Key points

  • If a third party wishes to protect an interest it has in another party's property, the title to which is registered at the Land Registry, there are two main methods of doing this: registering a unilateral notice or registering an agreed notice.
  • A unilateral notice allows the full detail of the applicant's claim to be kept confidential. However, does this confidentiality come at the price of a potential loss of priority for the applicant's interest? The Court of Appeal has said that it does not.
  • A valid unilateral notice protecting a mortgage will also protect the interests that arise under that mortgage.

Background

The 2001 Law Commission Report (Law Com No. 271) "Land registration for the 21st century: a conveyancing revolution" (the Report) led to the introduction of the Land Registration Act 2002 (LRA 2002). This replaced the 1925 version of that Act.

The fundamental objective of the title register system, as detailed in the Report, is to provide "a complete and accurate reflection of the state of the title of the land at any given time". The LRA 2002 was the legislation by which this would be achieved.

Elsewhere in the Report, the Law Commission acknowledged that one of the primary purposes behind the entry of a unilateral notice - a new device introduced by the LRA 2002 - was to preserve commercial confidentiality.

Section 35(2) of the LRA 2002 states simply that a unilateral notice must "identify who is the beneficiary of the notice". Rule 84(5) of the Land Registration Rules 2003 requires a unilateral notice to give "such details of the interest protected as the registrar considers appropriate". The Land Registry's guidance as to how the interest claimed should be described is in Practice Guide 19. This confirms that no documentation needs to be lodged in support of an application to register a unilateral notice. Of itself, this keeps the detail of the applicant's claim for a unilateral notice confidential.

This is to be contrasted with an application for an agreed notice where the document, under which the interest is claimed, must be lodged with the application. This will, then, ordinarily be a public document.

The use of a unilateral notice therefore means that the register to the land "burdened" by the notice will contain only very basic details of the interest claimed. How is this to be reconciled with the aim, stated in the Law Commission Report, of completeness?

This question was one of several considered by the Court of Appeal in the case of Bank of Scotland plc v Joseph & Others. The case is of interest because it is thought to be the first time that section 35 LRA 2002, and the content of a unilateral notice, has come before the courts.

Glossary

  • Subrogation - the ability to substitute one party for another in respect of a right or claim.
  • Unpaid Vendor's Lien - a form of equitable charge, implied by law, which gives a seller security for payment of unpaid monies.

Facts of Bank of Scotland plc v Joseph & Ors

The facts of the case were complex. For current purposes, they can be summarised as follows:

  • A long lease of a flat was granted at a premium to a Mr Samad.
  • It was sold, on the same day, by Mr Samad to Ms Joseph.
  • Bank of Scotland plc (the Bank) provided the majority of the funds for Ms Joseph's purchase and, as security for the loan, the Bank was given a charge over the flat.
  • It transpired that Mr Samad had used the money he received from Ms Joseph to pay the developer.
  • Unknown to Ms Joseph or the Bank, Mr Samad had granted a charge over the flat to a company (the Company) to whom Mr Samad had an obligation as guarantor.
  • Mr Samad was registered at the Land Registry as the first proprietor of the lease.
  • Ms Joseph's registration as a subsequent owner did not happen for several years.
  • The Bank's registration as Ms Joseph's lender and chargee could not happen until Ms Joseph was registered as owner: its registration was, therefore, also delayed for several years.

In lieu of substantive registration of its charge over the flat, the Bank sought to protect its interest by way of a unilateral notice. The notice registered on the leasehold title (which, at this time, was still in the name of the original tenant, Mr Samad) referred to "a mortgage dated ... in favour of Bank of Scotland".

The registration of this notice at Land Registry pre-dated the registration of the charge created by Mr Samad, in favour of the Company. Under the LRA 2002, the date of registration determines which third party interest will take priority. On this basis, the Bank was first in line.

Registration of Ms Joseph as owner of the flat - and substantive registration of the Bank's charge over the flat - was not achieved until several years after the Company's charge was registered. Therefore, when the Bank wanted to take possession of the flat because Ms Joseph had defaulted under her mortgage, the Company argued that it had priority because its charge was substantively registered before the Bank's charge was.

It would seem that both Ms Joseph and the Bank were victims of a fraud perpetrated by Mr Samad. However, the fact remained that the money lent by the Bank to Ms Joseph was used to pay the developer for the original grant of the lease.

This gave the Bank a subrogated right to an unpaid vendor's lien as against the current owner of the flat, a Mr Lyons. He had bought the lease from the Company at a time when the title was still in the name of Mr Samad, and the Company had taken possession to enforce its security against Mr Samad. It was accepted between the parties that Mr Lyons' purchase from the Company had not been an arm's length transaction.

If the Bank had priority as against Mr Lyons, it could seek to enforce its lien and repossess the flat. If it did not, the Bank would be unsecured, and Mr Lyons would have acquired the flat from the Company free of the Bank's interest.

The question, therefore, was: did it matter that the unilateral notice in favour of the Bank referred only to "the mortgage"? It did not refer to any specific rights which might arise out of the mortgage, such as - on the facts of the case - the subrogated right to an unpaid vendor's lien.

The first instance decision

In the County Court, it was held that it did not matter. The right claimed by the Bank stemmed from the charge, and the unilateral notice was therefore effective also to protect any interests conferred by the charge.

Mr Lyons, who stood to lose his home, appealed. His primary contention was that the Bank should have identified precisely, in its application to register the unilateral notice, the interest being relied on in order to obtain priority.

The Court of Appeal's decision

The Court of Appeal disagreed with him, and upheld the priority awarded to the Bank: if the details provided in the application for a unilateral notice were sufficient for the purposes of the LRA 2002, then any failure by the Bank to specify more particularly the interest relied on did not make the notice ineffective to preserve priority.

The Bank still had to show that its interest was valid, as with all such notices. But once it had done that - and it had - the wording of the application for registration of the notice, and of the notice itself, did give the Bank priority.

Things to consider

In earlier property update alerts, we have mentioned how a recipient of any correspondence from Land Registry in relation to notices must act promptly. This case provides another illustration of why: the interests that can be protected by notices - and therefore lost by inaction - can be substantial (here, a mortgage).

Also, the case confirms the ability for parties to preserve priority as well as confidentiality by applying to register a unilateral notice.