Mind the Gap! Farm buyer bound by easement granted during registration gap

The lotting of a farm for sale can be a lucrative method of realising its value. However the recent case of Baker v Craggs [2016] EWHC 3250 (Ch) shows how careful all parties and their professional advisors must be to ensure that rights of way and other easements affecting the various lots are properly granted and reserved and any plans used are detailed and accurate. If mistakes do occur, the registration gap is always lurking to catch out the unwary.

The Case

On 17 January 2012, Mr and Mrs Charlton sold off part of their farm, comprising 18 acres of fields with barns and an adjacent yard to Mr Craggs. The transfer did not reserve any right of way over the yard in favour of the sellers.

Mr Craggs’ solicitor applied to H M Land Registry to register Mr Craggs as the new owner of the farm. Unfortunately, however, the plan attached to the transfer was missing various details so the Land Registry requested a replacement and gave a deadline by which it had to be returned. The new plan was not submitted by the deadline, so Mr Craggs’ application for registration was cancelled. His solicitors subsequently reapplied for registration and Mr Craggs was eventually registered as proprietor on 16 May 2012.

In the meantime, on 20 February 2012, Mr and Mrs Charlton sold off a barn on their farm to Mr and Mrs Baker (‘Bakers’), who were also granted a right of way over the yard, already sold to Mr Craggs. The transfer of the Bakers’ Barn was lodged with the Land Registry and the Bakers were entered on the register as its proprietors with effect from 14 March 2012. The registered title for the barn showed it had the benefit of the rights granted by the 20 February transfer of the Bakers’ Barn (including the right of way over the yard). When registering Mr Craggs as the proprietor of the Farm in May 2012, the Land Registry recorded his yard as being subject to the rights granted in the transfer of the Bakers’ Barn.

Proceedings were issued on 26 March 2015. They principally raised the question of whether the Bakers had the benefit of a right of way over the yard at the farm.

The registration gap

The period between completion of the transfer of a property and registration of the new owner as registered proprietor at H M Land Registry is known as the registration gap. During this period the buyer is the beneficial, but not the legal owner of the property. The seller retains the legal ownership as registered proprietor, until the register is updated. The buyer of property is usually protected during this period from being bound by interests created after the date of completion by a ‘priority period’ given by the Land Registry. As long as the application for registration of the purchase is submitted within the priority period the buyer is usually protected.

Mr Craggs faced two problems: first, the mistake on the transfer plan meant the Land Registry required a replacement plan; and secondly, the solicitors failed to provide the new plan before the extended deadline set by the Land Registry. The registry therefore cancelled the application altogether. When a second application was submitted, it was outside the priority period.

Agreed issues

Both parties to this dispute accepted the following:

• If Mr Craggs’ application for registration had not been cancelled, but registration had been completed within the priority period, the grant of the right of way over the yard to the Bakers would have been ineffective. Mr Craggs would not have been bound by the right of way
• At the point when the Bakers applied for registration of their barn, Mr Craggs only had an equitable interest in his property, because registration at the Land Registry had not been completed
• As a result of section 29 of the Land Registration Act 2002, Mr Craggs’ equitable interest could not prevail over the grant of a right of way over the yard, unless it was ‘protected’ when the Bakers’ barn was registered. On the facts, the equitable interest could only be protected if it fell within a paragraph of Schedule three to the Land Registration Act 2002
• Paragraph 2 of Schedule 3 to the Land Registration Act 2002 identifies one of the rights traditionally referred to as ‘overriding interests’. Paragraph two sets out exceptions as to when a person in actual occupation is deemed not to be in actual occupation. And none of the exceptions to paragraph two applied
• Mr Craggs must be bound by the right of way granted to the Bakers unless:
  • Mr Craggs was in ‘actual occupation’ of the yard; and
  • his interest was not overreached

Overreaching, under the Law of Property Act 1925 s.2, conventionally involved the transfer of an interest in property from the property itself to any money or asset acquired in exchange for the property. The key effect in this case would be to subordinate Mr Craggs’ interest.

Actual occupation

On the question of whether Mr Craggs was in ‘actual occupation’ of the yard, the Judge found that although Mr Craggs was not sleeping at the property (there was no residential accommodation), he carried out substantial works to a barn at the farm and visited the farm more or less daily. It was relevant that the barn was immediately adjacent to the yard and could only be reached through it. The judge found that he was therefore in ‘actual occupation’ of the yard on the date of the transfer of the Bakers’ barn.

The judge explained his reasoning as follows:

“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 an owner-occupier. Similarly, it seems to me that Mr Craggs will have come to be in ‘actual occupation’ of the yard as well as the Craggs Barn.”

The fact that Mr Craggs was held to be in ‘actual occupation’ meant that he would not be bound by the right of way granted to the Bakers unless his interest was overreached.

Overreaching

The Judge found that the Bakers had paid the purchase price for their barn to two trustees and this meant under the Law of Property Act 1925 that any interest of Mr Craggs arising from his occupation was automatically transferred from the land to the purchase money paid to the Sellers. As a result Mr Craggs’ yard was bound by the right of way granted to the Bakers.

Conclusion

As highlighted in our article in the Autumn edition of Agricultural Lore (click here to download), the registration gap can cause a number of difficulties. In addition to a number of legal issues, there are several practical lessons from this case; first, great care must be taken when dividing a farm into several lots for sale. Plans showing the extent of each lot and the location of any rights of way or other easements must be detailed and accurate; secondly, where rights are proposed to be granted to one lot over another, the description of the burdened property should include full details of the rights to be created; rights and corresponding reservations should be included in the transfers of the affected properties; and finally it goes without saying that priority period deadlines must also be met if buyers are to be protected from being bound by unexpected interests created after completion of their purchase.