property before the contract.  So, if Counsel for Mr Chaudhary was right and a constructive trust should ensure, this clause would effectively turn back the clock and wipe out the machinery of land registration.  That is, such rights would be “… binding on the purchaser despite the fact that it could, and in terms of the 2002 Act should, be protected by registration or a notice on the register, and despite the fact that, unlike in Lyus, there is nothing in the contract to draw specific attention to it” ([58]).  And the land registration machinery is precisely in point because the buyer must be entitled to rely on that machinery in the Act, otherwise there would be chaos (well, for property lawyers at least); further the purpose of the standard condition is to protect the seller against possible claims by the buyer, not the imposition of a new personal obligation on the buyer ([62]).

Now, I have to admit that I buy into Lloyd LJ’s reasoning.  Personally, I’ve never found Lyus at all convincing, and Lloyd LJ notes that there have been no subsequent cases in which a constructive trust has been found.  And Lloyd LJ goes further, describing Lyus as “a very unusual case” ([61]) and “an exceptional case” ([64]).  At [67], he also demolishes the extremely odd judgment of Graham J in Peffer v Rigg [1977] 1 WLR 285 (which has in any event been impliedly overruled by the terms of the 2002 Act).

So, all-in-all, a rather significant case for property lawyers; conveyancers can breathe a sigh of relief collectively; students can recognise the limits of Lyus and have further authority on actual occupation to think about; and legislators don’t need to worry about the 2002 Act (or, at least, not yet).

It will be interesting to see if the SC take this one on on the assumption that there is an appeal.

Posted in Housing law - All, Trusts and Estoppel and tagged , .

One Comment

  1. i think it unlikely to go to sc.
    for my(rather low value) money the ca are bang on and hhj was the opposite whatever that is. i say this with great respect because hhj cowell is a judge i have some experience of and he is eminently fair, takes his time and knows his stuff.
    however, as you point out the attempt to circumvent registration by someone agreed to be a very savvy professional property developer (who also made an attempt post-agreement to get something in writing from the seller) was just not on. it was also the case that the staircase had been erected in total disregard of planning permission.
    the actual occupation point had to be wrong on so many levels (though i agree that when you get into all the whys it looks less certain) and the attempt to bind a purchaser in equity when there was no suggestion of unconscionability was, if anything, more wrong-headed.
    mind you, as you point out it is all quite fascinating – if you like easements, that is.

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