In Baker v. Craggs  EWHC 3250 (Ch) the High Court held that land acquired by a purchaser was bound by an easement granted by the seller, without the purchaser's knowledge or consent, after the date of the relevant transfer but before the date that transfer was registered at the Land Registry.
The Charltons owned a farm in Somerset. On 17 January 2012 they completed a transfer of part of the farm land and outbuildings (the Farm Land) to Mr Craggs. Subsequently the Charltons contracted to sell one of the remaining barns to the Bakers including, by mistake, a right of way over the land that had already been sold to Mr Craggs. The transfer of the barn to the Bakers (including the grant of the right of way) completed on 20 February 2012.
Mr Craggs' application to register his transfer at the Land Registry was cancelled and his solicitors were unable to submit a fresh application within the priority period. The transfer to the Bakers was accordingly registered first together with the right of way over Mr Craggs' land. When Mr Craggs finally completed registration of his transfer it was registered subject to the right of way in favour of the Bakers.
The dispute in this case was whether or not that right of way bound the land acquired by Mr Craggs.
By virtue of section 27(1) of the Land Registration Act 2002 (the 2002 Act) legal title to registered land only passes to a buyer upon completion of the registration formalities. The period between the dating of a transfer and its registration at the Land Registry is known as the registration gap. During the registration gap the Charltons held the legal title to the Farm Land on trust for Mr Craggs, who in turn held no more than an equitable interest.
Under section 29 of the 2002 Act the transfer of the barn to the Bakers for valuable consideration was subject only to interests affecting the same immediately prior to that transfer which were either protected by registration or which constituted overriding interests. Paragraph 2 of Schedule 3 of the 2002 Act provides that "an interest belonging at the time of disposition to a person in actual occupation" can amount to an overriding interest. On the facts the court held that Mr Craggs had been in actual occupation of the property as at the date of the Baker transfer and so, given his equitable interest in the Farm Land, he had an overriding interest.
Overriding interests can however be overreached. Overreaching is the process by which certain interests in land can be converted into interests in the money or assets exchanged for that land. Unfortunately for Mr Craggs, the statutory requirements for overreaching, as set out in section 2(1)(ii) of the Law of Property Act 1925, had been satisfied:
- the grant of an easement amounted to the conveyance of a legal estate;
- the Farm Land was held on trust for Mr Craggs; and
- the proceeds of the sale of the barn to the Bakers, which included the grant of the right of way, were paid to two trustees, namely the sellers, Mr and Mrs Charlton.
While estate contracts, such as a contract for the sale of land, are excluded from the effects of overreaching, the court held that Mr Craggs' sale contract had merged on the completion of the transfer of the Farm Land so that he no longer had the benefit of an estate contract at the time the Bakers were granted the right of way.
Accordingly, while Mr Craggs had had the benefit of an overriding interest, that interest had been overreached leaving the Farm Land bound by the right of way.
- provides another example of the difficulties that can be caused by the registration gap. Had legal title to the Farm Land passed to Mr Craggs upon the dating of his transfer (rather than the later date of registration at the Land Registry as prescribed by the 2002 Act) there would have been no doubt that the grant of the right of way to the Bakers by the Charltons was invalid;
- illustrates the importance of making a valid application to register a transfer as soon as possible after completion (preferably immediately) and in any event within the corresponding Land Registry priority period. The parties agreed that, had Mr Craggs' first application to register his transfer, made during his first priority period and prior to the grant of the easement, been valid, the right of way granted to the Bakers would have been ineffective;
- serves as a reminder that strictly speaking you cannot extend your priority period. The most you can do is apply for a new priority period. The new priority period will however be subject to any applications or priority searches undertaken/submitted since the date of your first priority search; and
- provides the following useful guidance as to what constitutes "actual occupation" for the purposes of establishing an overriding interest:
- it requires physical presence rather than just an entitlement in law;
- it involves some degree of permanence and continuity;
- it doesn't necessarily require the personal presence of the person claiming to occupy;
- occupation need not involve residence (it depends on the property);
- occupation by a licensee on his own behalf does not constitute actual occupation by the licensor;
- receipt of rents and profits will no longer suffice to offer protection; and
- occupation needs to be distinguished from mere use. However Mr Justice Newey observed that "where say, someone buys and moves into a house with a drive, he can plainly be in 'actual occupation' of the drive as well as the house even though he does not spend much time on the drive itself or keep possessions on it. Mere use of an access may not amount to occupation … but, where the person using a drive owns it and the house it serves, it may be proper to consider him to be occupying both house and drive as owner-occupier".