Questionnaire on Case Study of Property Law

The concept of Property Law is idea or philosophy of property underlies all property law. In some jurisdictions, historically all property was owned by the monarch and it devolved through feudal land tenure or other feudal systems of loyalty and fealty.

Section 3.2

Question 1

(i)             No. The estate is not inheritable but comes to an end on A’s death. A has an equitable interest in the land (a life interest).

(ii)            No. An entail (also known as a fee tail) is inheritable only by lineal descendants. It is an equitable interest in land.

(iii)       No. This is an example of a modified fee. The interest is determinable and will automatically end on the occurrence of the determining event i.e. A’s marriage.

(iv)         No. X has a life interest (as in (i) above). Y has a remainder, which takes effect only after X’s interest ends. Y’s right is not a present right to possession but a right to possession in the future. Since 1925 a remainder is an equitable interest in land.

(v)            Yes. Possession does not necessarily have to be physical. X has purchased the fee simple and has a present right to possession.

(vi)          Yes. Under s.205(1)(xix) Law of Property Act (LPA) 1925 ‘possession’ includes receipt of rents and profits or the right to receive the same, if any. X is not in physical possession but will either be receiving rent from Y or is entitled to receive rent.

(vii)         This is a fee simple granted subject to a condition subsequent. The condition has the effect of preventing marriage and the courts would intervene on the ground that such a condition is contrary to public policy. The condition is void and in this case A would take a fee simple estate in the property free from the condition.

(viii)        Yes. The effect of s.7(1) LPA 1925 as amended by the Law of Property (Amendment) Act 1926 is that all conditional fee simples subject to a right of re-entry are legal estates. This includes a fee simple subject to a rentcharge and a fee simple subject to a condition subsequent.

Question 2

(i)               Yes. The lease is for a fixed term of 99 years.

(ii)            Yes. Under s.205(1)(xxvii) LPA 1925 ‘term of years’ includes a term for less than a year, or for a year or years and a fraction of a year or from year to year. This lease is for a fixed term of less than a year.

(iii)        Yes. This would seem to fall within the above definition of a tenancy from year to year. But is it for a fixed term? Read Prudential Assurance Co. Ltd v London Residuary Body (Supplement 1.1).

(iv)           Yes. In the case of a fee simple the word ‘absolute’ is used to distinguish a fee which in theory lasts forever from a ‘modified’ fee which can be brought to an end prematurely on the happening of some specified event. But in the context of a term of years the word ‘absolute’ does not appear to have any real meaning. A lease invariably includes a clause allowing the landlord to re-enter if the tenant fails to pay rent or breaches some other covenant (known as a forfeiture clause). Such a clause will not prevent the lease from being a legal estate.

(v)           Yes, for the same reasons as in (iv) above. A lease often includes a break clause, allowing the landlord or tenant to bring the lease to an end early. Such a clause will not prevent the lease from being a legal estate.

(vi)          Yes. See Prudential Assurance Co v London Residuary Body (referred to at (iii) above).

(vii)         Yes. There are two ways of creating a legal mortgage, either by granting the lender a long lease of the property (ss.85, 86 LPA 1925) or by executing a deed which charges the property by way of legal mortgage with repayment of the sum due under the mortgage (s.87 LPA 1925). The latter is the more common modern method. The former method is still in use and grants the lender a legal estate in the land (a term of years) which will end when the loan is repaid.

(viii)        Yes. A fee simple must take effect ‘in possession’ but there is no such requirement in relation to leases. A lease to take effect in the future can be a legal estate and is known as a reversionary lease.

Section 3.3

Question 1

(i) Yes. Under s.1(2)(a) LPA 1925 an easement can be a legal interest in land if it is created correctly and lasts for the same period of time as one of the two legal estates. A’s freehold title includes the easement, which lasts for the same period as A’s fee simple estate.

(ii) Yes, for the same reasons as above. The easement lasts for the same period of time as B’s leasehold estate and is therefore a legal interest under s.1(2)(a).

(iii) No. The easement does not last for the same period of time as one of the two legal estates but only for the period of C’s life. The fact that C holds the fee simple of his house has no effect.

(iv) Yes. Under s.1(2)(b) a rentcharge in possession issuing out of or charged on land and being either perpetual or for a term of years absolute is a legal interest.

(v) No. The rentcharge is reserved only for the period of E’s life and does not last for the same length of time as one of the two legal estates.

(vi)  Yes. Under s.1(2)(c) a charge by way of legal mortgage is a legal interest.

(vii) Yes. Under s.1(2)(e) a right of entry in a lease or annexed to a rentcharge is a legal interest. Rights of entry in leases are very common but not really of practical importance here as G has a legal estate in the land in any event.

As a final point you should note that the estates and interests referred to above will be legal only if they have been created using the correct formalities.

Section 3.4

Question 1

(i)             Yes.

(ii)            No. Under s.54(2) LPA 1925 there is an exception to the requirement for a deed in the case of a lease for less than 3 years taking effect in possession at the best rent reasonably obtainable without taking a fine. A weekly tenancy agreement may be made quite informally, in writing or orally.

(iii)           Yes.

(iv)          Yes.

(v)           Yes.

(vi)          Yes. The exception in s.54(2) applies to a lease taking effect ‘in possession’. A lease which is to take effect in the future (a reversionary lease) must be granted by deed even where it is for a term of less than 3 years.

(vii)         Yes. An assignment is the sale by a tenant of his leasehold estate. Since it is the conveyance or transfer of a legal estate it should be made by deed. This applies regardless of the length of the lease since the exception in s.54(2) applies only to the original grant of a lease and not to an assignment.

(viii)        Yes. The exception in s.54(2) applies only to a short lease taking effect in possession at the best rent reasonably obtainable without taking a fine. Here a fine (a premium or lump sum) has been taken at the commencement of the lease.

(ix)          Yes. A right of way is an easement, which is capable of being a legal interest in land provided it is created by deed and lasts for the same period of time as one of the two legal estates.

QUESTION 1

You are told at the outset that title to Cold Comfort Hall was registered and the sale to Simon is, therefore, a disposition of registered land.

Simon is a purchaser for valuable consideration, and provided he has registered his ownership under s.27 LRA 2002, he will, under s.29 LRA 2002, take the Hall subject only to any interest which is

–       a registered charge or

–       the subject of a notice in the register or

–       an overriding interest (i.e. falls within any of the paragraphs of Schedule 3  of the 2002 Act)

Desmond has an option to purchase. This is an estate contract provided that it complies with s.2, Law of Property (Miscellaneous Provisions) Act 1989. Could he protect it by way of entry of a notice on the charges register?  There is a list in s.33 LRA 2002 of rights which cannot be protected by way of notice but an estate contract is not on that list, and therefore it could have been. If Desmond’s right was not so protected, does he have an overriding interest?

Under Schedule 3 paragraph 2 the rights of those in actual occupation are overriding, subject to the exceptions referred to in that paragraph. You should discuss the nature of actual occupation with reference to case law such as Abbey National v Cann.  What constitutes occupation depends upon the nature of the property.  If you consider he was in actual occupation, you would then need to decide whether his right failed to override because it failed to satisfy one of the conditions set out in paragraph 2  i.e.

  • if asked about his interest before the Simon bought the property he unreasonably failed to disclose it, or
  • the Simon did not know of his interest,  and his occupation would not have been obvious on a reasonably careful inspection of the property

Section 5.3

(a)           The formal exchange of contracts creates a binding agreement between seller and buyer in the conveyancing process. Assuming that the contract satisfies the formality requirements set out in s.2 Law of Property (Miscellaneous Provisions) Act 1989, Alan is bound to sell Green Acres to Jim and similarly Jim is bound to buy the property. If Alan fails to complete the sale to Jim, Jim can sue him for breach of contract or seek specific performance.

Alan’s contract with Ken is also valid if it complies with the s.2 formality requirements. This means that if Alan fails to complete the sale to Ken, Ken also has a remedy against Alan. Whilst Jim and Ken can both seek a remedy against Alan they have no direct claims against each other.

(b)           Following exchange, Jim has an equitable interest in the property, known as an estate contract. He should protect the interest by registering a Class C(iv) land charge against Alan’s name at the Land Charges Department in Plymouth. Assuming he does so, the estate contract binds any person who later buys Green Acres from Alan (s.198 LPA 1925). Ken will be bound.

If Jim fails to correctly register his estate contract, s.4(6) Land Charges Act (LCA) 1972 provides that it will be void against a purchaser for money or money’s worth of the legal estate. Assuming that Ken is such a purchaser he is not bound by Jim’s estate contract.

Note that Jim can still sue Alan for breach of contract.

(c)           No. Midland Bank Trust Co v Green makes it clear that knowledge makes no difference. Note that in Lloyds Bank v Carrick it was argued that the effect of an estate contract is to create a bare trust in favour of the prospective purchaser, which is subject to the doctrine of notice. The court rejected this argument on the basis that the trust arose only because of the estate contract, which was subject to the provisions of the Land Charges Act 1972 and not the doctrine of notice.

Section 5.4

Assuming that Peter paid the purchase monies to both Alan and Betty, overreaching has taken place and the interests of Caroline, Dorothy and Emily have been transferred from the house to the proceeds of sale. Peter owns the house free from any claims by the three girls.

Alan and Betty are still trustees and they hold the money on trust for their three daughters. If they (a) sold the house for less than its market value or (b) spent the sale proceeds on paying off their gambling debts, they would be liable to their daughters for breach of their duties as trustees.

SAMPLE EXAM QUESTION

You should identify the two legal issues:

(a)   whether Annie is bound by Olivia’s option to purchase; and

(b)   whether Annie is bound by any interests of Bill’s wife.

a)         Olivia’s option to purchase

The contract between Bill and Olivia must comply with s. 2 of the Law of Property (Miscellaneous Provisions) Act 1989. If it does, it is an estate contract which is an equitable interest. To protect the estate contract against future purchasers of the land, Olivia should have registered it as a Class C (iv) land charge under s.2 LCA 1972. The estate contract should have been registered by Olivia against Bill’s full and correct name before the transfer to Annie (see Oak Co-operative Building Society v. Blackburn).

If Olivia registered a Class C (iv) land charge it will bind Annie whether or not she made a search of the land charges register (s. 198 LPA 1925).

If Olivia failed to register the land charge it will be void against a purchaser of a legal estate for money or money’s worth (s.4(6) LCA 1972). Actual notice of the option to purchase is irrelevant (Midland Bank v. Green), it is registration that is all-important (see also s.199(i) LPA). Therefore Annie can ignore the option to purchase even though Bill had told her about it. The doctrine of notice is irrelevant to land charges.

[NB: The consequences of failing to register a land charge is dealt with by s.4 LCA 1972 and NOT the doctrine of notice.]

b)         The interests of Bill’s wife

Bills wife (W) may have two separate interests in the property:

1)     an equitable interest under a resulting trust by virtue of her contribution to the purchase price; and

2)     matrimonial home rights (s.30 Family Law Act 1996).

1)W’s interest under a resulting trust

The legal estate was solely in Bill’s name. However, because W made a direct contribution to the purchase price she has an interest under a resulting trust. Bill held the legal estate on trust for himself and W. Whether or not Annie is bound by W’s interest under a trust depends upon the application of the doctrine of notice. An equitable interest under a trust cannot be registered as a land charge.

[NB: do not confuse this with the Class F land charge – see below].

Under the doctrine of notice Annie will not be bound by W’s equitable interest under a trust if Annie is a bona fide purchaser of a legal estate for value without notice of W’s interest. The question is whether or not Annie had notice of W’s interest.

Notice can be actual, constructive or imputed. There is no evidence that Annie had actual or imputed notice. However, she may have constructive notice. Constructive notice arises where there is a failure to make reasonable and usual enquiries (see s. 199(ii) LPA 1925). The purchaser must take reasonable steps to discover whether there are any third party rights affecting the land. This includes investigating the title and inspecting the land to establish who occupies it. The rule in Hunt v. Luck provides that a purchaser will have notice of the rights of persons in occupation. Therefore the onus is on the purchaser to inspect the property to discover who is in occupation and to enquire about any rights the occupier may have in the property.

As W was on a six month cruise when the sale was completed, you must discuss whether she was in occupation at the time of the sale. Consider the relevant cases on the meaning of occupation:

  • Kingsnorth Trust v. Tizard provides that occupation does not have to be exclusive, continuous or uninterrupted.
  • Chhokar v. Chhokar held that the continuing presence of furniture owned by the wife together with her intention to return was sufficient to constitute occupation.
  • Abbey National Building Society v. Cann held that there must be some element of permanence and continuity.

Therefore W’s temporary absence does not prevent her from being in occupation at the time of the sale.

The last issue to consider is whether Annie has made all reasonable searches and enquiries. No facts are supplied about this. There is clearly a duty to inspect the property, although it is not necessary to open drawers and cupboards (Kingsnorth Trust v. Tizard). In that case the court did not elaborate upon the number and timing of the visits that would satisfy the test, although it did state that one visit at a pre-arranged time was not sufficient. If Annie had made all reasonable searches and enquiries that she could make and she did not find out about W’s interest she would not have constructive notice of it. She only has constructive notice of the interest if she fails to carry out the proper searches and enquiries. As you are not given information upon the extent of Annie’s enquiries, it is not possible to reach any conclusion as to whether she has constructive notice of W’s interest.

No overreaching occurred because Annie paid the purchase price to one trustee (Bill). If Annie had paid to two or more trustees W’s interest would have moved from the land into the proceeds of sale and Annie would have taken the land free of W’s interest under a trust.

2)W’s matrimonial home rights

s.30 of the Family Law Act 1996 gives W a right of occupation in the matrimonial home. The reason she is entitled to this right is because she does not own the legal estate but she is married to Bill who does hold the legal estate. The matrimonial home rights are separate to her interest under a trust. The matrimonial home rights can be registered as a Class F land charge.

[NB: her interest under a trust CANNOT be registered as a Class F land charge but instead is governed by the doctrine of notice (see above)].

If the matrimonial home rights are registered as a Class F land charge they bind any future purchaser (s.198 LPA 1925).

If they are not registered by W against Bill’s name they are void against a purchaser for value of any estate or interest (see s. 4(8) LCA 1972).

Section 6.4

  1.  If the occupier knows that a mortgage is needed to assist with the purchase of the property, the occupier is taken to have impliedly consented to that mortgage.
  2.  If a mortgage is granted sometime after the purchase it is less easy to argue that the occupier was aware that the mortgage was required. Where a property is remortgaged i.e. where the initial acquisition mortgage is repaid and a replacement mortgage is granted, usually with a different lender to finance increased borrowing, the case of Equity & Law Home Loans Ltd v Prestidge shows that if the occupier impliedly consented to the acquisition mortgage he is taken to also impliedly consent to the replacement mortgage but only to the amount of the acquisition mortgage.
  3. Since the case of Abbey National v Cann and the abolition of the ‘scintilla temporis’ (see answers to questions at p.67) the implied consent argument is of little practical importance in the context of an acquisition mortgage. It still has some relevance in the context of a second or subsequent mortgage (although it may be more difficult to argue that the occupier knew that the mortgage was required) and in the context of a remortgage (see question 2 above).
  4.  The usual steps involve a physical inspection of the property by the buyer or lender (or, more usually, by an agent acting on their behalf such as a solicitor or surveyor) to check for occupiers. In the case of a sale, the seller will be asked whether there are any occupiers in the property; in the case of a mortgage the borrower will be asked whether anyone lives with him or will be living with him in the property. If any occupiers are discovered they will be asked to sign a form to consent to the sale or the mortgage.

Section 6.4

  •  If the occupier knows that a mortgage is needed to assist with the purchase of the property, the occupier is taken to have impliedly consented to that mortgage.
  •  If a mortgage is granted sometime after the purchase it is less easy to argue that the occupier was aware that the mortgage was required. Where a property is remortgaged i.e. where the initial acquisition mortgage is repaid and a replacement mortgage is granted, usually with a different lender to finance increased borrowing, the case of Equity & Law Home Loans Ltd v Prestidge shows that if the occupier impliedly consented to the acquisition mortgage he is taken to also impliedly consent to the replacement mortgage but only to the amount of the acquisition mortgage.
  •  Since the case of Abbey National v Cann and the abolition of the ‘scintilla temporis’ (see answers to questions at p.67) the implied consent argument is of little practical importance in the context of an acquisition mortgage. It still has some relevance in the context of a second or subsequent mortgage (although it may be more difficult to argue that the occupier knew that the mortgage was required) and in the context of a remortgage (see question 2 above).
  •  The usual steps involve a physical inspection of the property by the buyer or lender (or, more usually, by an agent acting on their behalf such as a solicitor or surveyor) to check for occupiers. In the case of a sale, the seller will be asked whether there are any occupiers in the property; in the case of a mortgage the borrower will be asked whether anyone lives with him or will be living with him in the property. If any occupiers are discovered they will be asked to sign a form to consent to the sale or the mortgage.

Section 7.5

(i)         To decide whether Clara, who is a beneficiary of the trust of land, has a statutory right of occupation, you need to apply the test in s.12, TOLATA 1996. It would need to be shown that the purposes of the trust include making the land available for occupation by Clara (this is unlikely to succeed) or that the land is in fact available for occupation by Clara. The difficulty for Clara may be s.12(2) which excludes the right of occupation if the land is unavailable or unsuitable for occupation by Clara. If it is Ben’s home it may be unsuitable for occupation by Clara.

(ii)        Section 6, TOLATA 1996 gives the trustees all the powers of an absolute owner of the land. Therefore Ben, as the surviving trustee, does have the right to sell the property.

(iii)       Section 11, TOLATA 1996 imposes on Ben, as trustee, a duty to consult, so far as practicable, with the beneficiaries of full age and capacity at present entitled to an interest in possession before exercising his power of sale. The beneficiaries are Clara  and Ben and therefore Ben must, so far as practicable, consult with Clara. Ben must give effect to the wishes of the beneficiaries, or in the case of a disagreement between the parties, to the wishes of the majority in value, so far as is consistent with the general interest of the trust. If Ben and Clara each have a one half share in the equity there will be no one beneficiary with a majority interest. On the other hand, since Ben as the legal owner and trustee can sell without involving Clara, she does not, without a court order, have any way of preventing him from selling.

Section 8.5

  1. A, B and C are joint tenants in law and in equity. The express declaration of trust in the transfer deed will prevail over the equitable presumption that a tenancy in common exists where co-owners contribute unequally to the purchase price.
  2. A and B are joint tenants in law and in equity. The basic principle is that a joint tenancy will be created provided that the four unities are present.
  3. A, B and C are joint tenants at law and tenants in common in equity, each holding an equitable share in proportion to their contribution to the purchase price. A has a 1/2 share and B and C each have a 1/4 share in equity.
  4. A and B are joint tenants at law and tenants in common in equity each having a 1/2 share in equity. Where property is purchased for business use by business partners equity generally presumes a tenancy in common in the absence of any express declaration of trust.

Section 8.7

  • Kinch v. Bullard held that service by ordinary post is sufficient service of a notice of severance within s.196(3) LPA 1925.
  •  A joint tenancy in equity can be severed to become a tenancy in common. The right of survivorship does not apply to a tenancy in common. However the joint tenancy in law cannot be severed and therefore the right of survivorship will always apply at law on the death of a co-owner. When a joint tenancy in equity is severed, the tenants in common become entitled to an equal share in equity, regardless of their initial unequal contributions to the purchase price.
  • Amy and Ben were joint tenants in law and in equity when they purchased the house. Ben’s act of selling his share to his Uncle Bob is an act operating upon his own share (a Williams v. Hensman method of severance) which severs the joint tenancy in equity. There is no severance at law. Therefore Amy and Ben are joint tenants at law holding the house on trust for Amy and Uncle Bob as tenants in common in equal shares. On Ben’s death, the right of survivorship will apply at law. Amy will become the sole trustee at law holding the property on trust for herself and Uncle Bob in equal shares.

Section 8.9

  •  To ensure that he enjoys the protection of the Law of Property (Joint Tenants) Act 1964 Paul must check the Conveyance deed to Tim and Mary to ensure that no memorandum of severance has been endorsed upon the Conveyance. In addition, he must ensure that the transfer deed states that Tim is solely and beneficially entitled to the property.
  • No, the Law of Property (Joint Tenants) Act 1964 only applies to unregistered land.

SAMPLE EXAM QUESTION

With co-ownership questions, it is usually easiest to establish first how the property is held, and then move on to answer the individual questions raised.

Sara and Michael hold the legal estate as joint tenants upon a trust of land (s.1 TOLATA 1996) for themselves as joint tenants in equity. The declaration of the beneficial joint tenancy in the transfer is conclusive (in the absence of fraud and mistake).

a) Michael wants to force a sale

Michael cannot sell unless he has Sara’s co-operation (as a legal owner she must sign the transfer) or a court order under s.14 TOLATA 1996. Your answer should describe the court’s discretionary power to order sale under s.14. In addition you must refer to the factors the court is directed to consider under s.15 TOLATA 1996. You should describe the relevant s.15 factors and apply them to the facts of the question by reference to the appropriate cases.

(b) Who is entitled to Michael’s share on his death?

The question here is whether the joint tenancy has been severed so that the parties now hold as beneficial tenants in common. If not, the rules of survivorship mean that Michael’s share will pass to Sara.

You should describe the relevant methods of severance.

  • Did splitting the property amount to a course of dealing showing a common intention to sever (Greenfield v & Geenfield)?
  • Was there a mutual agreement to sever (as in Burgess v Rawnsley )?
  • Did the note sever under s.36(2) LPA 1925 (consider the issues of the correct service of the notice and whether the contents are sufficient to effect a severance)?

Mention the size of the shares if there has been a severance – as decided in Goodman v Gallant they will obtain equal shares in equity. Michael’s one-half share would then pass under the provisions of his will, or if he dies intestate according to the provisions of the Administration of Estates Act 1925.

c) Can his creditors successfully force a sale?

Prior to a bankruptcy a secured creditor (who therefore has an interest in the land) can apply for an order for sale under s.14 TOLATA. The interests of any secured creditor is one of the matters the court must regard under s.15(l)(d) TOLATA. Discuss the decision in The Mortgage Corporation v. Marsha Shaire.

If Michael is made bankrupt, his interest in the property will pass to his trustee in

bankruptcy, who will have locus standi under s.14 to apply for a sale. In this case application is made to the court having jurisdiction over the bankruptcy, and it will make such order as it thinks fit (s.335A Insolvency Act (IA) 1986). It will have regard to the criteria set out in s.335A IA 1986, which include the interests of the bankrupt’s creditors, as well as Sara’s needs and the needs of the children. However, if the trustee in bankruptcy waits for one year, he will usually obtain a sale, because after that time the court must assume, unless the circumstances are exceptional, that the interests of the creditors outweigh all other considerations. Disruption to family life, loss of home, and change of schooling, do not qualify as exceptional circumstances (Re Citro).

Section 9.1

 Trespass is a civil wrong, not a criminal offence.

Section 9.3

  1. An invitation to dinner or to a party is an example of an express bare licence; persons such as the milkman, the postman and a salesman have an implied bare licence to walk up to the door of a property in the absence of a locked gate or a notice refusing admittance.
  2. The licensee must leave within a reasonable time. What is a reasonable time depends on the facts in each case – a few minutes may be enough in the case of a dinner or party invitation; several months may be reasonable in the case of informal family living arrangements.
  3. The licence is personal, so ends automatically when the licensor dies.

Section 9.5.2

Examples include permission to sit in a theatre to watch a play; permission to sit in a stadium to watch a football match or other sports event.

(a)  in Wood v Leadbitter, no remedy was available to a racegoer who brought an action for assault and false imprisonment following his forcible removal from a racecourse;

(b)  in Hurst v Picture Theatres Ltd, damages for assault and false imprisonment were available to a cinema-goer who was forcibly removed from the cinema;

(c)   in Winter Garden Theatre (London) Ltd v Millennium Productions Ltd an injunction; and

(d)   in Verrall v Great Yarmouth BC an order for specific performance.

The courts’ attitude appears to have changed as a result of the passing of the Supreme Court of Judicature Acts 1873 and 1875. In 1845, when Wood v Leadbitter was heard, the orthodox view was that a licensor could terminate a licence at any time, even if to do so was a breach of contract. Once the licence was terminated the licensee had no right to remain on the property so could not object to being removed as a trespasser. He may have had a remedy for breach of contract but at common law the only remedy available was damages.

With the passing of the Supreme Court of Judicature Acts, equitable remedies became available in all courts. In Hurst v Picture Theatres Ltd the court accepted that the equitable remedies of injunction and specific performance were now available to them to prevent revocation of a licence in breach of contract. Accordingly, in equity, a contractual licensee could not be a trespasser during the contractual period. The cinema-goer was entitled to damages for assault and false imprisonment.

Section 9.5.3

The distinction turned on the question whether there was an intention to create legal relations between the parties. In Tanner v Tanner the parties had separated and were making ‘arrangements for the future at arm’s length’. In Horrocks v Forray the relationship between the parties was still continuing when the male partner was killed in an accident.

Section 9.5.4

  • The decision was based on the orthodox view of privity of contract that a contract binds only the parties who originally entered into that contract.
  • In Errington v Errington & Woods, Lord Denning referred to the fact that equitable remedies were now available to prevent revocation of a contractual licence (see answer to question 2 at p.149). He stated, ‘This infusion of equity means that contractual licences now have a force and validity of their own and cannot be revoked in breach of the contract. Neither the licensor nor anyone who claims through him can disregard the contract except a purchaser for value, without notice’. Thus Lord Denning gave the contractual licence the status of an interest in land which would bind third parties unless the doctrine of notice applied.
  • In Ashburn the Court of Appeal criticised Lord Denning’s reasoning in Errington which, they said, was not necessary for the decision and was made without reference to authority. The court returned to the orthodox view in King v David Allen & Sons that a contract binds only the parties to that contract.

Following Ashburn it is unlikely that Lord Denning’s reasoning in Errington will be followed, though you should note that the comments made by the court in Ashburn were obiter dicta and the case has subsequently been overruled on other grounds. Nevertheless it is likely that the orthodox principle of privity of contract will prevail and contractual licences will not bind third parties. However, the court in Ashburn did indicate that in appropriate cases a contractual licence could be made binding on a third party by finding a constructive trust. If the conduct of the third party is inequitable or unconscionable in some way, the court by imposing a constructive trust can impose an obligation on him to give effect to the contractual licence although he was not an original party to the contract.

Section 9.6

  • The detriment suffered in Greasley v Cooke was the fact that the licensee stayed in the property in reliance on the assurance made to her when she could have left and found another job.
  •  The case shows that the detriment suffered does not necessarily have to be financial although in practice it usually will be.

Section 10.2

  1. Lord Templeman said that an occupier of residential accommodation at a rent for a term is either a lodger (a licensee) or a tenant. The grant is a tenancy if the occupier has exclusive possession.
  2. The parties’ intentions are irrelevant. If exclusive possession has in fact been granted the occupier is a tenant, save in exceptional circumstances (see 5. below).
  3. The effect of the agreement is determined by the court, which must decide ‘whether upon its true construction the agreement confers on the occupier exclusive possession’. If so the occupier is a tenant, save in exceptional circumstances (see 5. below).
  4. None. Lord Templeman said, ‘I accept that the Rent Acts are irrelevant to the problem of determining the legal effect of the rights granted by the agreement. Like the professed intention of the parties, the Rent Acts cannot alter the effect of the agreement’.
  5. In Street v Mountford, Lord Templeman accepted that whilst exclusive possession is of ‘first importance’ in considering whether an occupier is a tenant, it is not decisive. An occupier who enjoys exclusive possession may occupy as an employee or fall within some other exceptional category. See 10.4 in your course manual for a list of these categories.

Section 10.3

  1. Not necessarily. The court indicated that the clause was ‘unusual’ and although on the facts of this case the court held that the effect of the clause was to deprive the occupier of exclusive possession, the court indicated that the inclusion of a similar clause in an agreement where it was not appropriate would not succeed.
  2. In both cases the court was establishing whether the agreements in each case satisfied the legal requirements of a tenancy. In particular, the court was establishing whether a clause which purported to deprive the occupier of exclusive possession was genuine, in which case the occupiers were licensees as in AG Securities v Vaughan, or a ‘sham’ or ‘pretence’ in which case the occupiers were tenants as in Antoniades v Villiers.

Section 11.3

  •  Sam has a fixed term 10-year lease. It is a legal estate because it is a term of years absolute (s.1 LPA) and is granted by deed (s.52 LPA).
  • Sam has a fixed term 2-year lease. It is a legal estate even though it is not granted by deed. Section 54(2) LPA provides an exception to s.52 LPA. A lease not exceeding 3 years can be granted orally or in writing and it will still be a legal estate.
  • The fixed term 7-year lease is not a legal estate but only an equitable lease. This is because the document granting the lease is not a deed because it does not comply with s.1 LP(MP) Act 1989. Sam has a 7-year equitable lease. However because Sam has moved into occupation of the flat and is paying £350 per month it is likely that he will also have an implied monthly periodic tenancy which is a legal estate.

Section 11.5

  •  A landlord cannot give with one hand and take away with the other. If a landlord gives a lease to a tenant for a particular purpose the landlord cannot behave in a way that prevents the tenant from using the property for that specified purpose. In Aldin v. Latimer Clark Muirhead the tenant was a timber merchant. The landlord built on his adjoining land and thereby interfered with the access of air to the tenant’s timber drying sheds. The court held that this constituted a derogation from grant and therefore the landlord was acting in breach of covenant.
  •  Section 11 Landlord and Tenant Act 1985 implies a landlord repair covenant into all leases of residential property granted for a term of less than 7 years.

(a)   No, it does not apply to a lease of a shop.

(b)   No, it does not apply to a residential lease granted for more than 7 years.

An absolute covenant against assignment prohibits the tenant from assigning the lease whereas a qualified covenant against assignment prevents the tenant from assigning the lease without the landlord’s prior consent. Provided that the tenant obtains the landlord’s prior consent, assignment is permitted. Note the effect of s.19 of the Landlord and Tenant Act 1927 which implies a proviso into all qualified covenants against assignment. This proviso states that the landlord cannot unreasonably refuse to give consent. In addition, s. 1 of the Landlord and Tenant Act 1988 imposes a duty on the landlord to reach a decision within a reasonable time and to give reasons for any refusal of consent.

Section 11.6

Question 1

(a)   In Swift Investments v. Combined English Stores, Lord Oliver provided a working test for identifying whether a covenant touches and concerns the land. The covenant must satisfy the following three conditions:

(i)             It is beneficial only to the assignee for the time being; and

(ii)            It affects the nature, quality, mode of user or value of the land; and

(iii)           It is not expressed to be personal to the original tenant.

(b)   Yes, there is privity of contract between the original parties.

(c)   The burden of the covenant will not pass to the assignee of the original tenant unless the covenant touches and concerns the land (see Spencer’s case). Therefore if the covenant is personal to the original tenant, the original landlord cannot enforce it against the assignee.

(d)   An assignee of the lease is only liable for the breaches committed by him/herself and not for any breaches committed by those persons acquiring the lease after them. Section 79 LPA 1925 and the principle of continuing liability only applies to the original covenantors. Therefore the 1st assignee is not liable for a breach of covenant committed by the 2nd assignee.

Question 2

(a)   The general rule under s. 5 LTCA 1995 is that the original tenant is automatically released from continuing liability on the assignment of the lease. However s.11 LTCA provides an exception to s.5. If the lease is assigned by the original tenant to his/her assignee in breach of covenant e.g. without the landlord’s consent where there is a qualified covenant, the assignment becomes an excluded assignment under s.11 LTCA. The original tenant remains liable for breaches of covenant committed by their assignee and will only be released from continuing liability upon the next assignment of the lease which is not an excluded assignment.

(b)   A qualified covenant against assignment.

Section 11.7

  • The Leasehold Property (Repairs) Act 1938 applies to all leases (whether for residential or commercial property) initially granted for a period of more than 7 years with at least 3 years remaining unexpired. On receipt of the s.146 notice the tenant has 28 days in which to serve a counter-notice claiming the protection of the 1938 Act. If the tenant does serve a counter-notice the landlord cannot proceed with forfeiture without first obtaining the leave of the court. The court will only grant leave in certain circumstances (see s.1(5) of the 1938 Act).
  • A landlord will lose his right to forfeit the lease for a particular breach of covenant if the landlord, with knowledge of that particular breach of covenant, does some unequivocal act which confirms the continued existence of the lease. For example, if the landlord knows of the tenant’s breach of covenant but nevertheless the landlord demands and accepts the next month’s rent, the landlord will have waived his right to forfeit the lease for that particular breach of covenant.
  • A landlord cannot waive a future breach of covenant. Therefore when the landlord accepted the rent, with knowledge of the initial breach of covenant, the landlord waived his right to forfeit for that first breach of covenant. However, two weeks later the tenant committed another breach of the same covenant. The landlord has not yet waived the right to forfeit for this new breach of covenant.

Section 12.5

  •  The right to possession arises ‘before the ink is dry on the mortgage’ unless there is some provision to the contrary in the mortgage deed (Four-Maids Ltd v Dudley Marshall Properties Ltd, per Harman J).
  • The lender has such a right because he either has a legal term of years in the property under s85(1) or s86(1) LPA 1925 or, where the mortgage is created by a charge by deed by way of legal mortgage under s87, he has ‘the same protection, powers and remedies’ as if he had a legal term of years in the property.
  •  If the lender brings a court action for possession of property which consists of or includes a dwelling-house, the court has power to adjourn the proceedings or to stay or suspend execution of an order for possession or to postpone the date for delivery of possession. The court will exercise its discretion where it appears that the borrower is likely to be able within a reasonable period to pay any sums due under the mortgage or to remedy a default consisting of a breach of any other term of the mortgage (s.36 Administration of Justice Act (AJA) 1973). Assuming that the borrower intends to pay off the arrears by periodic payments, he needs to convince the court that there is a realistic chance that he will be able to discharge the arrears within a ‘reasonable period’ (see 4. below) and maintain payment of the current instalments. The borrower may, for example, anticipate that he will obtain employment shortly or that his income is likely to increase. However, the court needs convincing evidence from the borrower, not mere speculation as to his future prospects.
  • The starting point is the full term of the mortgage and the court should ask the question: ‘would it be possible for the mortgagor to maintain payment off of the arrears by instalments over that period.’ (Cheltenham & Gloucester BS v Norgan, per Waite LJ).
  • If the borrower proposes to pay off the arrears by selling the property the court’s approach differs. If the sale is likely to produce enough money to clear the debt, the court might be prepared to postpone possession for a short period to give the borrower a chance to find a buyer. However, where the sale proceeds are unlikely to cover the debt an order for immediate possession would be usual.

Another factor is delay – if the borrower has already tried but failed to sell the court is more likely to order possession immediately or after a short period. The question of what is a reasonable period is a matter for the court and the principle in Norgan will not be applicable.

 No. Phillips LJ said, ‘It is quite clear that section 36 does not empower the court to suspend possession in order to permit the mortgagor to sell the mortgaged premises where the proceeds of sale will not suffice to discharge the mortgage debt unless other funds will be available to the mortgagor to make up the shortfall’.

Section 12.6

 Section 91(2) LPA 1925, which permits the borrower or the lender to apply to the court for an order for sale of the mortgaged property.

 Both cases involved negative equity situations where the proceeds of sale of the property would be insufficient to cover the mortgage debt. In Krausz the borrowers applied for an order under s.91(2) to enable them to control the sale of the property in a situation where the lender had obtained a warrant for possession and was actively seeking sale. In Palk the court ordered sale on the borrowers’ application in a situation where the lenders wanted to delay sale. The court took the view that delay would produce unfairness for the borrower as the mortgage debt would continue to rise.

 On sale by a mortgagee, the buyer takes the property free of the interests of the mortgagor and free of any estates, interests or rights to which the mortgage has priority but subject to any estates or interests having priority to the mortgage (s.104 LPA 1925). Thus on a sale by (a) the Halifax, the buyer takes the property free of the mortgage to the Leeds.

On a sale by (b) the Leeds, the buyer takes the property subject to the prior mortgage to the Halifax. In practice, however, the buyer’s solicitor would ensure that the Leeds agreed to discharge (pay off) the prior mortgage to the Halifax, so enabling the buyer to take the property free from both mortgages.

SAMPLE EXAM QUESTION

(a) Can the Bank repossess and sell?

A mortgagee has an immediate right to possession (Four-Maids Ltd v Dudley Marshall). This right may have been excluded until the mortgagors were in default, but as Oliver and Penny are in arrears with their payments it is almost certain to apply. The property consists of an occupied dwelling-house, and therefore a court order for possession will be required (Protection from Eviction Act 1977).

The mortgagee has a right to sell the property without a court order once the conditions in ss. 101 and 103 LPA 1925 are fulfilled. Under s.101, the power of sale arises if the mortgage is made by deed, and once the money is due or an instalment payable. Section 103 makes the power exercisable if, inter alia, there are two months arrears of interest. That condition would appear to be satisfied here.

(b) Will a court allow borrowers longer to repay?

The mortgagors could obtain longer to repay by asking the court to delay possession. The court has both an inherent and a statutory jurisdiction to delay possession. Using its inherent jurisdiction, the court can grant a short delay (28 days in Birmingham Permanent Building Society v Caunt) to enable the borrower to repay in full the sums owing.

It appears from Cheltenham and Gloucester v Booker and also C&G v Krausz that the courts are unwilling to use this jurisdiction simply to enable a borrower to stay in the property pending a sale by the mortgagee or to make an application for sale under s.91(2)LPA 1925.

The Court can exercise its jurisdiction under s.36 AJA 1970 to postpone, adjourn or suspend possession where there is a reasonable likelihood that the borrower will be able to pay the sums owing within a reasonable period. The starting point in deciding what is a reasonable period is the whole of the remainder of the mortgage term (Cheltenham v Gloucester Building Society v Norgan). But this only applies if the mortgagor can show an ability to meet the restructured payments or, as said in that case, “would it be possible for the mortgagor to maintain payments of the arrears by instalments over that period?”. Discuss the factors that the court will consider when deciding what is a reasonable period (see the factors listed in Norgan).

For the purposes of applying s. 36 AJA 1970, the ‘sums owing’ in an instalment mortgage are the arrears, plus the current instalments (s. 8 AJA 1973). It will not include the whole sum borrowed, even if the terms of the mortgage make this repayable on default.

In relation to Oliver and Penny’s ability to repay, note that they currently have no income to meet the arrears. They seem hopeful of an upturn in their finances in the future, but have no concrete evidence of a definite income. The court cannot delay possession simply to relieve hardship or social problems (First National Bank v Syed). If Oliver is still without a job offer the court may refuse to delay possession (compare the cases of Julien and Grant).

(c)   Can the managing director’s son purchase the property?

The mortgagee has a duty to obtain the best price reasonably obtainable for the property (Cuckmere London Brick Co Ltd v Mutual Finance Ltd). In addition, the sale must be a true sale. A sale by the mortgagee to itself or a nominee will not be a true sale. However, in Tse Kwong Lam v Wong Chit Sen, a sale to a company in which the mortgagee was a shareholder was permitted. Discuss the relevant factors mentioned by the court in that case.

(d)   Can Northern Finance Company sell the property ?

The Northern Finance Company (NFC), with the benefit of a loan secured by a legal mortgage of the property, can exercise its remedies in the same way as the Great Bank. The fact that it is a second mortgagee does not prevent it from taking possession, or selling.

Great Bank will have priority. If Great Bank does not seek to exercise these remedies, NFC may do so. However, once the property is sold, NFC must repay Great Bank before it receives anything itself (s.105 LPA 1925). Its lack of priority means that it will fail, on the present value of the house, to recover from the sale £10,000 of the money it lent Oliver and Penny. In these circumstances the mortgagors remain personally liable in contract for any shortfall.

Section 13.2

In Moody v. Steggles the right benefited the use of the land as a public house and therefore the business use was so closely associated with the land as to be a benefit to the land itself and not merely to the personal business interests of the owner for the time being. Therefore the benefit was not restricted to the business of a particular occupier. However, in Hill v. Tupper, the right to use the canal for pleasure boats merely benefited Hill personally and not his land.

A right to park a car is capable of being an easement provided that the right does not amount to exclusive user of the servient tenement. The servient owner must retain possession and control of the land (see Moncrieff v Jamieson [2007] 1 WLR 2620)

Section 13.3

For an easement to be legal it must be for a term equivalent to a fee simple (i.e. forever) or a term of years absolute (i.e. a fixed term) (s.1(2)(a) LPA 1925) and it must be created by deed (s.52 LPA).

  1. It will be an equitable easement because ‘life’ is an uncertain duration.
  2. It will be legal if it is granted by deed but only equitable if it is granted orally or in writing.
  3. If the duration of your membership of the tennis club is of an uncertain duration at the outset, the easement will only be equitable even though it is granted by deed.

Note that in registered land any expressly created easement must also be registered under s.27 LRA 2002 in order to be legal.

Section 13.4

B initially occupies house No. 7 under a licence. B also has a licence (permission) to walk along the back lane at the rear of the houses. It may be possible to establish the creation of an easement at the time that A sells house No. 7 to B. Prior to this time there was diversity of occupation because house No. 7 and the back lane were occupied by different people. B’s licence to walk along the back lane was converted into a legal easement by s.62 LPA 1925 on the transfer of house No. 7, by deed, to B (see Goldberg v. Edwards).

Although there is still some academic debate as to whether or not diversity of occupation is needed for s.62 LPA 1925 to operate to convert a licence into an easement, the consensus is that there must be diversity of occupation prior to the creation of the easement in order for s.62 to apply. Payne v. Inwood appears to confirm the statements of the House of Lords in Sovmots Investments that separate occupation is a pre-requisite for the application of s.62 to create a new easement from an existing licence.

Section 14.3

In Federated Homes v. Mill Lodge Properties the court interpreted s. 78 LPA 1925 in such a way that in the majority of cases statutory annexation will automatically occur, regardless of the absence of express words of annexation, provided that the covenant touches and concerns the land and that the land to be benefited is identifiable.

Initially there were very strict criteria for establishing a building scheme (see Elliston v. Reacher [1908] 2 Ch 374) and as a result very few building schemes existed. However, over time the strict requirements have been relaxed and now a building scheme will exist where:

(a)   there is a common intention that the purchasers are subject to mutual reciprocal restrictions enforceable between themselves. Therefore each purchaser buys the plot knowing that their restrictive covenants are made for the benefit of all the other owners within the scheme; and

(b)   the land in the scheme is a clearly defined area of land known to all of the purchasers in the scheme

SAMPLE EXAM QUESTION

The question concerns the enforceability of freehold covenants against successors in title to the original covenantor. You need to advise Sonya as to whether or not the restrictive covenant not to use the property for business purposes and the positive covenant to contribute to the drainage charges can be enforced against her and by whom.

(i)             The covenant not to use the property for business purposes

Has the burden of the covenant passed to Sonya?

  • Burden cannot pass at common law (Austerberry v. Oldham Corporation).
  • Burden can pass in equity (Tulk v. Moxhay).
  • Apply the Tulk v. Moxhay rules in order to ascertain whether the burden has passed to Sonya in equity.
  • It is a negative covenant which touches and concerns the land retained by Brett at the date of the covenant. There is an intention that the burden is to run with the land (see s.79 LPA).
  • Has the restrictive covenant been protected by registration? Brett should have protected his interest by entering a notice on the register.

If the covenant has been protected by registration, the burden of the covenant will pass to Sonya.

Who has the benefit of the covenant and can therefore enforce it against Sonya?

  • Brett is the original covenantee and clearly has the benefit of the covenant.
  • Did the benefit pass to Melford Development Co?
  • Apply the rules for the benefit passing in equity – assignment and annexation.
  • On the facts it is likely that the benefit of this covenant will have attached to the land at the date that the covenant was made by means of statutory annexation (apply Federated Homes v. Mill Lodge Properties).

If the covenant can be enforced against Sonya she may wish to consider applying to the Lands Tribunal under s.84 LPA 1925 for the covenant to be discharged or modified. Some of the land is now being used by Melford for offices and this may have sufficiently changed the character of the adjoining land to justify a discharge of Sonya’s restrictive covenant.

(ii)            Covenant to contribute to the drainage charges

Has the burden of the covenant passed to Sonya?

  • The burden of this positive covenant cannot pass at law nor in equity.
  • However at common law there is a way of circumventing the rule that the burden does not pass at law to Sonya. Apply the rule in Halsall v. Brizell (the doctrine of mutual benefit and burden). Sonya cannot take the benefit of the easement of drainage without also accepting the related burden of contributing to the cost of maintaining the drains. Note from Rhone v. Stephens that this only applies where there is an element of choice as to whether or not to accept the benefit of the right and with it the consequent burden.

Who has the benefit of the covenant and can therefore enforce it against Sonya?

  • Brett is the original covenantee and clearly has the benefit of the covenant.
  • If the drains run underneath the land sold to Melford Development Co, did the benefit of the covenant pass to Melford?
  • Apply the rules for the benefit passing at common law – see Smith and Snipes Hall Farm v. River Douglas Catchment Board.

 

Property Law