My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.--(Baroness Scotland of Asthal.)
In moving Amendment No. 1, I shall speak also to Amendments Nos. 4, 11, 23, 33, 35, 40, 41, 42, 48 and 76. However, I should like to point out to the Committee that I propose to speak separately with regard to Amendments Nos. 35, 40 and 41. Therefore, although the amendments are grouped together and are connected, my introductory remarks will focus initially on all the amendments other than Amendments Nos. 35, 40 and 41. The amendments in this group are designed to reinstate the proposal in the consultative document that the length of lease that must be registered should be reduced from 21 years, as at present, to 14 years rather than the seven years stated in the Bill.
It is acknowledged in the report at paragraphs 1.17 and 3.14 that there was no consensus on consultation for an immediate reduction to seven years. The amendment would reduce the immediate change in the law and impose a smaller initial burden on the property industry, the conveyancing profession and the Land Registry's resources than the proposal in the Bill. If experience of that limited change suggests that a further reduction is desirable and will not overstretch the industry, the professions and the registry, it will then be possible after consultation under Clause 5(4) to make that reduction by order. We believe that that would be much more practical.
If, initially, only 14-year and longer leases are compulsorily registrable, and seven-year leases are only required to be registered as from a later date, for a while there will be unregistered leases of between seven and 14 years in existence that will have been granted before the further change is made. However, this will not delay the time when unregistered conveyancing becomes obsolete, because there will anyway, for 21 years after the date on which the legislation comes into force, be unregistered leases still in existence which were granted before that date for terms of up to 21 years.
The proposal to make all seven-year and longer leases compulsorily registrable is a major change in the law. It will cause equally major changes in practice, all of which are best introduced by stages thereby enabling the industry and the professions to become familiar with the new system without undue pressure, and also enabling any problems that may emerge to be tackled before they become widespread. Any leaseholders who wish to apply for voluntary registration of seven-year leases will be able to do so under Clause 3(3), if they believe that the benefits of registration are worth having. A number of organisations have been in contact with us, including the Country Landowners Association, which also feels quite passionately that the amendment should be accepted by the Government.
Amendments Nos. 35, 40 and 41 are specifically intended, first, to apply to leases of manors the principle suggested for leases generally--namely, that, in the first instance, compulsory registration should apply to leases of 14 years or more rather than seven years or more; and, secondly, to exclude altogether from registration leases of manors for five years or less, which are unlikely to be dealt with. I beg to move.
Perhaps I may begin by saying that we very much share the noble Baroness's concern in relation to the need to avoid unnecessary bureaucracy and burdens on business. That, of course, is the thrust of much of what the noble Baroness said. However, although we share those aims, we agree that more leases should be registrable and share the benefits of registration. I note what the noble Baroness said in relation to the incremental change. However, during consultation not one voice was heard as to where the dividing line should be taken. We have given the matter a great deal of thought. It is clear from the Land Registry and other organisations that the period of 14 years is one which both the industry and the registry could manage. Therefore, we differ on the speed with which the benefits should be brought into force.
We have considered the matter. We believe that the Bill is more likely to achieve the intended aim without the amendment. Increasing the length of leases that will be subject to compulsory registration would, we think, limit the improvements in the market that the Bill will bring and impede progress towards the realisation of the Bill's overall objectives.
Using the registered system saves money for both domestic and commercial lease transactions. As was helpfully mentioned on Second Reading by the noble Earl, Lord Caithness, who I see is now in his place, agricultural leases will also benefit. As many have pointed out, there is, indeed, a cost to registration. People taking out a new lease would be put to the additional expense of preparing and making an application to the Land Registry. Those costs are not insignificant. We estimate that they may amount to a little over £100 an average transaction.
However, unregistered conveyancing transactions are significantly more complicated than those drawn up under the simpler, more certain law applying to registered transactions. The name and title of any existing or intermediate leaseholders, and the quality of their title, is easier to establish, as is the identity and quality of title of the freeholder. Even if the conveyancing transaction remains a paper one, it should be very much quicker. Therefore, although we understand the concern that has been expressed, when one looks at the market there appears to be overwhelming support for the reduction that we propose. Conservatively, we estimate that some two and a half hours could be saved on each transaction. It is a matter that we believe will inure to the benefit of the market and of all those who wish to take advantage of the new scheme outlined in the Bill. We invite the noble Baroness not to pursue the amendment at this stage.
In responding to the Minister's reply, perhaps I may read out part of paragraph 1.17 of the document. It states:
"There is only one issue upon which we have diverged from the views of respondents and that concerns the length of registrable leases. Having regard to other compelling policy objectives, we did not follow the trend of responses".
It is important, therefore, to note that there was not overwhelming support for changing the term from 21 years to seven years. The idea that no respondent actually came up with a specific time--be it 15, seven or nine years--is not an argument for the reduction to seven years rather than to any other term that represented a "half-way house", which we believe would be much more practical in the circumstances.
Perhaps I may quote from briefing we received from the Country Landowners' Association:
"By making such leases compulsorily registrable landlords and tenants will be put to greater expense. The current consultation paper on business tenancies, rightly, seeks to remove some of the more cumbersome procedures regarding obtaining exclusions from the security of tenure provisions of the Landlord and Tenant Act 1954 Part II. Yet by reducing the qualifying term to 7 years, in the CLA's opinion an unnecessarily bureaucratic burden is going to be placed on both landlords and tenants and their advisers.
The introduction of such leases into the realms of compulsory registration would also impact upon many farm business tenancies which at present do not need to be concerned with registration since their term is rarely more than 21 years. Many of the CLA's members are parties to such tenancies and consequently, given the current state of the rural economy should not be subjected to any increase in the bureaucratic burden that will be brought to bear by this enactment".
I could say more on the subject. I have listened to the Minister's response. I am sorry that she is not prepared to move on the amendment. I shall consider the matter further; however, I suspect that we shall bring it back on Report. On that basis, I beg leave to withdraw the amendment.
In moving this amendment, I shall speak also to Amendments Nos. 34 and 52.
These amendments are designed to remove the need to register a lease which takes effect in possession more than three months after it is granted, if it is not otherwise required to be registered, in a situation in which it is a renewal of an existing lease to a tenant already in possession.
The reason for making such a reversionary lease registrable--set out in paragraph 3.32 of the consultative document Land Registration for the Twenty-First Century--is that, if it is not registered, a buyer of the landlord's interest may not be able to find out about it before the term actually begins because the tenant is not yet in possession. But that objection does not apply where the reversionary lease is a renewal to an existing tenant. In that situation, we suggest, there is no practical need for such a lease to be registered merely because it does not take effect immediately.
Under the Bill as it stands, a renewal for a year or even less granted at midsummer of a lease expiring at Michelmas would be registrable--and that is a trap. I beg to move.
I believe that there is some force in the amendment. I can see that the provision is a potential trap in the circumstances proposed. It does not seem necessary in order to serve the perfectly legitimate purpose that is served by requiring registration of leases to persons who are not currently in occupation under an existing lease.
The common theme of these three amendments is to seek to exclude reversionary leases from compulsory first registration (where the landlord's title is unregistered), or from registration as a registrable disposition (if the landlord title is registered). Those reversionary leases would otherwise be subject to the requirements for compulsory registration in Clause 4 or Clause 27, where that lease is a renewal and the tenant under the lease is also a tenant under an existing lease of the type set out in the amendment. The third amendment seeks to provide that such leases should be capable of being protected by actual occupation and so override registered dispositions.
The difficulty with the amendments is that they would place an unreasonable burden on an intending buyer. He or she would have no way of knowing from the register that the reversionary lease existed and would have to inquire of an existing tenant in circumstances where he or she may not expect to do so--for example, where he or she has had produced to him or her by the seller the tenant's existing lease which makes no mention of, say, an option for a further grant. If the intending buyer is purchasing a portfolio of properties the problem could be magnified.
With the advent of e-conveyancing the number of inquiries should be kept to a minimum so that a buyer can rely as much as possible on the entries in the register. So if such a reversionary lease is not on the register, then an intending buyer of, say, the freehold reversion will not know from the register of the existence of the lease. Furthermore, the fact that a new lease taking effect more than three months in the future has to be registered, enables a buyer to protect his position by registering an estate contract or by making a priority search under Clause 72.
The Bill seeks, so far as is practicable, to make the register as comprehensive as possible, particularly with the advent of electronic conveyancing. The proposed amendments would hinder this objective. It would also make the law more complicated by excluding from the category of reversionary leases in Clause 4(1)(d) or Clause 27(2)(b)(ii) certain leases by reference to the status of the tenant under that lease.
There is another, less serious, problem with Amendment No. 2. There is a possibility that the first lease dealt with under the subsection could in theory be also a reversionary lease of some sort. Where this was the case, the tenant would not be in occupation under either lease. This would only multiply the problems that a prospective buyer would face.
In the light of that explanation, I invite the noble Baroness to withdraw her amendments. We have considered this difficulty and we understand why the amendments were put forward. However, looking at the matter in the round, greater transparency will be possible if a lease is registered as we propose.
I thank the Minister for her response. I also thank the noble Lord, Lord Goodhart, for his support with regard to our suggestion that under the Bill as drafted a renewal for a year or even less would be registrable and, therefore, the provision creates a trap. I should like to consider the Minister's remarks carefully before deciding whether to return to the matter on Report. On that basis, I beg leave to withdraw the amendment.
This is a brief, perhaps pernickety, point, but we consider that it is a worthwhile amendment. The amendment is simply for verbal clarification. As paragraph (b) of Clause 4(2) stands, and the expression "held for a term" is read as governing the word "land", which as a matter of language is the last antecedent, there is no minimum duration specified for the "leasehold estate", which is made a "qualifying estate" and therefore registrable. The result would be that any sublease would be registrable if it related to land which was subject to a registrable lease. If the word "held" is omitted, paragraph (b) refers unambiguously to a "legal estate ... for a term" of the specified length. I beg to move.
I am most grateful to the noble Baroness for proposing the drafting amendment which I am most happy to accept.
This amendment arises in circumstances where a registrable interest such as a lease for a term of more than seven years as the Bill now stands, or a protected charge, is granted out of unregistered land. That is covered by subsection (1) of Clause 4 which states:
"The requirement of registration applies on the occurrence of any of the following events".
Subsection (1)(c) states that,
"the grant out of a qualifying estate of an estate in land--for a term of years absolute of more than seven years from the date of the grant".
Subsection (2) of Clause 4 states that,
"a qualifying estate is an unregistered legal estate which is--a freehold estate in land, or a leasehold estate in land ... for a term which ... has more than seven years to run".
When I first considered that measure it was unclear to me whether the text of the Bill as it now stands requires the registration of both the existing unregistered interest and the newly-created interest, or only the latter. Paragraph 12.12 of the Law Commission report makes it clear that the requirement applies only to the newly-created interest. Therefore, the unregistered existing interest does not have to be registered at that point. The report also points out in the same paragraph that it is desirable that the newly-created lease should be registered with an absolute title rather than with a good leasehold title, the difference being, of course, that a good leasehold title gives no guarantee of the freeholder's title. Therefore, obviously, an absolute title which does that is much better.
The current practice is, as far as possible, that absolute title should be provided and, therefore, the contracts provide by a special condition which overrides Section 44 of the Law of Property Act 1925 that the grantor of the lease has to prove his or her title. To ensure that, the owner of the freehold will have to deduce his or her own title; that is, produce evidence which is sufficient to establish their own right to registration. It seems clearly desirable that the owner of a freehold should, therefore, be required to register the freehold title on, let us say, the grant of a 99-year lease, just as much as the freehold title would have to be registered in the event of an outright transfer of the freehold.
It certainly seems to me that in line with the spirit of the Law Commission's proposals it is desirable--it would certainly simplify conveyancing--that whenever a registrable lease or a protected charge is granted out of an unregistered estate at the same time the unregistered estate should also be required to be registered in exactly the same way as if there were on that occasion a transfer of the freehold title. I beg to move.
I should say straight away that we have great sympathy with the attractions of the noble Lord's amendment. But having said that, having gone down that road, we found unfortunately that the measure was not workable. I shall explain why that is in a moment. But before I do that, and before I discuss the substance of the amendment, it may assist the Committee if I touch briefly on the subject of rule-making powers in the Bill as they bear directly on some of the concerns which have been raised.
The Select Committee on Delegated Powers and Regulatory Reform recommended a greater degree of parliamentary scrutiny of land registration rules. Members of the Committee have tabled amendments to that effect. Although I am not sure that the Government can accept those amendments at this point for reasons we shall discuss in due course, I am happy to say that I undertake to bring forward government amendments on Report. I hope that that will assist our discussions.
The amendment of the noble Lord, Lord Goodhart, adds to the requirements for compulsory first registration. It is relevant to three situations listed in Clause 4: when a term of years is granted for seven years or more; when a term of years is granted of any length and takes effect more than three months into the future; and when a protected first legal mortgage is granted of a qualifying estate. The amendment would require not only the estate itself to be the subject of first registration, but also the estate out of which it is granted. As the overall aim of the Bill and, indeed, the Government's general policy, is to widen registration as far and as quickly as possible, I have, of course, listened to the noble Lord's comments with considerable sympathy and very much agree with his overall aim.
It will not surprise the noble Lord, Lord Goodhart, to know that that option was one which the Law Commission considered seriously when considering how to approach the topic. It was discussed in considerable detail with the Land Registry, but after much head scratching it was decided that it could not be made to work. It was therefore not included in the 1998 consultation document. I shall explain why that was the case.
The requirement to register the superior estate when specific leases are carved out of it would catch the superior title to a short lease. In some cases that lease could relate only to a very small area of the total landholding. That would be a disproportionate effect of a deal of that nature and the disproportion could only be increased by the shorter length of leases that give rise to first registration under the Bill. There would also no doubt be processing difficulties for large organisations which have portfolios of short leases that may come up for renewal all at the same time.
That is the course which the Law Commission and the Land Registry recommend--in relation to a general extension of compulsory registration--despite their considerable enthusiasm for spreading the bounds of registration. I shall not tell tales out of school if I tell the noble Lord that when this matter was revisited the previously mentioned attractions were reconsidered. However, unfortunately, the same conclusion was reached. They discuss the case for introducing wider powers of compulsion to bring more land on to the register. They point to the very considerable advances in the attraction of registration which the Bill will bring. They suggest that compulsion should be avoided unless it is quite clearly required for the common good. They therefore recommend that the need for further action should be considered only five years after the Bill is brought into force. These are clearly attractive arguments which the Government will want to consider, not least in the light of the progress of the Bill. They will make an announcement on this when they issue a formal response to the commission's and registry's report. We shall look at the issue again but we think that the Bill needs to settle for a while.
We have come to the conclusion that to make compulsory now the registration of all land would not be right. First, it would be premature to do so. The Land Registration Act 1997 extended significantly the requirements for first registration and its provisions are broadly reproduced in the Bill. Those changes have started to have effect only recently. The present Bill will offer considerable additional benefits. A significant rise in voluntary first registration is expected as a result. Compulsion should not be employed until it is clear that it is needed.
Secondly, compulsory registration is at present triggered by dispositions of unregistered land. It is not at all easy to devise a system of compulsory registration of title other than one that operates on a disposition of the land in question--unlike the cases dealt with in the amendment. So the mechanism of compulsion in such situations is not self evident. There are dangers that any system could become too heavy handed. We would wish to avoid that. Any system of compulsion would obviously have to comply with the ECHR. The means would therefore have to be proportionate to the desired ends.
Thirdly, the Bill is likely to stretch the resources of both the conveyancing profession and the Land Registry for some years after its implementation. It would not be possible to accommodate a programme for the compulsory registration of all the remaining unregistered land at the same time. I can assure the noble Lord that we believe that the Bill goes some way towards the objective of the amendment. It already has the effect that a legal charge triggers first registration. The estate that has been charged must also be registered. This approach was introduced into the current system of the Land Registration Act 1997. I understand that it is working well at present. The land registration system caters for the situation where the superior title has not been seen by the Land Registry and enables the registry to grant good leasehold title until such time as the superior title is produced for registration.
There are incentives in the Bill to encourage voluntary first registration of titles--not least the provisions in relation to adverse possession. There is also a fee reduction to encourage registration. We need to encourage the orderly and gradual registration of these large landholdings at a pace that can be controlled by those organisations and the Land Registry enabling them to cope with those applications smoothly.
For those reasons, I invite the noble Lord to withdraw the amendment.
I fully understand the Government's reasons for not proposing that all unregistered loans should be made the subject of immediate compulsory registration. Nevertheless, any transfer of a freehold requires compulsory registration, but it is still possible to create a 99 or 199-year lease out of an unregistered estate without registering the estate of the grantor. That seriously weakens the position of the lessee who, in a good leasehold title, has something that is significantly less valuable than an absolute title to the lease. Therefore, that should be phased out as soon as possible. If the noble Baroness is able to provide it, I should be interested to see more detailed analysis of why the Law Commission rejected the proposals; and why they are thought to be unworkable. I am not entirely persuaded that that is so.
I may well wish to bring the matter back on Report, possibly in a form which gives the Government power to introduce this step at a later stage when the initial flurry of registrations caused by the enactment of the Bill has quietened down. I beg leave to withdraw the amendment.
The amendment is designed to prevent the rule-making power being used to introduce compulsory registration of five-year and shorter leases. Five-year leases are very common. They are usually occupational business, residential or farming leases and are not assigned as frequently as longer interests. Therefore we believe that there is no pressing practical need to register them, either to ensure that a purchaser of the superior interest finds out about them or to make it easier to buy and sell them.
If registration is ever to be extended to such interests, we believe that the change should be made by further primary legislation which can be considered in the light of experience of registration of leases for terms of less than 21 years and decide then whether the balance of practical advantages and disadvantages favours such an extension of registration. I beg to move.
I am happy to agree with the noble Baroness that there is a length of lease below which it would be sensible not to require compulsory registration. However, in relation to the amendment I can go no further.
The Government are, of course, committed to removing unnecessary regulatory burdens. That is a significant factor in bringing forward the Bill. By accelerating the change from the cumbersome and old-fashioned system of unregistered conveyancing for leases, into the simpler, quicker and cheaper registered law, we believe that we will be significantly reducing the cost of conveyancing.
There is, however, a point at which the current law relating to the formation of contracts probably makes it unlikely that the balance of benefits in registration will remain positive. Under contract law, leases granted for a period of three years or less do not have to be in written form as a deed. The logical break-off point is three years. The five-year leases have to have a deed. Requiring registration of leases of less than three years would therefore be likely to introduce new inflexibilities into the current arrangements, and wholly new costs. It is very difficult indeed to envisage a Lord Chancellor contemplating the exercise of his powers to reduce the qualifying term of the leases to bring unwritten leases within the scope of registered conveyancing. Leases of more than three years are therefore likely to be the practical limit of the power.
However, there would be significant problems in tying a future Lord Chancellor's hands by preventing him or her from reducing the qualifying period below five years and one month. First, it would slow down the extension of the benefits of registered conveyancing throughout the leasehold market. It would therefore leave unregistered conveyancing with a significant role for the foreseeable future, leaving in place the difficulties that follow from attempting to run two essentially separate systems of land law alongside each other.
A parallel system would also work against the streamlining of current systems. For example, one large property holder has said that reducing the qualifying period to the point at which grants by deed are no longer necessary would have the considerable practical advantage of enabling him to rely on the dematerialised leases, which will form part of the register of title, so creating scope for significant storage savings, just as major lenders have saved money by relying on access to the register to prepare land certificates when needed, rather than having to keep paper copies at all times.
It is true that at one time a reduction in the qualifying period would have created problems of additional work for the registry as well as the market. Although the Bill enables a staged approach to the reduction of the qualifying period, the problems that could be created by reducing the period can be significantly exaggerated. The process is already becoming automated for conveyancers and the registry and it will increasingly become more so. The registry's quinquennial reviewer thought that the additional work created by requiring registration of leases of more than three years and up to seven years in length could be ignored, so great were the benefits to both sides of the widest possible registration.
A particular factor for the reviewer was the importance of securing the greatest amount of accurate and neutral information on developments in the leasehold market. The fresher market information is, the greater its value. There would be a significant advantage to the whole property sector in having a complete picture of the number and length of leases, the financial terms of new leases of various lengths for particular types and sizes of property in particular areas, and the most recent leasehold transactions in the same area. All that information is important to the market. The market for short-term leases is particularly opaque and particularly sensitive to changes. The amendments would work very significantly against the introduction of transparency in that area. We want transparency and we feel that the Bill provides it.
The amendments would also work against the overall objectives of the Bill. They would greatly reduce the prospect of the register becoming as complete and accurate a reflection as possible of the state of the title to all land at any given time, so that title to land could be investigated online with the minimum of additional enquiries and inspections. I therefore hope that, having considered those arguments, the noble Baroness will feel able to withdraw her amendment.
I listened with care to the noble Baroness, who has answered the point that I was going to ask her. However, surely we are talking about the power for the Lord Chancellor to reduce the qualifying period from seven years to three years. Why do the Government not bite the bullet now and go to three years straight away, taking away the power from the Lord Chancellor, which will cause a lot of anxiety?
While the noble Baroness considers her answer to that, will she also advise the Committee what sort of order the Lord Chancellor will be able to make under subsection (4)?
Of course we see the attraction of biting the bullet between seven years and three years. Three years is the cut-off point when we move from unwritten to written. However, we also have to take on board that the system will take a little time to adjust. The Lord Chancellor of the day will be able to consider what new rules on reduction need to be brought in once we have a proper assessment of how it would work.
The most important thing is for the Bill to work practically so that practitioners and the Land Registry can fulfil the expectations that will be on them. We need a smooth, transparent, clear transition from the current position to the quick, easy, transparent e-conveyancing of land that we all want.
We genuinely believe that the period of reduction to seven years will enable the registry and conveyancers to do that without any untoward difficulty. It will be possible, practical and smooth and can be delivered.
Confidence in the system is necessary. Once that confidence has been established, it will be possible for the Lord Chancellor of the day to look again at whether a further reduction is merited, but that would be done at a time that was in line with what the market, the profession and the registry could tolerate with ease.
I cannot give the noble Earl a specific answer on that at the moment, but I shall write to him. It is important to know that the Lord Chancellor of the day will have to consider how the system has worked. As regards the rules that will be issued, I have already said that we are seriously considering the recommendations made by the standing committee. I shall come back to that later. I mentioned that in answer to the noble Lord, Lord Goodhart, because there has been some interest--I shall not say concern--about how the rules will work. We are taking that on board and trying to construct a procedure to meet the needs and aspirations of many people who have expressed concerns.
I thank the Minister for her full response to the amendment. We entirely understand the Government's objective of having a register that is as complete and accurate as possible, but surely we must balance that primary concern against the regulatory burden. It is one thing to say that the system will be quick and easy, but it will also be an added cost and burden. Five-year leases are very common, particularly among small businesses and residential and farming leases. There is no pressing practical need to register those leases, either to ensure that a purchaser of the superior interest finds out about them or to make it easier to buy and sell them.
We understand the objectives of the Bill, but we are concerned to protect the interests of those who will be burdened with more costs and regulation in meeting those objectives. We shall think carefully about what the Minister has said and decide whether to return to the point on Report. We also believe that such a fundamental issue should be subject to primary legislation.
I can respond to the noble Baroness on cost. We hope that the whole Bill will reduce costs. The noble Baroness will know that, at the moment, the preparation work for lawyers and others for unregistered land in particular can be very complicated and time-consuming. We know, for example, that, because of their complexity, deeds can take up an incredibly large amount of time. We hope that, by introducing the registration of those processes, the procedure will become simpler, quicker, easier and cheaper so that the burden on business and on those who wish to participate in such a transaction should, over time, be reduced. That is one of the main benefits that we consider the procedure will guarantee to those who operate within it.
I thank the Minister for returning to that point. I believe that, for the time being, to some extent we must beg to differ, not least because the representations made to us from business and from the farming industry in particular indicate that they also beg to differ. However, I shall consult them again and, on that basis, I beg leave to withdraw the amendment.
Clause 6(5) allows the registrar to extend the period during which the application for first registration may be made. There is good reason for doing so. Unless such an order is made, the period for registration will expire after two months.
The noble Viscount's amendment would make it clear that such an order can be made both before and after the expiry of the two-month period and before or after the expiry of any extension of the period for registration granted by a registrar's order. It will, indeed, be desirable to give the registrar adequate flexibility to make the order when the parties need it, regardless of whether or not the original period for registration has passed.
I can reassure the noble Viscount that the clause as drafted does not contain a time limitation on the registrar's ability to make an order. It is implicit in the clause that the registrar can make the order at any time. That interpretation is endorsed by the next clause. Clause 7(3) clearly envisages that the order could be made after the two-month period or any extended period has expired. In those circumstances, the adverse effect of failing to register within the specified period is removed retrospectively by Clause 7(3) when an order is made.
Therefore, it is also implicit that the application to the registrar can be made at any time. In practice, the extension order is usually sought after the period for registration has expired and when the matter comes to the attention of the applicant's advisers. Quite often, it is sought in conjunction with the application for first registration. There is no intention to change that practice. Therefore, I respectfully suggest that the amendment is not necessary.
This is a probing amendment. It seeks to ensure that if an instrument is avoided by a failure to apply for registration, the stamp duty paid on it can be used on any replacement instrument executed to give effect to the original transaction. That may not be strictly necessary for instruments which replace outright transfers under Clause 4(1)(a) and (b) because, under Clause 7(2)(a), the transferor becomes bare trustee for the transferee, and there is no stamp duty on the transfer of a legal estate by a nominee to his principal. However, if a lease becomes void for non-registration under Clause 7(2)(b), it has effect as a contract to grant the intended lease. Therefore, the replacement lease may incur stamp duty. I beg to move.
I hope that I shall be able to reassure the noble Viscount. Clause 6 imposes a duty to apply for first registration of title within a specified period. Clause 7(1) states the effect of failure to apply for registration in accordance with that duty. The consequence is severe. The instrument which disposes of an interest in the property is made void so that the legal title reverts to the previous owner.
Therefore, the registrar can make an order to extend the period for registration, which he will almost always do. That has the effect of removing the adverse consequence as if it had never happened. In the unlikely event that the registrar refuses to make an order, a further instrument must be prepared at the expense of the person who failed to apply. That would then operate to transfer the legal title back to where it should have been.
The proposed amendment serves the most sensible of purposes. It ensures that, in that unlikely situation, stamp duty would not be paid twice. It seeks to achieve that by treating the instrument as spoilt under Section 12A of the Stamp Act 1891. I hope that Members of the Committee will not mind my pointing out that the spoiling of instruments is covered by Section 12A of the Stamp Duties Management Act of the same year. That means that, so long as the Commissioners of Inland Revenue are satisfied that the instrument is to be treated as though it had been spoiled, no duty will be charged on the replacement instrument.
The noble Viscount has raised a very helpful issue. I hope that he will not mind if I do not simply accept the amendment at this point. We shall hold further discussions. Talks that we have already held with the Inland Revenue have revealed that other ways may exist in which this desirable state of affairs could be achieved under the stamping Acts as they currently stand, some of which may turn out to be more convenient.
Therefore, I undertake to ensure that the matter is fully investigated and, on Report, I shall report back to the House on the results of those deliberations. I am grateful to Members of the Committee for raising this point. However, in the light of that undertaking, I hope that at this stage the noble Viscount and the noble Baroness, Lady Buscombe, will feel able to withdraw the amendment.
In moving Amendment No. 9, I shall speak also to Amendments Nos. 10, 17, 59 and 105. Briefly, the reasons for Clauses 11(4)(c) and 12(4)(d) are given in paragraphs 3.46 and 3.47 of the Land Registration for the Twenty-First Century report. In effect, a first registered proprietor should be protected where he buys a paper title which a squatter has time-barred if the squatter is out of possession and the purchaser/proprietor has no notice of the defect in title. A squatter who was in possession for 12 years or more but who has vacated the property deserves no particular sympathy. However, if a squatter has been in residence for 12 years or more and is still in possession, anyone who buys the paper title is on notice of the position. We believe that the amendments are designed to give accurate effect to the intention. I beg to move.
Amendments Nos. 17 and 59 stand in my name. They concern the same subject but have a somewhat different objective. Under the present law, adverse possession extinguishes the title of a previous owner after 12 years; that is, it extinguishes the title and the original owner therefore no longer has any title to the land. That is provided by Section 17 of the Limitation Act 1980. In the case of registered land, the same result is achieved through a different mechanism; namely, the title is not extinguished but the registered owner from the end of the 12-year period holds the land on a bare trust for the person who exercised the adverse possession. That person is therefore entitled at any time to claim the right to registration.
Under Section 70 of the Land Registration Act 1925, rights that are acquired or are in the course of being acquired under the Limitation Act are overriding instruments. The Bill will alter that. Under Clause 11(4)(c), adverse possession binds the estate on first registration only if the freehold proprietor, the person with the paper title or the person acquiring the title has notice. I am afraid that it is not altogether clear to me why notice for that purpose is relevant. Indeed, it will give rise to a somewhat difficult issue about whether the proprietor in fact has notice. Except to that very limited extent, those possessory interests do not override.
There is a new procedure, which appears in Part 9 and Schedule 6, for acquiring title by adverse possession. I have no problem whatever with the new system operating when adverse possession has lasted for less than 12 years at the date at which the Bill comes into force. That is in line with the long-established principle that limitation periods can be changed without being treated as a retrospective alteration of existing rights. When the 12-year period has already been completed the adverse possessor will have acquired an indefeasible title. There are several reasons, apart from the mere abandonment of the land, why the new proprietor might not have notice of that indefeasible title. It is wrong that in those circumstances an adverse possessor should be deprived of what, by the time the Act comes into force, will have already become an indefeasible title. The adverse possessor would at best have existing rights taken away and would be forced to apply to the registrar under the new procedure, which, in many cases, it might not be possible for him to do because he would no longer have a possessory title that he could register at that point.
That would give rise, among other things, to concerns about what is in effect the appropriation--the confiscation--of existing indefeasible rights and it raises the question of whether that is in accordance with Article 1 of the First Protocol to the Human Rights Act. I am concerned about the drafting that is used to defeat what would under existing law be an indefeasible title. I recognise that that is to a limited extent a complication because it means that someone who appears to have a paper title may find that that title is no good. Nevertheless, I am doubtful about the justification for changing existing law for those who have already acquired an indefeasible title.
The common theme of these amendments is the extent to which the interests of persons in adverse possession should override first registration and registered dispositions. I will deal first with Amendments Nos. 9, 10 and 105, proposed by the noble Baroness, Lady Buscombe, and then turn to Amendments Nos. 17 and 59 of the noble Lord, Lord Goodhart.
Clause 11(4)(c), in respect of freehold land, and Clause 12(4)(g), in respect of leasehold land, are intended to cover the case in which a person has acquired title by adverse possession, has then left the land and the former owner has resumed possession. Within 12 years of doing so the former owner then sells as apparent owner. On the conveyance or assignment the buyer will not get title but will acquire only such rights as the seller had as squatter. However, provided that he does not have notice of the squatter's interest at the date of registration, the buyer will "take" free of it.
The effect of the amendment would be that a buyer will "take" subject to the interest of a squatter who is in adverse possession at the time of registration, such as in the example, even though the squatter is not in actual occupation and even if the buyer did not have notice and so could not reasonably have discovered the squatter's interest. However, the case of a squatter who has already acquired title and is in actual occupation falls within the terms of Clause 11(4)(b) or Clause 12(4)(d), so the proprietor "takes" subject to the squatter's rights.
Paragraphs 3.46 and 3.47 of the Law Commission's report, Land Registration for the Twenty-First Century--A Conveyancing Revolution, with which the noble Lord, Lord Goodhart, and the noble Baroness, Lady Buscombe, will be very familiar, explains the reasons for those provisions and the way in which they work.
Amendment No. 105 relates to the transitional provisions in Schedule 12 in respect of rights already acquired by squatters over unregistered land under the existing law before the Bill comes into force. It is consequential to Amendments Nos. 9 and 10.
The effect of paragraph 7 is to create an additional but temporary category of overriding interest on first registration. Under the present law rights of squatters are overriding interests. Under the Bill a squatter's rights will override first registration only if the squatter is in actual occupation. Squatters who are no longer in actual occupation will therefore no longer fall within the protected category when the new law comes into force. That could involve some unfairness. Paragraph 7 therefore provides for the existing regime to continue for three years. That will allow sufficient time for squatters who have extinguished the title of the paper owner but who are no longer in actual occupation to make application for registration of title.
In our view the Bill strikes a fair balance between the squatter and an innocent buyer. To make no transitional provision would be unfair to those who have acquired rights by adverse possession but to preserve those rights in perpetuity would prevent the realisation of our aim that the register should be as complete a record as possible of the title. I hope that the noble Baroness therefore feels that it is appropriate to withdraw her amendment.
I turn to Amendments Nos. 17 and 59, tabled by the noble Lord, Lord Goodhart, to whom I listened carefully. As was made clear on Second Reading, the Bill's proposals set out to provide a careful balance between the rights of owners and the need to ensure that neglected property continues in useful life. In particular, I was happy to agree with the noble Lord's observation that the Bill would be unlikely significantly to damage the position of those who had taken over property to house themselves in the short term. Indeed, by clarifying the periods involved, it may positively help them. Nevertheless, we believe that it is important to ensure that the balance stays in the right place.
The amendments would shift two careful balances in the Bill. First, they would significantly reduce the protection that the Bill gives to the rights of registered owners. Secondly, under the transitional arrangements to be found in Schedule 12, the rights of all those who have acquired rights by possession of land under the general limitation Acts are fully protected for three years. This would include both those who have remained in continuous occupation of the land, and those who have acquired possessory rights, but whose occupation has been discontinuous.
The rights of the first group will form a permanent feature of the Bill. Anyone in actual occupation of the land will have rights which override both first registration and subsequent registered dispositions of the land under Schedules 1 and 3.
Despite what the noble Lord has said with his usual eloquence and erudition, I am far from being convinced that those who have once squatted on land but have subsequently left it should be protected in the same way.
That is only partly because of a wish to preserve the rights of registered owners. It is fundamental to the Bill that the register should give the clearest possible picture of the rights and obligations to which land is subject. Rights should have overriding status only when it is impracticable or impossible that they should be registered.
There are obvious problems for someone in actual occupation of land being required to register in order to retain those rights. The application for registration would be, at least for some, merely the prelude to steps by the owner to recover possession. Therefore, we understand those issues.
But the position of someone who has occupied land, but subsequently left it, is rather different. He has no ground to expect such immediate action by the owner. The provision in paragraph 7 of Schedule 12 will give three years grace in which it will be possible for someone who claims to have acquired a title which extinguishes that of the first registered proprietor to protect his rights by registration. We suggest that is not a particularly onerous price to pay for that protection.
The noble Lord also raised the issue of a limit on possession rights not being ECHR compliant. Adverse possessors are given those three years to register their rights. We believe that that is a proportionate remedy for their prospective loss which must be balanced against the interests of a prospective buyer.
But the permanent continuation of the transitional protection suggested by the amendment would create very significant practical problems for buyers. They would run the risk of finding themselves bound by the rights of squatters, where that squatter is no longer in actual occupation. The chances of ascertaining that someone had acquired a permanent right, hidden from the register, from past occupation would in many cases diminish to nothing.
I would therefore argue that the noble Lord's suggestion would in fact significantly damage the structure of the Bill. It would put prospective buyers in the future under a burden of risk that is unreasonable. In the light of that explanation, I hope that the noble Lord will feel able to withdraw his amendments.
I cannot withdraw an amendment which I have not yet moved, but when we reach those amendments I shall not move them.
I am somewhat concerned. I am not sure that this is a major issue because I am not aware of many problems caused nowadays by squatters who have been in occupation for 12 years and then moved away. So I am not sure that we are talking about very much. But in the case where somebody has acquired an indefeasible title before this Act comes into force--it will be a transitional matter because there will be no new rights to do that--I am unhappy with the concept of that being removed after the end of the three year transitional period. So again, that is something to which we may wish to return on Report.
In responding to the Minister, I apologise to the Committee and, in particular, to the noble Lord, Lord Goodhart. To put it mildly, I am feeling under the weather and I suddenly panicked because I could not think what had happened to Amendments Nos. 17 and 15. I then suddenly realised that they belong to the noble Lord, Lord Goodhart. Therefore, I apologise for the fact that my remarks did not necessarily bear any reflection on the intention behind those proposed amendments.
I listened to the Minister's reply on this complex point. I shall read Hansard with care and then decide whether or not to return to this matter on Report. On that basis, I beg leave to withdraw the amendment.
In moving this amendment, I shall speak also to Amendments Nos. 13, 49 and 50. By tabling these amendments, we are seeking to offer the Government a choice of explanation.
I shall deal first with Amendments Nos. 12 and 49 and then Amendments Nos. 13 and 50. The underlying intention behind these amendments is to seek clarity and consistency in relation to beneficiaries as they are defined in the Bill.
Paragraph 2(1) of Schedule 1 and paragraph 2(1)(a) of Schedule 3 deprive a person in actual occupation of land of protection in relation to any beneficial interest of his under a settlement under the Settled Land Act 1925. By contrast, a person in actual occupation of land who possesses an interest under a trust of land will be entitled to protection in respect of that interest.
The only justification for the discriminatory treatment of the beneficiary under a strict settlement which is given is that interests under a strict settlement are "relatively uncommon" and since the Trusts of Land and Appointment of Trustees Act 1996, no new strict settlements can be created. That may be true, but the fact that persons who are beneficially interested under strict settlements are in a minority is hardly a justification for withholding the protection of the law from them.
Amendments Nos. 13 and 50 pose an alternative option which we should like to put to the Government. These amendments are designed to enact the present position under the law as it stands at present which is established by judicial decision in the Flegg case that where a beneficiary, under a trust of land, is in actual occupation, his interest does not override that of a purchaser or, importantly, a chargee from the trustees if they make that disposition in exercise of their powers under the trust, or by the general law, to overreach the interests of beneficiaries. We believe that including a statement to that effect in the legislation is a useful confirmation and clarification of the law. I beg to move.
The general theme of the amendments is to what extent interests under a trust should be protected by reason of actual occupation so as to override a first registration or registered disposition.
As the noble Baroness outlined, Amendments Nos. 12 and 49 seek to provide protection for interests under the Settled Land Act 1925. Amendments Nos. 13 and 50 seek to ensure that the interests of those under a trust of land are overreached in certain circumstances. First, I shall address the settled land amendments.
We have considerable sympathy with the arguments advanced by the noble Baroness, Lady Buscombe, for removing the exceptions for settled land in the Bill as it currently stands. So, too, did the Law Commission. In its 1998 consultation paper the commission originally suggested that the right of a beneficiary under the Settled Land Act 1925 shall cease to be, as now, simply a minor interest and become an overriding interest on first registration and in relation to registrable dispositions.
As the noble Baroness pointed out, comparatively few people are affected by this issue and, indeed, comparatively few responded on this point. However, most thought that these rights should not be overriding. Since 1996 it has been impossible to create new settlements under the 1925 Act as a result of the Trusts of Land and Appointment of Trustees Act 1996. This will therefore be an issue of rapidly diminishing importance.
Any settlements of registered land expressly created before 1997 should have been protected by the entry of the prescribed restrictions on the register. The Law Commission therefore thought it likely that little or no hardship would be caused by the abandonment of the recommendation. It therefore recommended the continuation of the present position under which a beneficiary under a settlement cannot protect his or her rights by virtue of his or her actual occupation of the settled land. I hope that the noble Baroness will feel comforted by some of the things I have said.
As regards trusts of land, the second point raised by the noble Baroness, I am certainly not unsympathetic to the intention of the amendments. However, we hope to be able to convince Members of the Committee that they are not necessary. Although we believe that both amendments are unnecessary, the reasons differ.
In the case of first registration, the issues are essentially those of the law relating to unregistered land. That is because overreaching will take place when the conveyance or other disposition is completed. The former beneficiaries will therefore have no interest in the land when registration takes place. Under Clauses 11(4) and 12(4) the unregistered interests under Schedule 1 must affect the estate being registered at the time of registration.
In the case of registered land, the noble Baroness is correct in that the position is covered by the common law as discussed in the case of City of London Building Society v. Flegg, to which the noble Baroness correctly alluded. As many noble Lords will know, that was a case in which it was held that the society was not subject to the beneficial interests of Mr and Mrs Flegg in respect of its registered charge, even though the Fleggs had beneficial interests in what was in those days a trust for sale and were in actual occupation of the registered land. That was because the mortgage advance had been paid to the two trustees of the trust, the registered proprietors, Mr and Mrs Maxwell-Brown--as many noble Lords will remember, Mrs Maxwell-Brown was the daughter of the Fleggs--so the overreaching took place. That is well settled law and will remain.
We note the comments of the noble Baroness about the worsening of the position of a small minority. However, the interests under a strict settlement have never been overriding. As was stated earlier, they are only a minor interest under the 1925 Act, so need registration. I hope that the explanation is one which finds favour with the noble Baroness and that she is satisfied that the Bill deals with the issue adequately and addresses the issues which concern her. I hope therefore that she will feel able to withdraw the amendment.
I thank the Minister for her response, which I shall read with care. I am not sure whether I understood her entirely. My underlying intention with the amendments is to ensure that neither class of beneficiary--either under the Trusts of Land and Appointment of Trustees Act 1996 or those under the Settled Land Act 1925--is mentioned or that both are mentioned. It seems that there should be a level playing field.
I agree with the Minister that few people are affected by this provision. However, it is probably right to say that the economics are enormous and will continue for some time. This is an important point. I shall carefully read her comments. On that basis, I beg leave to withdraw the amendment.
moved Amendment No. 14:
Page 45, line 11, at end insert--
"( ) Where an interest of a person in actual occupation of any land is an overriding interest under sub-paragraph (1), the interest in that land of any other person under whom the person in actual occupation holds the land by virtue of any grant or licence."
In moving Amendment No. 14 I shall speak also to Amendment No. 53. I apologise for the fact that there is a misprint on the Marshalled List in both amendments, which is my fault. It should refer to a "grant or licence" and not, as it does, to a "grant on licence".
Under Section 70 of the Land Registration Act, interests are overriding interests if they are the interests of a person in actual occupation of land or in receipt of the rents and profits of land. Under the Bill, the only interests which are overriding are those of persons in actual occupation, and receipt of rent and profits is not enough. However, actual occupation is defined so as to include occupation by employee or an agent.
Let us assume, however, that a freeholder has granted a contractual licence, which is a form of interest, to A to occupy land and that in turn A has granted a sub-licence to B at some rent or contractual payment. The purchaser inspects the land and meets B. B tells the purchaser that he, B, is there as a licensee of A. In that situation, under the present law the interests of both A and B would be overriding. Under the law as is proposed by the Bill, the interests of B will be overriding but not the interests of A who is in receipt of the rent and profits but not in occupation.
This seems to me to give rise to a peculiar position. I am conscious of the fact that I could be wrong because it is undoubtedly a complicated position. There is plainly no transfer to the purchaser of A's contractual rights under the original licence granted to A by the previous freeholder. Therefore, if B, who has the protected right to remain there, pays for the benefit of the licence, that payment is presumably still payable to A. If the licence under the contract is terminable by A, it remains terminable by A and not by the purchaser because there is no transfer of the right to terminate the licence.
However, if A's licence from the earlier freehold requires contractual payments to be made, it is not clear how the purchaser can claim any right in that payment because he is not a party to the licence and there can be no transfer of the rights under the licence. So, A could say, "Thanks. I'd like to go on simply getting my income from B. I recognise that when B leaves I will have no further right to the property but I prefer that to having to agree a new licence and paying you something for it."
The Bill recognises the fact that occupation by an employee or agent is occupation by an employer or principal, but occupation under any other form of contractual relationship should be treated as giving an overriding interest not only to the actual occupier but to the other party to the contract under which the occupier holds it. I beg to move.
The noble Lord will know how much it will pain me to disagree with him, but I fear that on this occasion I must. He will also know that in relation to person B the licensee would not have a property right; he does not have it now and will not have it in the future. That is the short answer in relation to his proposition, but I want to explore the point because the noble Lord has, with his usual cogency, put it well.
The fundamental objective of the Bill is to achieve a situation in which, under the system of electronic dealing with land that it seeks to create, the register should be as complete and as accurate a reflection of the state of the title to the land at any given time as is practicable--that point has been made several times but it bears repeating--so that it is possible to investigate title to land on-line with the absolute minimum of additional inquiries and inspections.
One of the main functions of the Bill is therefore to cut back on overriding interests as far as that can be achieved. Any interest which can bind subsequent buyers without being clear from the register adds to the difficulties of the transaction. If the interest is capable of being protected in other ways, it should not be an overriding interest.
Accepting the amendment would add a further overriding interest to those which already exist. It would require a buyer to make inquiries not only of the person in actual occupation, but also of any person from whom he or she holds the land by way of lease or licence. That is a significant extra burden for anyone and it would significantly undermine the objective of being able to do so on line.
That is why the Law Commission consulted on this issue with a provisional recommendation that the rights of those entitled to rents or profits should cease to have an overriding interest. Its recommendation was strongly supported by those who responded.
It may be worth noting that the first registration of a leasehold estate in circumstances where the superior titles are not themselves registered and were not deduced to the register on that first registration will be reflected in the class of title which the registrar gives to that leasehold estate. Usually, the lease will be registered with good leasehold title. That means that in any subsequent dealings with that leasehold estate any disponee will necessarily be alerted to the fact that one or more superior titles are not registered.
It is possible that this explanation might not entirely satisfy the noble Lord and he may believe that some difficulties remain. However, I hope that he will agree that it is of fundamental importance to the main objectives of the Bill that overriding interests should be reduced, in so far as that is possible, that his amendment would have the effect of adding an undesirable and not, perhaps I may respectfully say, an entirely necessary interest to what should be a very select category indeed.
Even though, as always, I find it interesting to listen to the noble Lord, I hope that in the light of that explanation he will feel able to withdraw his amendment.
I am grateful to the Minister. I recognise that a licence is not technically an interest in property, but it is a kind of interest which in certain circumstances can be binding on the owner of the property.
I recognise and agree with the principles behind the desire of the Law Commission to restrict the number of overriding interests. However, I believe that from time to time the fact that we have removed any rights from the person, as against the owner, who is in receipt of rents payable by the occupier may lead to an untidy situation. If and when problems arise, they may have to be sorted out by the courts and in the circumstances I shall read what the Minister said. It is possible that I shall not want to take the matter further, but I shall not give an undertaking to that effect now. I beg leave to withdraw the amendment.
In rising to speak to Amendment No. 15, I shall speak also to Amendments Nos. 16, 54 and 55. These amendments are designed to elucidate further the meaning of "actual occupation" by ensuring that an occupier's protection is not jeopardised by a temporary and fortuitous absence at the relevant moment. Its continuing connection with the land remains apparent on inspection.
The meaning of "actual occupation" and of the definition in terms of physical presence is discussed in paragraph 8.22 of the report. It appears that an occupier's physical presence is intended to include presence by "his or her user" of the premises.
The case law on "actual occupation" under the present legislation indicates that occupation can include "making use" of the premises. However, the new legislation--this Bill--amends the law fundamentally in many respects. It is a new land registration code rather than a consolidation and on this point it uses the expression "physically present", which is not in the existing Act. It is therefore not at all certain that the case law on "actual occupation" will be applied to the new wording.
Occupiers' interests are a significant part of the system, particularly in connection with mortgages of residential property. It is therefore important to clarify their scope as fully as possible rather than to leave the matter to be litigated by people of modest means.
The wording of the amendments may not be ideal and I hope that the Minister will appreciate the fact that they were prepared under some pressure of time. They may not include the case where, for example, someone may be using the land but inspection alone does not show whether the disponer, the registered proprietor or someone else is doing so. We believe that it is important to explore the point and further the principle of including additional elucidation in the Bill. I beg to move.
Although I am unable to accept these amendments, I wholeheartedly agree with the noble Baroness that it is important to explore these matters. We have listened very carefully to the points that she raises and shall consider them fully. However, for the reasons that I shall give, we do not believe that these amendments help to resolve the matter. With the leave of the Committee, I shall give a fairly full response to the issue at this stage because if we are to look at the matter together that may be of assistance.
This group of amendments concerns the issue of "actual occupation". There is another group of amendments concerned with easements which touches upon a similar theme and some of the ground covered now will be revisited then. The interests of persons in actual occupation override both first registration and registered dispositions. There are more exceptions to this category in the case of registered dispositions, but both provisions (in paragraph 2(2) of Schedules 1 and 3 respectively) state that a person is to be regarded as being in actual occupation of land only if he, his agent or employee is physically present there.
These amendments, in the alternative, seek to provide a partial definition of the term "physically present" or remove all references to "physically present" from these provisions by leaving out paragraph 2(2) of each schedule. It may help to allay the concerns that the noble Baroness has raised if I explain the approach that has been taken. The existing statutory provision is to be found in Section 70(1)(g) of the Land Registration Act 1925. That provides that the rights of those in actual occupation are an overriding interest. The provision refers to,
"The rights of every person in actual occupation of the land or in receipt of the rents and profits thereof, save where enquiry is made of such person and the rights are not disclosed".
As many Members of the Committee will be aware, the meaning of those words has been found to be not wholly clear. The phrase "actual occupation" was considered in Williams & Glyn's Bank Ltd v Boland. That case has tested many lawyers for some time. In his speech in that case the noble and learned Lord, Lord Wilberforce, made it clear that the addition of the word "actual" to "occupation",
"merely emphasises that what is required is physical presence, not some entitlement in law".
The Bill will give statutory effect to that point. If that was not done, there could be a danger that "actual occupation" would be interpreted more widely so as to embrace entitlement to occupation.
An example of where a term has been widened in its interpretation by the courts is "possession" in the context of the right to sue for the recovery of land. It had been thought by many that to sue for recovery the claimant had to be in possession of the land. Many Members of the Committee will be aware, however, that in Manchester Airport Plc v Dutton the majority of the Court of Appeal held that a mere legal entitlement to possession was sufficient. Therefore, the words "physically present" in these sub-paragraphs do not refer to the degree of continuity or permanence that is required to constitute actual occupation. Two of the amendments seek to do that by referring to,
"had not permanently given up all connection with the land".
In our view, that is not necessary because of the meaning of physical presence and case law concerning actual occupation. The distinction that the sub-paragraphs seek to draw is simply that only a person in actual occupation of land, and with an interest in land, can have an interest that overrides first registration. A mere entitlement to occupy is not sufficient.
The case law on the definition of actual occupation makes it clear that physical presence is required. "Physically present" is not a legal term and so can bear its dictionary meaning. The temptation to try to give some kind of guidance as to how the phrase is to be interpreted is, we confess, considerable. Despite the persuasive arguments that the noble Baroness puts forward, we believe that it is wiser to resist them and not attempt to provide a partial statutory definition of the term "physically present". What constitutes physical presence will depend, as under the present law, upon the nature and state of the property. That is clear from the judgment of Lord Justice Nicholls in Lloyds Bank Plc v Rosset. In that case the majority of the Court of Appeal was of the view that a person could be in actual occupation through his or her agent or employees. The Bill will give statutory effect to that view. If as proposed in two of the amendments paragraph 2(2) was omitted from both schedules the statutory effect would not be achieved.
We have not included in the provisions the rights of those in receipt of rents and profits which are within the equivalent provision in Section 70(1)(g) of the 1925 Act, although that is a topic on which there is a further amendment before the Committee. The first amendment in this group seeks to apply the test of physical presence at the time of an event that triggers first registration. First, under Clause 11(4) or Clause 12(4) it is the rights affecting the estate at that time to which the first proprietor is subject. With first registration, the purpose is to establish a baseline for the statutory title, so the registrar looks at the position at the time of the application.
However, the question whether or not the first registered proprietor is bound by an interest that can be an overriding one on first registration will have been determined prior to that date, for example at the time of the event which triggers first registration. Unlike the position where the land is already registered, there is no "registration gap" because the triggering disposition vests the legal estate. In the case of, for example, a legal charge over registered land, the chargee does not have a legal estate until the legal charge is completed by registration, hence there is a gap between the two events.
Secondly, the proposed test could not apply to voluntary first registrations as there is no triggering event. It is hoped that there will be a large number of voluntary registrations once the Bill comes into force. Where first registration is voluntary, the overriding interest may have arisen, or been created, after the first registered proprietor acquired the land but before he or she applied for the registration of the title.
I hope I have explained why we consider that these provisions do not require to be amended as proposed or to be left out of the Bill. However, I have noted the concerns that have been raised this evening. The provisions certainly deal with very complex issues. I undertake to consider the amendments further, in particular in relation to the use of the term "physically present". It may be possible to improve the Bill in the light of the debate; if so, the Government will return to the matter at Report stage. We shall of course be very happy to receive any contributions before that stage to help clarify this matter.
I am grateful to the noble Baroness for taking away the point. There is potential for confusion and further litigation in due course. The noble Baroness said that my noble friend's amendment was a partial interpretation. I am sure that with the help of her officials the Minister can provide a full interpretation.
I thank the Minister for her response and also for the support of my noble friend the Earl of Caithness. I appreciate the Minister's reassurance that she will take away and consider the points that I have made. Further, I am grateful to the Minister's very helpful offer of more consultation between the stages of the Bill.
The point was raised at Second Reading by my noble friend Lord Kingsland and I repeat it now, not least because a number of extremely experienced and able members of the Chancery Bar have already questioned the meaning and definition of the term "physically present". If we are unable to clarify this term prior to the passing of the Bill we are in danger of seeing more litigation than is really necessary. That would be unfortunate. Therefore, I shall return to those who are supporting us. The Minister said that she will consult with others. Let us see if we can come up with some solution to the point. On that basis I have pleasure in begging leave to withdraw the amendment.
In moving Amendment No. 18 I shall speak also to Amendment No. 19. These are technical amendments. The purpose of the clause is to facilitate the registration of the benefit of, among other matters, appurtenant easements. I refer noble Lords to Note 68 on page 473 of the report.
Section 1(1) of the Law of Property Act 1925 describes the fee simple and the lease as estates. Section 1(2) describes easements and so on as "interests" and as held "for an interest equivalent to" a fee simple or a lease. It is therefore not strictly correct to use the word "estate" to include easements and other matters within Sections 1(1) and (2) of the Law of Property Act 1925. For the avoidance of doubt, the appropriate course is to extend the provision to refer to registration of "interests" which are appurtenant to, or burdens on, a registered estate. I beg to move.
As the noble Viscount has said, Amendments Nos. 18 and 19 tabled by the noble Baroness both make amendments to Clause 13. As such, I shall take them together.
The clause relates to the scope of rules which may be made to ensure that a register contains information not only about the registered estate but also unregistered estates which subsist for its benefit.
The amendments have been tabled to ensure that the rules can provide that the register contains information not only about unregistered legal estates but also about unregistered legal interests. That is highly desirable in view of the underlying objective of the Bill to ensure that the register contains as much of the information about the property as possible.
I hope, however, that I can reassure the noble Viscount, Lord Bridgeman, that the clause as originally drafted achieves this aim. The definition of legal estate contained in Clause 129(1) of the Bill refers to the definition in the Law of Property Act 1925. Section 1(4) of that Act defines "legal estates" to be the estates, interests and charges which are authorised to subsist or to be conveyed or created at law.
I am pleased to say that the clause as drafted already ensures that the rules have their wider scope. Therefore, I invite the noble Viscount to withdraw the amendments.
In moving Amendment No. 20, I shall speak also to Amendments Nos. 22 and 108. These amendments are designed to retain permanently the ability of the holder of a registrable interest to enter a caution against first registration. Paragraph 3.58 of the report justifies the removal of this possibility on the basis that such a caution should not be,
"a substitute for first registration", and registerable estates should be registered. However, the discussion at paragraphs 2.9 and 2.13 of the report accepts that compulsory registration is triggered by the making of a disposition. That is likely to continue to be the case because it is--as the report says--"not easy" to devise an alternative system.
Pending a further review of mechanisms for ensuring comprehensive registration, as recommended in paragraph 2.13 of the report, the right course is to allow an owner who has not made a disposition triggering registration to enter a caution, so that he is told of any application for registration made by anyone else and affecting his land. Forcing an owner to apply for voluntary registration in order to avoid the risk of trouble arising from a mistake by someone else is a "heavy-handed" and "disproportionate" measure, such as paragraph 2.11 of the report deprecates.
We have received very strong support for the amendment from the Charities' Property Association. It is deeply concerned to highlight the possible impact on endowed charities of the abolition of cautions against first registration. It states:
"It is possible that the Law Commission will recommend compulsory registration of all land. Currently, there is only encouragement of voluntary registration of land which means that there will continue to be unregistered land for the foreseeable future".
However, for many endowed charities, such as members of the Charities' Property Association, this could have a negative impact, particularly because cautions against first registration are to be abolished. In effect, the Bill will not provide them with the same level of protection against squatters for their unregistered land in contrast to the extra protection for registered land being conferred by Part 9 of the Bill.
In some cases the land that endowed charities own is unregistered because it has been owned for hundreds of years and full legal documentation does not exist. It would therefore, we suggest, be extremely expensive and very complicated for endowed charities to register it.
Currently, endowed charities with unregistered land can register a caution against first registration, as can others, by lodging a plan with the Land Registry and a statutory declaration for a fee of £40. The cautioner would then be notified of any application by a third party--such as, for example, a squatter--to register the land. Clause 15 and Schedule 12 remove that right.
This is a very important and fundamental point with regard to the Bill. On that basis, I beg to move.
I rise to support the noble Baroness because my name is attached to some of the amendments in the group. I originally was inclined to the view that the Law Commission proposals on this matter were correct. But, having read the letter from the Charities' Property Association, a copy of which I also received, I was very impressed by its argument. Therefore, I support retaining the right of a landowner to register a caution against first registration over his own land.
I shall not add to the noble Baroness's comments except to say that, as between Amendments Nos. 107 and 108, I prefer Amendment No. 108 because paragraph 16 of Schedule 12 will still be necessary even if the other provisions which Amendments Nos. 20, 22 and 108 seek to delete are removed.
Amendments Nos. 20, 21, 107 and 108 deal with the rights of an owner, or anyone else prescribed by rules, to lodge a caution against first registration. I hear what the noble Baroness, Lady Buscombe, says in relation to how that will impact, particularly on charities.
Amendment No. 20 tabled by the noble Baroness would remove the qualification of the right of a person to lodge a caution against first registration set out in subsection (3). I shall therefore consider at the same time Amendment No. 22, which would delete subsection (3). That qualification stops the owner of a freehold estate or a leasehold estate with a term of more than seven years from lodging a caution as a substitute for applying for registration itself.
One of the fundamental aims of the Bill is to extend registration as far and as soon as possible. One of the ways in which it does that is to clarify and extend the benefits which come from registration and to ensure the sharpest possible distinction between registered and unregistered land. Those benefits form a package, and the way for the owners of land to achieve them is to have their land registered. Registration, however, not only provides benefits to the individual owner but also provides collective benefits. For example, problems can and do arise with the boundaries between registered and unregistered land, and the proprietors of unregistered land who continue in that state can be creating difficulties for their neighbours. The opening of the information contained on the register has provided much valuable material to the general public.
The Bill therefore seeks to maximise the advantages to the owner of registration. The amendment would do something to reduce the effectiveness of those measures. It would, in effect, enable a measure which is needed to provide a necessary safeguard for the interests of third parties to be used, as a side wind, to avoid some of the need for registration. That is undesirable. The overall aim should be that the person with an unregistered legal estate which is registrable should register it rather than using other means to protect his or her interests.
I would seek to reassure the noble Baroness, Lady Buscombe, that the new prohibition will not apply immediately. Under the transitional arrangements in paragraph 13 of Schedule 12, the new provision will have effect two years after the rest of the clause is brought into force. That will give landowners time to arrange to register their estates in land in the relatively rare circumstances where they feel that protection by a caution against first registration is warranted.
I hear what the noble Baroness says about it not being fair to require registration, particularly in relation to charities. But requiring registration in order to get the benefits is not being heavy handed, given the considerable benefits that we genuinely believe will accrue to those who register their interests. All owners have the opportunity to benefit from this system, which will make the dealings in their property quicker, surer and cheaper. Registration is not expensive and cautions have been useable for this purpose only since 1998.
Although we understand the concern, we genuinely believe that the reality will not be either as onerous or as burdensome as many fear. For the reasons I have already given, cautions against first registration under Clause 15 must not be used as an alternative to substantive legislation. To allow otherwise would be fatally to compromise our ambition of a complete register. However, we do intend to modify the application of the new rules in the early days of the new system so as to allow landowners the chance to make a protective entry in relation to their own land. That concession in paragraph 14 will run for a period of two years. The amendment would remove it. Similar considerations apply in relation to the Crown to paragraph 15.
As to paragraph 16, nothing in the repeals made by the Bill affects the validity of any caution against dealings against first registration lodged under Section 53 of the Land Registration Act 1925 or any enactment replaced, directly or indirectly, by that Act. The paragraph ensures that cautions against first registration under the 1925 Act are treated in a similar manner to cautions under the Bill. We believe that they will assist the general move towards the desirable goal of total registration of title. We think that the first instinct of the noble Lord, Lord Goodhart, to be supportive of the Law Commissioners was the right one. We regret that he has been tempted away from our shores but we hope to entreat him back.
The benefit is to have clarity of interest. The noble Earl knows that one of the most difficult things for many is to identify precisely who owns land, who has an interest in land and who has an overriding interest. For many years, such points have beleaguered all those who have dealt in land. The advantage proposed by the Bill is one of transparency so that those who have the benefit of the interest will be able to register that interest and anyone coming to the register will be privy to the rights and responsibilities that they will be subject to and take on by virtue of that disposition. That transparency must, of itself, be a real benefit.
I thank the Minister for her response. I appreciate the transitional period of two years to support those such as charities who will have to comply with the provisions of the Bill. I cannot agree with the noble Baroness that the benefits outweigh the burdens. We are talking here about exceptional properties and exceptional owners. Charities and others will be forced to spend an enormous amount of money on carrying out searches on these properties to ensure that they are then able to be registered. I cannot believe that the ambition for a complete register is a benefit that outweighs that burden. While the ambition is in principle a good one, it is too inflexible in this instance. On that basis, I wish to test the opinion of the Committee.
The amendment is designed to enable the holder of a profit appurtenant--that is, a right of pasture, fishing and so on attached to his land--to caution against first registration of the land over which his right exists. The report does not explain why the ability to caution is restricted to profits in gross--that is, not annexed to any land. The holder of each type of profit has an equal interest in ensuring that his right is recorded on registration of the land over which it is exercisable. I beg to move.
As the noble Viscount rightly said, Clause 15 defines the circumstances in which a caution against first registration can be lodged. A caution can only be lodged if it relates to a qualifying estate. Subsection (2) defines what is a qualifying estate for this purpose.
It may be helpful if I explain that a profit which exists in gross is one which is capable of an independent existence from land, such as the right to hunt, shoot game or harvest crops. One of the important changes made by the Bill is to make these valuable rights capable of registration in their own right.
The amendment tabled by the noble Viscount would remove the words "in gross" from the definition of profit a prendre in the list of qualifying estates. The effect would be to enable a caution against registration to be lodged in respect of any profit, including those which are only appurtenant to the land. These profits, however, are not capable of being registered with their own titles.
It therefore follows that any caution against first registration in relation to such a profit would have to be lodged against the registration of the title to the estate which the profit affects. But an unregistered legal estate in land is already a qualifying estate in land for the purposes of the clause. The owner of the profit would therefore be able to lodge a caution against the registration of the title to the estate because he or she is entitled to an interest affecting a qualified estate.
The change to the Bill, if I may respectfully say so, is not necessary. In the light of this explanation, I hope that the noble Viscount will feel able to withdraw his amendment. I quite understand that, when there is a question mark of this kind, it is important to clarify the matter openly in debate in order that there can be no misunderstanding.
In moving Amendment No. 26, I shall speak also to Amendments Nos. 64 and 67.
Amendment No. 26 and the related amendments specify a minimum period which must be allowed to the recipient of a notification for him to respond and protect his rights. Such provisions can in effect have substantive results as such a person may lose his rights if the period is too short for an effective response. It is therefore appropriate to restrict the rule-making power to ensure that adequate notice is always given. I beg to move.
Amendments Nos. 26, 64 and 67 deal with a common issue. That issue is whether a minimum length of time should be specified in rule-making powers in the Bill which allow notice periods to be prescribed. I shall therefore consider these amendments together.
I shall turn first to Amendment No. 26. As we have already seen, Clause 18 deals with the mechanics of applications to cancel cautions against first registration. When an application is received for cancellation, the registrar will serve the notice on the cautioner. The cautioner will in many cases object to the withdrawal of the caution, and if agreement cannot be reached the matter will be referred to the adjudicator for resolution.
Subsection (4) provides that if the cautioner does not respond within the period which is specified in the rules, the registrar must cancel the caution. This is because the obligation lies with the cautioner to substantiate his claim. The amendment moved by the noble Viscount seeks to impose a minimum period of notice below which the rules cannot go.
It may be helpful at this point if I explain how the notices work under the present system--when one sees that, one better understands--and by that I mean how the notice is served on the cautioner when a first registration application is received. This is the nearest situation to an application to cancel a caution against first registration that exists under the present law.
In that situation, the cautioner is given 14 days to respond. This period is set out in the rules. The rules also provide that the registrar can shorten the period stipulated in the notice, but not to less than seven days. There is another factor in the equation. The rules contain deemed delivery provisions which say that a notice is deemed to be received seven days after posting, not including the day of posting. This means that the cautioner can in reality have as much as 22 days' notice.
Our first thoughts were that these provisions are broadly right, and there is no intention to change the deeming provisions or the periods of notice in the foreseeable future. The Committee may be interested to know that, far from concerns being raised that notice periods are too short, the Land Registry has in fact received complaints that third parties are in fact given too long to respond.
It may be helpful to remember that, generally, challenges to the registration of a caution will come when a property is about to be sold and investigations at the registry reveal its existence. That is the time when it becomes critical. There is a balance to be struck between the period of time given to the cautioner to respond to a notice and the inevitable delay that will result in the sale of the property while the matter is investigated.
While we appreciate the concerns raised by the noble Viscount, I hope it will be of some assurance to him that the rules which will stipulate the period of notice, although not subject to detailed parliamentary scrutiny, are subject to the scrutiny of the Land Registration Rule Committee. Members of the Committee will know how zealous the rule committee is in dealing with these matters appropriately. It will be well placed to balance the various interests and to take a rounded view on what the appropriate period should be. It is of some importance that the committee should be free to set whatever limit or limits are appropriate to the variety of circumstances with which the rules will have to deal. That will develop over time.
I turn now to Amendment No. 64. Clause 36 deals with the mechanics of applications to cancel unilateral notices. It is very similar to the procedures for applications for the cancellation of cautions against first registration. When an application is received for cancellation, the registrar will serve notice on the person with the benefit of the notice. That person will in many cases object to the withdrawal of the notice and, if agreement cannot be reached, the matter will be referred to the adjudicator for resolution.
Subsection (3) provides that if the person with the benefit of the notice does not respond within the period specified in the rules, the registrar must cancel the notice. As with applications for cautions against first registration, the obligation lies with the person who has placed the entry on the register to substantiate his claim. It is clear that a reasonable period of notice is needed, if the rights are to be a reality. As I have mentioned, the rules are subject to the scrutiny of the Land Registration Rule Committee. The committee should be free to ensure that the rules prescribe an appropriate period or periods in the variety of circumstances with which they will have to deal. This level of detail is perhaps inappropriate for Parliament, and it is certainly one that might inhibit the development of the rules over time.
As with cautions against first registration, challenges to the registration of a notice will come when the property is about to be sold and investigations at the registry reveal its existence. There is a balance to be struck between the period of time given to the person who has lodged the unilateral notice to respond to a notice from the registrar and the inevitable delay that will result in the sale of the property while the matter is investigated. We have attempted to get that balance right. It is not always as easy as one would like.
I turn finally to Amendment No. 67. Clause 45 deals with the mechanics of serving notice of applications to register a voluntary restriction. When an application is received for the entry of a restriction, the registrar will serve notice on the registered proprietor. The registered proprietor may in some cases object to the registration of the restriction and, if agreement cannot be reached, the matter will be referred, as in other cases, to the adjudicator for resolution.
Subsection (2) provides that the registrar must not determine the application if the registered proprietor has not responded until the notice period specified in the rules has expired. The amendment seeks to impose a minimum period of notice below which the rules cannot go. As with the other rules that I have mentioned, rules concerning notice periods under Clause 45 are subject to the scrutiny of the Land Registration Rule Committee. This committee is best placed to decide what the appropriate period should be, and its decisions should not be fettered by an arbitrary period specified in the clause. We know that the periods will vary, particularly if we get to the stage of having e-conveyancing which will make matters a lot quicker. The rule committee may then be in a position to shorten or lengthen a period, or to adjust the rules, so as best to meet the needs of any given situation. Situations will vary; whereas to set these matters in stone in the Bill will make the process rather cumbersome and heavy.
The notice period that is settled upon must fit in with the land registration scheme for notices generally. The scheme may well change over time, and we have catered for that. Twenty-eight days may be far too long in the situation with which we shall be faced, I hope relatively quickly, when e-conveyancing is introduced and this is done on-line. It may be possible to do it much more quickly, efficiently and effectively without causing any risk or difficulty in relation to those who are attempting to apply it.
We believe that our approach strikes a balance between the period of time given to the registered proprietor to respond to a notice and the delay and inconvenience caused to the applicant for the entry of a restriction while the matter is investigated.
Taking all those factors into account, the Bill should not artificially restrict the power of the Lord Chancellor, with the assistance of the rule committee which advises him, to make the right decision for the circumstances that exist from time to time. I hope that my response has covered the concerns raised by the noble Viscount.
The amendment picks up a point that is made in paragraph 7.6 of the Law Commission's report. The Law Commission proposed in its consultative document that a deed should not be necessary in order to create a registered charge giving a chargee powers under Section 101 of the Law of Property Act. According to a subsequent report, that proposal was accepted by most respondents. However, the Law Commission changed its mind simply on the ground that this particular provision would not be necessary when electronic conveyancing was introduced, and the commission expected that only a relatively short time would elapse before its introduction.
I am slightly more pessimistic about this matter than the Law Commission. It seems to me that there is a possibility that e-conveyancing could be, not a matter of months, but several years off. Therefore, I cannot see any objection to removing as an interim stage the requirement that a charge should be by deed. The provision does not seem to serve any useful purpose. The Law Commission appears to be happy in principle that that obligation should be removed, so why not allow its removal? The aim of this amendment, and of Amendment No 28 which is grouped with it, is that this should be possible. I beg to move.
I wish to speak to Amendment No. 28. This amendment is designed to ensure that if anyone tries to create a charge or sub-charge in a way which the new system prohibits--for example, by using an old printed form which creates a mortgage by demise--the instrument operates as a legal charge under Clause 23(1) and Clause 51, rather than being absolutely void as a purported disposition which the proprietor has no power to make or operating as an equitable charge arising from a contract for a mortgage in which case it might be ineffective if there was no document signed as a contract under Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
The insertion of a provision governing the consequences of a disposition in a form forbidden by the legislation, and validating it as a transaction of the type permitted, is the same technique as was adopted in Sections 85(2) and 86(2) of the Law of Property Act 1925 when mortgages by assignment were abolished. The first paragraph of the proposed new subsection preserves, out of caution, provision for what will happen if someone tries to create a mortgage by assignment. This is technically needed, because paragraph 2(6) and (7) of Schedule 11 effectively repeal the equivalent provisions of the Law of Property Act 1925 in relation to registered land. I beg to move.
Perhaps I may begin by dealing with one of the concerns expressed by the noble Lord, Lord Goodhart. When speaking to his amendment, he said that he reasonably anticipated that charges were a long way away from being handled electronically. I must disabuse him of that: charges will be one of the earlier parts of e-conveyancing to be implemented. We realistically expect that this may be available next year. Therefore, I caution the noble Lord to prepare himself.
This amendment has been grouped for discussion with Amendment No. 28. The amendments relate to the manner in which an owner can exercise his power to charge his property. Clause 23 sets out the powers of an estate owner to deal with that estate. It includes an unlimited power to do anything that is possible under the general law, with one exception. At the moment, it is possible to create a legal mortgage by demise or sub-demise over registered land. These methods will be abolished by the Bill, as they are no longer used. Instead, the owner will be able to create a legal mortgage in two ways: by either a charge expressed to be by way of legal mortgage; or a charge to secure the payment of money.
The form of charge is short and simple, and it is made by way of a deed. Amendment No. 27 gives an owner an additional power to create a charge by a document which is expressed to be by way of legal mortgage, but one which is not necessarily a deed. If I may respectfully say so, this idea is not entirely new. It was floated in the joint Law Commission/Land Registry consultative document. The arguments for this option were said to be that the rights of the parties are determined by registration of the document not the method by which the document is executed by the parties. This suggestion has not been taken forward in the Bill. The reason for that is a very practical one.
The Bill is setting the framework for electronic documentation and conveyancing. As I said earlier, the first of those electronic documents is likely to be an electronic charge. This is likely to be taken forward in the near future. Again, I tempt the noble Lord as regards the possible date. The precise form of written instrument used to create a charge will therefore cease to be relevant very quickly.
As I said, the current methods are simple to use. No-one will be prejudiced by the failure to introduce this change in the run-up to electronic charges. There is little point in permitting this additional method for a short space of time, when there are so many other longer-term adjustments that will need to be made. Amendment No. 28 also amends Clause 23. It adds two further ways of charging a property. The first restores the mortgage by demise or sub-demise. Again, the Law Commission comes to our assistance because its consultation document specifically asked whether those methods of making a charge were now used, given the easier method of using a form of charge. The clear consensus was that they are not. Therefore, it seems unnecessary--and indeed undesirable--to clutter up the statute book with a provision that has fallen out of use when there is an alternative method that achieves all that the earlier option achieved, and one that is considerably simpler for all concerned.
The second way enables a legal mortgage or sub-mortgage to be used to have the same effect as a charge. We suggest that this is also an undesirable step. We are moving to the electronic world. The first documents that are likely to become electronic are charges. They will be easy to draft, simple and electronic. It is not desirable to allow a less convenient method to be introduced as an alternative way to deal with the mortgaging of registered land. The move for electronic conveyancing must be towards rather than away from standardisation. We believe that that will make the completion of such work much simpler. The use of a charge document is not onerous. However, its use is beneficial to the conveyancing community at large. I therefore invite the noble Lord and the noble Viscount not to press their amendments in this regard.
I should also stress that one of the delights that I have in proposing these issues to the Committee derives from the fact that the Law Commission has done so much of the work for us; and there is consensus. We have tried to be utterly practical with this Bill, so that people will know how to apply the legislation and be able to do so with ease. We shall also have the benefit of the professions advising us as to how to do this more easily. If we felt that there was a lacuna in this respect, I can certainly reassure noble Lords that we should be very happy to address it. However, there does not appear to be a need for that at present.
Both amendments are intended to restrict the rule-making power by confining it to prescribing how owners' powers are to be exercised and the form of registrable dispositions, and to eliminate any possibility of rules imposing substantive restrictions on the powers that can be exercised--who can exercise them, or what provisions parties to dispositions can validly agree and include: for example, in a lease, as to alienation; or in a charge, as to the circumstances in which repayment can be demanded. Such restrictions would probably never be deliberately imposed by land registration rules. But if it should happen that such rules are made in terms in which their effect in a particular situation is open to argument, any possible interpretation of them as imposing substantive restrictions will, we suggest, be untenable if it is ultra vires the rule-maker to do so. I beg to move.
Clause 24 identifies the persons who can exercise an owner's powers of dealing with the registered estate. This includes not only the person who is actually registered as the owner of the registered estate, but also any person who is entitled to be entered as proprietor.
Subsection (2) makes the exercise of the rights of those who are entitled to be registered subject to rules. The intention is that rules will prescribe how the powers are to be exercised. This is done under the current land registration system by prescribing that the forms of disposition that they should use are the same as if they had already been registered; and that, before registration is completed, they must show to the registrar's satisfaction that they are entitled to be registered as the proprietor of the land.
Amendment No. 29 helpfully makes it clearer that the rule-making power is limited to the manner in which the rights to deal with the land are exercised, and does not seek to restrict the actual powers of disposition. That is our intention, as set out in the provision. We are grateful to the noble Baroness for suggesting the amendment. In our view, this issue merits further investigation, as well as clarification of the intended use of this rule-making power.
There are a variety of rule-making powers located in the Bill, both in the specific clauses dealing with particular areas and, more generally, in Schedule 10. It may be that on further consideration the powers needed are already contained in other provisions within the Bill. We undertake to report back on this issue at Report stage and give careful consideration to the helpful points which have been raised. On that basis, I ask the noble Baroness to withdraw the amendment while we carry out that urgent investigation.
I turn to Amendment No. 30. Clause 25 relates to the way in which an owner can exercise his power to deal with a registered estate or charge. A registrable disposition will only have effect if it complies with detailed rules. The amendment tabled by the noble Baroness seeks to limit the rule-making power to the form, but not the content, of the registrable disposition.
This clause is a very important provision when we look forward towards electronic conveyancing, which has been much discussed today. The form of the disposition may in fact become the completion of fields on a computer screen with the necessary details of specific terms which have been agreed. The content of such electronic documents will therefore be all important.
I appreciate that there will be concern about the prescriptive nature of the rules made under this provision, especially as the provision is somewhat wider in scope than the provision which exists under the current law. I can, however, reassure the noble Baroness that there is no intention to curb the owner's powers to deal with the registered estate beyond what is required to make the system work in an effective manner for all concerned. The rules made under this provision will be subject to the scrutiny of the Land Registration Rule Committee, which is well placed to decide how far these details need to be set down and to vary them as circumstances change. That committee would be able to review the details which the registry requires with the details which conveyancers are able to provide. This will be difficult to predict in advance and will need adaptation as methods of dealing with the registry change.
As the Committee will appreciate, this provision will be an essential part of the development of the electronic conveyancing process. I hope that in the light of those comments the noble Baroness will feel able to withdraw the amendment. I hope that she is satisfied with my earlier assurances on Amendment No. 29.
I thank the Minister for his response to the grouping without notice, if I may put it that way. I thank the Minister for the reassurance he gave in relation to Clause 24 and Amendment No. 29. We believe that that is an important amendment and we are grateful that the Minister responded so positively. We look forward to discussing it again on Report. I shall consider with care what the Minister said on Amendment No. 30. We are still concerned that Clause 25 offers the possibility of incorrect interpretation. However, for the moment I beg leave to withdraw the amendment.
Without having given notice, I should be grateful if I could group Amendment No. 31 with Amendment No. 32. I do so in response to a rather rushed exercise on our part given the time frame within which we have had to respond to the document, Land Registration for the Twenty-First Century.
I shall be brief. I look forward to hearing the Minister's response because the amendments raise an important point. They would ensure that where local authorities or other statutory corporations are so constituted that they can only perform acts which the relevant statute authorises, and purported actions not so authorised are absolutely void, such ultra vires acts are not validated or partly validated because, or in so far as, they happen to affect registered land. It is also important to ensure that anyone dealing with such an entity is not caught out by statutory limitations on its powers. I beg to move.
I fully understand what the noble Baroness says in relation to Amendment No. 31. However, I am afraid that it would undermine the structure of the Bill as regards the powers of a registered proprietor and the protection of buyers from those owners.
If a registered proprietor is subject to statutory limitations on his powers, he should enter a restriction. I am afraid that we do not see why the risk of a proprietor breaching such a statutory limitation should be placed upon the buyer. That very much accords with the policy of the Bill that a person should be able to rely upon the register and restrictions on a registered proprietor's powers should be apparent from the register. An example of the effect of the amendment would be that it would not be necessary to enter a restriction to reflect the limitation on the powers of a tenant for life under the Settled Land Act 1925. We envisage that there would be real problems with the measure. I hope that the noble Baroness will see the force of those arguments and perhaps be minded to withdraw the amendment.
I turn to Amendment No. 32. As the noble Baroness said, this amendment adds, in effect, a further subsection to Clause 26. Clause 26 reflects one of the major principles behind the Bill. That principle is that a person dealing with a registered proprietor can assume that his powers of disposition are unlimited unless there is an entry on the register to the contrary. That is one of the fundamental points that we hope the Bill will deliver.
The amendment imposes a duty on the Lord Chancellor to make rules to ensure that when the powers of a body corporate to deal with its land are limited, for whatever reason, that fact is recorded on the register by the entry of a restriction. The idea is to prevent a void transfer operating to pass the legal title in such cases under Clause 26.
I absolutely appreciate the concerns behind this amendment. It is highly desirable to avoid such situations arising. I am pleased therefore to be able to reassure the noble Baroness that the registration of compulsory restrictions in these circumstances is frequently undertaken by the registry at present. A few examples of such restrictions show how this works--restrictions are entered when a company is in liquidation, when a charity owns land and needs consent to disposal from the Charity Commission and when a public sector landlord must meet certain conditions when selling property. Usually they need the consent of the Housing Corporation. I could go on. There are many situations which are thus covered.
I reassure the noble Baroness that there is no intention to alter that approach. There is no intention to change the types or number of such restrictions following the coming into force of the Bill. The need for such restrictions is monitored quite closely by the registry and amended to reflect new and altered powers of disposal set out in new primary legislation.
The registrar is given specific power under subsection (1) of Clause 42 to enter restrictions to prevent invalidity or unlawfulness in relation to dispositions of a registered estate or charge. The decision to enter a restriction depends on the circumstances of a particular case. As the Committee will know, some corporations have different powers of disposal for different parts of their asset base. For example, insurance companies have limited powers to deal with the funds representing their long-term business assets. The power for the registrar to enter such restriction needs to be very general, as set out in Clause 42.
I can reassure the Committee that the registrar must be able to exercise that judgment on a case-by-case basis. Greater detail of what that means in practice appears in a number of internal practice manuals and in the leading text book on land registration. I shall not reiterate them now. I invite the noble Baroness to look at them. They are helpful; she might find assistance. We believe that it is not appropriate or practical to deal with such dynamic issues in rules.
There will be change. We have to be able to respond quickly to those changes. The registrar has the necessary discretion to deal with them appropriately. I hope, therefore, that the noble Baroness will feel able to withdraw the amendment.
I thank the Minister for her robust response to Amendment No. 31. I accept entirely what she said in regard to that amendment. I appreciate the reassurances that the noble Baroness has been able to give in relation to Amendment No. 32 by express reference to Clause 42(1) and the specific powers of the registrar. I shall read with care what she said. I am somewhat satisfied that her response has met our concern. On that basis, I beg leave to withdraw the amendment.
moved Amendment No. 37:
Page 12, line 26, at end insert "or one which is appurtenant to a term of years absolute which is not registered or required to be registered"
Amendments Nos. 36, 38 and 43 were grouped together. Subsequently we decided to move Amendment No. 37 and speak to Amendments Nos. 39 and 44 because we think that they are preferable. I do so now.
These amendments are intended to ensure that easements and rights of entry for short terms of years do not have to be registered or noted on the title to the servient land. Such easements or rights will almost always be appurtenant to or exercisable over short leases and a requirement to register them where the lease is not itself registrable is a trap and unnecessary. Anyone dealing with the servient land will be expected to inspect it and will see that there are rights of way, light and so on. But as the Bill stands, easements appurtenant to a short lease will be registrable under Clause 27(2)(d) (and equivalent rights of entry under paragraph (e)) and under Clause 27(1) they will not operate at law unless registered against the servient title--paragraph 7(2)(a) of Schedule 2. Therefore on a subsequent dealing with the servient title they will not be overriding interests under paragraph 3(1) of Schedule 3 because that applies only to legal easements. I beg to move.
Amendments Nos. 37 and 39 deal with the same policy issue. They relate to the scope of compulsory registration of property rights. Amendment No. 44 is consequential on them both. I shall therefore consider all three together.
Amendment No. 37 amends the scope of the category of registrable interest set out in subsection 2(d) of Clause 27. That category relates to interests falling within subsection (1)(2)(a) of the Law of Property Act 1925--namely easements, rights and privileges. As originally drafted, there is only excepted from the requirement to register such of those interests as can be registered under the Commons Registration Act 1965. A buyer can readily search against the commons register. This approach accords with the main objective of the Bill--to get as much information about the land on to the register of title for those interested to discover easily and online.
Amendment No. 37 widens the exception. It excludes from the effect of registration any easements rights or privileges which are attached to an unregistered lease, which does not have to be registered. This goes against the deliberate policy of requiring appurtenant rights to be protected on the register even if they are appurtenant to an estate that is not registered and is not required to be registered. The reason for the policy is to protect buyers. How are they to know that the land is subject to an easement that has been expressly granted or reserved in favour of a lease of 10 years if it is not in fact recorded on the register? The effect is to increase the enquiries that a buyer needs to make. Those to whom easements are granted should protect them on the register. They should not put others to the expense and trouble of discovering their rights.
Amendment No. 39 deals with the same policy issue. It amends the scope of the categories of registrable interest set out in subsections 2(e) of Clause 27. That category relates to interests falling within subsections (1)(2)(b) and (e) of the Law of Property Act 1925. Subsection (b) relates to rentcharges issuing out of or charged on land. Subsection (e) relates to rights of entry exercisable over or in respect of a legal term of years of a rentcharge. The amendment introduces exceptions to both these categories. It excludes from the effect of registration any rentcharges under subsection (b) or rights of entry under subsection (e) which are attached to an unregistered lease which is not required to be registered. This also goes against the deliberate policy of requiring appurtenant rights to be protected on the register even if they are appurtenant to an estate that is not registered and is not required to be registered. The effect is to increase the enquiries that a buyer needs to make. Those to whom such rights are granted should protect them on the register. They should not put others to the expense and trouble of discovering their rights.
Amendment No. 44 is a consequential amendment to Schedule 2. The schedule sets out the registration requirements for each category of interest which is required to be registered to have effect. The point is that until those registration requirements are met, the document has no effect. This amendment amends paragraph 7 of the schedule to reduce the scope of dispositions to which the paragraph applies to correspond with Amendments Nos. 37 and 39.
Having heard those detailed points, I hope that the noble Baroness will feel able to withdraw the amendment.
Having heard that response, I wonder whether the Government should not think again. Where one has a short and non-registrable lease, for example for a period of three years, that lease may well contain easements over, for instance, common parts of a block of flats, or something of that kind. Does the Minister suggest that those have to be registered?
I am grateful to the noble Lord, Lord Goodhart, who has put the point better than I did. I was trying to think of an agricultural situation in which there was a three-year lease and any easement created under it would cease at the end of that short lease. What interest would there be to declare in such a case?
I understand what the noble Lord, Lord Goodhart, says about short, non-registrable leases for less than three years. He knows well that they do not have to be produced in writing. However, noble Lords will know that the purpose of the Bill is to make as many rights as possible registrable so that those who wish to take title will know precisely what they are getting.
The noble Lord, Lord Goodhart, has a point and we shall certainly consider it further, but the driving force of the Bill is to make the system as complete as possible.
None of us in the Committee is against what the Government are trying to do. We are all aiming for the same solution. The problem comes when we look at the nitty-gritty and suddenly see some anomalies that could be enormously expensive to try to operate and would not be practical. I am grateful to the noble Baroness for promising to have another look at the issue.
I thank the Minister for her response and am grateful to the noble Lord, Lord Goodhart, for his support for our request that the Minister consider those points with care. I am also grateful to my noble friend Lord Caithness for his intervention.
As I said earlier, while we support the principle of having the most comprehensive registration possible, we have to be practical and regard must also be given to cost. The noble Lord, Lord Goodhart, gave a perfect example of easements over common areas in a block of flats. That helps to show how the burden could outweigh the benefit.
We would very much appreciate it if the Minister could reconsider those points. We shall consider them as well and probably return to them on Report. On that basis, for the moment I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 38 and 39 not moved.]
Clause 27 agreed to.
Schedule 2 [Registrable dispositions: registration requirements]:
[Amendments Nos. 40 to 44 not moved.]
Schedule 2 agreed to.
Clause 28 agreed to.
Clause 29 [Effect of registered dispositions: estates]:
[Amendment No. 45 not moved.]
Clause 29 agreed to.
Clause 30 [Effect of registered dispositions: charges]:
I shall speak also to Amendment No. 47. As always, we are attempting to be helpful. We contend that Clause 30(2)(b) is unnecessary and therefore possibly misleading. The point is a technical one, but I shall try to put it briefly. The grant of a charge of a lease is a disposition of the lease, so the result of Clause 29(2)(b) is that the charge itself takes effect subject to the burden of any interest incident to the lease. If the chargee then deals with the charge, all that he can dispose of under the general law, and therefore under Clause 23(2)(a), is what he has and no more--namely, an interest in the lease for better and worse.
Clause 30(2)(b) is therefore otiose and its presence in the legislation risks giving rise to a misconceived argument that it must mean something. The meaning of Clause 29(2) has to be restricted to leave room for Clause 30(2)(b) to operate. I beg to move.
I am always delighted to accept any assistance that the noble Viscount, Lord Bridgeman, wishes to give me. I also accept that this is clearly a complex and technical area. Perhaps we can scout it together.
Clause 30(1) provides that a registered disposition for value of a registered charge has effect to postpone any interest affecting the charge at the time of the disposition if the priority of the interest is not protected at the time of registration.
Clause 30(2) lists the conditions that have to be met in order for the priority of an interest to be protected. Paragraph (a) lists three conditions that apply in any case. Paragraph (b) specifies a condition that must be met in the specific case of a disposition of a charge over leasehold land. Taken together, the amendments would remove paragraph (b). I hope to convince the noble Viscount that it serves a purpose.
The point is perhaps best made by way of an example. Let us say that X has a charge over a leasehold interest. That lease contains a restrictive covenant in favour of the landlord; X then transfers his charge to Y for value. Under Clause 30(1), the registration of the transfer of the charge has effect to postpone to the interest under the transfer any interest affecting the charge at the time of the transfer whose priority is not protected at the time of registration.
The restrictive covenant was an interest affecting the charge at the time of the transfer, so the question is whether, for the purpose of Clause 30(1), the priority of the restrictive covenant is protected at the time of the registration. The priority of the interest is protected if it falls with Clause 30(2).
In principle, the transfer of the charge should not affect the priority of the restrictive covenant in the lease. However, a restrictive covenant in a lease cannot be the subject of a notice in the register, as outlined in Clause 33(c), so Clause 30(2)(a)(i) cannot apply. The correct result is achieved by subsection (2)(b). The charge transferred relates to a leasehold estate. The burden of the restrictive covenant is incident to that estate.
I said at the beginning that this was a complex and technical area. I hope that the noble Viscount will feel that my explanation has shed some light on how it is envisaged that the clause will work overall. It has a purpose. One has to track it through, but we respectfully believe that it works and is necessary. I hope that the noble Viscount will feel able to withdraw his amendment.
In moving Amendment No. 51, I shall speak also to Amendment No. 57. These amendments are designed to strengthen the protection of occupiers' rights and patent easements, which, in principle, are intended to be protected under the Bill, on dispositions of the land affected. If a purchaser is supposed to inspect land carefully and to be bound by what he finds, he should take subject to everything which is apparent on such an inspection and should not take free from something merely because it may not be "obvious" if, nevertheless, a careful inspection would show it.
Paragraphs 8.61 and 8.62 of the report, Land Registration for the Twenty-First Century: A Conveyancing Revolution, appear to use the words "obvious" and "apparent" as though they mean much the same thing. But that is not necessarily correct. In ordinary language, something is likely to be "obvious" if it will be seen even by someone who does not set out to look for it; whereas something which may have to be looked for, and will be found if looked for, will ordinarily be described as "apparent" on inspection. That is the best way to formulate the test which the report proposes. According to the last sentence of paragraph 8.62, consultation produced support for the proposal that,
"actual occupation should be apparent".
I beg to move.
The common thread of the first and third amendments in this group--Amendments Nos. 51 and 57--is the test to be applied in deciding whether something is patent or apparent on a reasonably careful inspection. In the first amendment, the test is in relation to whether a person's occupation is obvious and, in the third, it is in relation to legal easements and profits a prendre.
We have of course canvassed some of this ground already. Members of the Committee will recall that we considered the application of a test in connection with the rights of those who are in actual occupation or "physically present". These amendments again raise the question of how far the Bill needs to go in setting out how the tests are met.
The second amendment in the group--Amendment No. 56--would remove the need for a test because all unregistered legal easements and profits would override registered disposition, irrespective of the knowledge of the person to whom the disposition was made. Perhaps I may deal with this amendment first.
The existence of overriding interests is an unsatisfactory, but nevertheless necessary, feature of the land registration system. One aim of the Bill has been to review all the categories of interest which have this overriding status and to assess whether and to what extent those interests should retain that privileged status. The overall aim is to reduce such interests as far as practicable--I believe that we said that earlier this evening when dealing with some of the previous amendments--and to ensure that they are restricted to interests which it would be impracticable or impossible to register.
By replacing paragraph 3 of Schedule 3, the amendment proposes that all legal easements and profits a prendre should have that status. Underlying the amendment is a justified concern that it should not be possible to avoid the burden of legal easements and profits a prendre that have effect at law. We absolutely understand the motivation behind that. However, I can reassure the Committee that that was never the intention of paragraph 3.
Perhaps I may explain in some detail to the Committee the restrictions contained in the paragraph as drafted and the reasons for them. I hope that in so doing I shall be able to reassure Members of the Committee that there is no reason to have concerns about the limitations that have been imposed.
Before doing so, perhaps it would be convenient for me to set out yet again some of the principal aims of the Bill. The intention is that as much as possible of what is known about a property should be readily available on the register and, ultimately, online. The register should become as complete a record as possible of the matters affecting a property so that a buyer is not bound by something of which he had no knowledge. That is the thrust behind all the rules.
The first point is that paragraph 3 limits the category of overriding easements to those of a legal nature. That is narrower than the current law and is unaffected by the amendment.
The second point is that if the disponee, or buyer, knows of the legal easement or profit because it is patent, or obvious, then he will be bound by it. Such easements will be discovered from a reasonably careful inspection of the property, and the seller will not be under a duty to disclose them.
The third point indicates the other side of the coin. Any legal easement or profit which is not known to the buyer and which is latent should not bind the buyer. That protects buyers from undiscoverable easements and profits--a point of some importance as it is virtually impossible to dispose of an easement or profit once it has been established. However, there is an exception to this last principle. Many Members of the Committee will know that any easement which has been used within one year before the disposition will bind a disponee even though it may not be obvious to the disponee on an inspection and the landowner is not aware of it. That protects easements which are in regular use, such as easements of drainage.
The combined effect of those elements of paragraph 3 is to prevent a buyer being bound by a right of which he was unaware, which he could not have found out by inspection and which was not shown to have been exercised within the previous 12 months.
Perhaps I may say that this is a sensible point at which to strike the balance between the rights of the landowner and the person who has the benefit of the easement. We have tried to strike that balance throughout the Bill but at this point we say that it is of equal importance. After all, the person with the right over the property can always apply to note that right on the landowner's title for all to see so that no disponee is unaware of its existence. Even in relation to unregistered land, a person can apply for a caution against first registration so that the right is taken into account when the legal estate is registered for the first time.
The purpose behind the limitations is to encourage the creation of a straightforward form of standard inquiries before contract. That will prompt sellers to disclose the easements and profits of which they can reasonably be expected to know while at the same time protecting easements and profits which are not known to the landowner but which are in regular use.
Therefore, the paragraph as drafted represents a major element in the aim to make the register the determinant of title and of the rights and obligations to which the land is subject. If the amendment were accepted, it would blur greatly the careful distinctions that we seek to draw between the increasingly divergent systems of registered and unregistered conveyancing. We genuinely believe that it would work against the overall objectives of the Bill. We are confident that that is not the intention of noble Lords who tabled the amendment, although it may be the consequence.
I turn to the first and third amendments in the group. I regret that I do not see any reason for changing the word "obvious" to "apparent" in either paragraphs 2(1)(c)(i) or 3(1)(b) of Schedule 3. The issue is whether the occupier's occupation is patent. In determining whether something is patent, the courts have asked whether it is obvious, as in the case of Ashburner v. Sewell. The cases do not use the word "apparent". We are trying to use terminology that is already well known and well understood because we know of the difficulties that arise when diverging from terminology that is in use and accepted.
That suggests recourse to The Oxford English Dictionary. That defines the main modern usage of "obvious" as:
"Plain and open to the eye or mind, clearly perceptible, perfectly evident or manifest; palpable".
That is clear and contains no ambiguity. I do not think that the same can be said of "apparent". Although there is indeed a long-attested and very similar usage of the word, whose definitions match very closely those of "obvious", the commonest sense now is said to be:
"Appearing to the senses or mind, as distinct from (though not necessarily opposed to) what really is; seeming. Contrasted to real".
We know that in common parlance among people under the age of 20 the word "real" has a very different meaning to that which we attach to the word--and their use of the word is usually accompanied by the word "man"!
That introduces a set of connotations that do not--I say this with the greatest respect--help the definition for land lawyers and others who will struggle with this matter in due course. In view of the fact that the amendment would not improve the drafting--I say this respectfully and gently--I urge the noble Viscount to withdraw the amendment.
moved Amendment No. 58:
Page 49, line 7, at end insert--
"( ) For the purposes of sub-paragraph (1)(b), an easement or profit shall be taken to be apparent on a reasonably careful inspection if such an inspection would reveal that acts had been done on the land, or advantages had been enjoyed over it, which were in fact done or enjoyed in the exercise of the easement or profit, whether or not such an inspection would have revealed or led to the discovery of the particular right under which those acts were done or advantages enjoyed."
The amendment is designed to ensure that an easement is protected if the facts connected with its enjoyment are discoverable by inspection. Inspection without more will not show whether, for example, an access way or light to a window is enjoyed as of right or merely by prescription. If facts that are consistent with the existence of an easement show up on a buyer's inspection the onus should, we suggest, be on him to go on to ask about the legal position.
That distinction is not discussed in paragraphs 8.65 to 8.72 of the report Land Registration for the Twenty-First Century. The result produced by the amendment would be equivalent to the position adopted for "actual occupation". Paragraph 8.62(1) points out that it,
"is not the interest that has to be apparent ... but the occupation of the person having the interest".
I beg to move.
I am most grateful to the noble Baroness for that explanation. I confess that we had some difficulty understanding precisely what was intended by the amendment. We considered the matter on the basis that the amendment sought to spell out that if it was obvious or--to use the word in the amendment--"apparent" from an inspection that there has been activity on the land or advantage enjoyed over the land, the disponee under the registered disposition will take subject to the easement or profit even if the fact that the activity or advantage has been exercised under that interest cannot be discovered by inspection and thus the existence of the easement or profit is not discoverable or known.
We have already discussed the matter in relation to the previous group of amendments. I explained to the Committee the background to and basis of paragraph 3 of Schedule 3. In so doing I mentioned that if the disponee knows of the legal easement or profit because it is patent he would be bound by it. Such easements will be discovered from a reasonably careful inspection of the property and the seller will not be under a duty to disclose them.
It is considered that the test of what is "obvious" on a reasonably careful inspection is to be interpreted in the same light as the case law relating to the question of a patent defect in title; that is, one that does not have to be disclosed to a buyer of land prior to contract under the principles that were set out in Yandle & Sons v. Sutton. As many noble Lords may know, the learned judge in that case said: "I think he"--that is, the purchaser--
"is only liable to take property subject to those defects which are patent to the eye, including those defects which are a necessary consequence of something which is patent to the eye".
If it was patent to the eye that, for example, a private right of way existed the buyer would be bound even if he did not know the particular right under which the way was used or who all the users were. That being so, paragraph 3(1)(b) already appears to cover the concerns that were outlined by the noble Baroness and I therefore hope that she will withdraw the amendment.
I thank the noble Viscount. I had not noticed that; I do not know whether any other noble Lords had done. That demonstrates the invaluable benefit of having Cross-Benchers actively engaged in our debate. I wholeheartedly thank the noble Viscount.
In moving this amendment I shall speak also to Amendments Nos. 61 and 62.
The amendments taken together would ensure that an agreed notice could be entered only if the registered proprietor or someone entitled to be registered made or consented to the application. Any other application would have to be for a unilateral notice so that the proprietor would be told of it under Clause 35(1) and would have an opportunity to apply under Clause 36(1) for it to be cancelled.
Paragraph 6.22 to 6.31 of the Land Registration for the Twenty-First Century report describes the system in the Bill and indicates that it is intended not only to allow the entry of so-called agreed notices, which are not in fact consensual, to which reference is made in paragraph 6.24, but to go further and prescribe by rules that certain interests can be protected only by agreed notices without any procedure for cancellation on the proprietor's application. That is paragraph 6.25. It gives matrimonial home rights as an example.
It seems wrong in principle to allow entries to be made without the proprietor's consent and, possibly, even without his knowledge and without allowing him to use the procedure in Clauses 35 and 36 to resolve the applicant's claim where it is disputed.
Clause 32(3) provides that a notice does not validate an interest but does protect its priorities if it is valid. A so-called agreed notice in respect of a claim which is, in fact, disputed will be a serious interference with the registered proprietor's ability to deal with his land. Indeed, any prospective purchaser will insist on having the entry cleared off, which may be a protracted process if it arises out of a dispute between the proprietor and the applicant.
We believe that no justification is shown for depriving the proprietor of the protections described in paragraphs 6.29 and 6.30 of the report. Moreover, the cases in which that can happen are to be prescribed by rules which will not receive further parliamentary scrutiny. We feel strongly that that is a disproportionate interference with the proprietor's rights. On that basis, I beg to move the amendment.
I am grateful to the noble Baroness for explaining the amendment so fully. Amendments Nos. 60 and 61 are grouped together because they are linked. The link is that Amendment No. 61 is unnecessary without Amendment No. 60. The effect of Amendment No. 60 on Clause 34(2) is to remove the Lord Chancellor's power to make applications for unilateral or agreed notice subject to rules. I can understand the concern behind this amendment; namely, that the right to apply may be curtailed by the detailed rules that are made.
However, I hope that I shall be able to reassure the noble Baroness that the purpose of the provision is to give the Lord Chancellor power, for example, to prescribe that certain types of application will always be registrable as agreed notices. That is very similar to certain situations which arise under the present law, and the noble Baroness touched on that; for example, whereby notice can be entered of a wife's matrimonial home rights notwithstanding that the proprietor objects. If that power is to be exercised, the right to apply to the registry must be made expressly subject to rules as originally drafted. That need for such a wide rule-making power does not exist under the current law because the methods of protecting third party interests are rather different. As the law stands now, there is only a consensual form of notice, and unilateral action is taken by lodging a caution against dealings.
Even with those different methods, the position is not straightforward. For example, rights under the Family Law Act 1996 are registered as notices even though they are not in fact consensual in the normal sense. Under the new arrangements, the registry can set out in rules a comprehensive statement of the interests which can be protected by a consensual notice and which can be protected by a unilateral notice. The difference between the two is significant. The registered proprietor may challenge the unilateral notice and seek its removal.
The advantage of setting out the detail in rules is that it will remain flexible and can be more readily updated in the future. I have already mentioned the Family Law Act 1996. It is apparent from that that the treatment of these different applications by the registry can depend on legislation outside of the sphere of land registration. There must be an ability to respond to those. That makes it more important that these details are left to rules because we cannot prescribe what future legislation may need to provide in relation to its operation and how that may impact upon the Land Registry's discharge of its duties.
Having heard the reasons that I have given for the width of the rule-making power under this clause, I invite the noble Baroness to withdraw the amendment. I remind her of the role that will be played by the rule committee in that regard, which should give greater assurance.
Amendment No. 61 also amends the rule-making power in subsection (2). It makes it clear that rules can cover the form of the application that has to be made and also the information to be contained in it. However, this amendment is not necessary if the rule-making power under subsection (2) is left as originally drafted. The subsection already begins with a much more general statement that the right to make an application to register an agreed or unilateral notice is subject to rules. I therefore invite the noble Baroness not to press that amendment.
I now turn to Amendment No. 62. Subsection 34(3) sets out the three different circumstances in which the registrar may approve an application for an agreed notice. The first two cases are ones where the registered proprietor consents to the entry of the notice. The ability of the registrar to approve such applications has not been questioned. Therefore, we expect that that will be relatively straightforward.
However, the third situation in which the registrar may approve an application for an agreed notice will arise where the registered proprietor does not consent to the entry of a notice. It is that option which the amendment removes.
I should like to clarify the circumstances in which it is envisaged that the registrar would approve such an application. The subsection states that the registrar is able to enter an agreed notice where he is satisfied as to the validity of the applicant's claim. An example would be where the applicant could establish to the registrar's satisfaction that the registered proprietor had granted him an easement.
A more detailed example of how the amendment would work in practice might assist. When dealing with these issues, it is always difficult to think how they may apply in concrete terms. Perhaps I may pose one example. What if the registered proprietor granted an option in writing to X? X applied to have it protected by an agreed notice. The registered proprietor refuses to agree to that. X would be forced to enter a unilateral notice even though the registrar had seen the grant of the option and was quite satisfied that it was valid. At present the registrar is entitled and does enter a notice if an interest has been validly created even if the proprietor objects. It is a power which he exercises regularly and it should not be taken away from him because of its practical use. From what I have said, I hope that I have demonstrated why that third basis of approval of an application for registration of an agreed notice is necessary. It enables the practical way in which that matter has operated in the past to be carried forward and provides an appropriate level of flexibility and transparency. Therefore, I invite the noble Baroness to withdraw the amendment.
I am not happy with the explanation given by the noble Baroness for the rejection of Amendment No. 62. It seems to me that there is a problem. We have here a claim which the registered proprietor is not entitled to dispute. The registrar may think that the validity of the claim has been proved to his satisfaction. However, surely that is not a decision which should be taken without the possibility of a hearing.
The situation is now entirely new. There is a possibility for unilateral notices as well as agreed notices. A unilateral notice is as good as an agreed notice subject only to the possibility that it might be cancelled as a result of the proprietor making a case against it. If it is as clear as that, the proprietor will not make a case. It is only where there is a dispute that the proprietor is likely to challenge a unilateral notice.
It seems to me that there is a much stronger case for the acceptance of Amendment No. 62 than was made by the noble Baroness.
I understand the anxiety expressed by the noble Lord in relation to Amendment No. 62. However, I am not able to say that I agree with him. First, I have indicated on a number of occasions that parliamentary scrutiny in relation to the rules and how they operate will increase. That will be a powerful safeguard.
Secondly, Members of the Committee will know that if the agreed notice is wrong, the proprietor can seek rectification of the register. Therefore, there is an available remedy. We are not depriving the proprietor of that remedy by virtue of these rules. The rules will give the flexibility that we need. The registrar is already discharging duties in that regard. We think that the system will work well.
I thank the Minister for her full response to each of the three amendments. I should like the opportunity to read Hansard and consider carefully her comments. Perhaps I may comment briefly in support of the response given by the noble Lord, Lord Goodhart, to Amendment No. 62, about which there is concern. One of the reasons why we feel strongly about this point is that it has to be considered in the light of the fact that the cases to which we refer will be prescribed by rules which will not receive further parliamentary scrutiny. That is a matter of concern. We believe that it makes for disproportionate interference with the proprietor's rights.
In any event, I shall think carefully about the Minister's comments. I suspect that we shall want to return to these points on Report. However, meanwhile I beg leave to withdraw the amendment.
Amendment No. 63 is designed to ensure that the proprietor knows not only that an application has been made but also what its consequences may be so that he can take an informed decision as to what, if anything, to do about it. The effect is similar to that of the protection given to an applicant by Clause 36(2). I beg to move.
Clause 35(1) sets out the requirement for notice to be served on the registered proprietor, and any other person named in the rules, of the entry of a unilateral notice on to the register, as mentioned by the noble Baroness. However, the proposed amendment seeks to lay down in the Bill detailed issues which need to be addressed in the notice.
Briefly, the two pieces of information referred to are, first, that the entry of a notice does not guarantee the validity of the interest to which it relates and, secondly, there is a right to apply for the cancellation of the notice at any time.
I fully understand why the amendment has been proposed and why these issues should be addressed and the notice served on the proprietor and other interested parties. I see the force in that. But this level of detail is included in notices under the current system and will continue to be set out in the new notices drafted in support of the Bill. There is no indication that this level of detail has to date caused any difficulty or confusion. It is a replication of what is currently good practice.
However, there is a more fundamental issue to be considered. The framework of this legislation, unlike the 1925 Act, strikes a clear balance between the legal principles that overarch the land registration system, which should be contained in primary legislation, and the more detailed supportive provisions which are more appropriately left to secondary legislation where they can be updated more readily. We have touched on that aspect on a number of occasions tonight.
The general rule-making provision which addresses the detail of the form, content and service of notices is set out in paragraph (5) of Schedule 10. The rules made using those powers will be subject to the scrutiny of the Land Registration Rule Committee. It is in that forum that the exact details of what should be said to make the recipient of the notice understand what is at issue should be decided.
There is one further issue. The primary legislation will be used by the Land Registry and the rule committee as the guiding force behind the rule-drafting exercise. It is perhaps wrong to signal to them that these two issues are of particular significance. I am sure that noble Lords will agree that there are other issues of equal weight that should also appear on the face of the notice and which perhaps may differ from the circumstances in which the application for cancellation is made.
As drafted, the clause signals to the rules draftsmen that it is for them to consider what is needed in all the circumstances and for that to be agreed with the members of the rules committee. As I have said before, we totally accept that the rules committee will have an important role. We are mindful of the need for enhanced scrutiny. As I said at the beginning of the debate, we shall table amendments on Report which will address some of those concerns. We understand the basis of such concerns.
In the light of those comments, I invite the noble Baroness to withdraw the amendment.
I thank the Minister for her response. We should like to consider her comments. I am reassured to learn that amendments will be tabled on Report regarding the rules. We are also reassured to hear that the Government appreciate our concern that detailed provisions will be subject to secondary legislation which is by negative resolution. That is a continuing concern. We look forward to discussing related points on Report. On that basis, I beg leave to withdraw the amendment.
moved Amendment No. 65:
Page 16, line 34, after "may" insert ", for the purpose of giving effect to the rights of the persons affected thereby,"
I regret to say that I must resist the amendment. Clause 41 deals with the effect of a restriction, which is to prevent an entry being made in respect of a disposition covered by the restriction without the terms of the restriction being complied with.
Restrictions come in many forms and may affect only a very specific type of disposition such as the need for the first chargees' consent to the entry of a second charge. It can also be very wide and catch any dispositions at all made by the proprietor of the land.
The amendment seeks to limit the circumstances in which the registrar can make an order disapplying or modifying the restriction to cases where this will give effect to the rights of the persons affected thereby. A restriction is of relevance only to an application for registration of a disposition if the disposition is caught by it, thereby requiring certain conditions to be fulfilled. An application is made to the registrar for an order disapplying the restriction or modifying its effect if for some reason those conditions cannot or should not be fulfilled. A common example is where the consent of a limited company is required and that company has been dissolved.
The provision is intended to deal with the obstacle of completing a specific application without changing the restriction on the register or its effect for the future. In reality, therefore, a request for an order under this subsection will be made only of the person requesting it is affected at the time by the restriction in some way. This is endorsed by subsection (3) which limits the identity of the persons who can request an order to those who have a sufficient interest in the restriction.
The provision is necessary for the proper operation of the register and in the circumstances I have described the additional words suggested by the amendment are not needed. I therefore invite the noble Baroness to withdraw the amendment.
Again I shall be brief. The amendment is designed to preserve the present position under which no restriction need be entered where it is not required as a matter of substantive law if joint proprietors have unrestricted powers of disposition and are beneficial joint tenants so that the survivor will be absolutely entitled. I beg to move.
Clause 44 addresses the very important issue of the registrar's duty to enter restrictions in particular situations without an application by the parties. There are quite a few examples of these in practice and they are used when the power of disposal is limited in some way; for example, when certain public corporations, charities, public sector landlords and other similar bodies need consent of perhaps the Charity Commission or the Secretary of State to a disposal of land.
Subsection (1), to which the amendment relates, is in fact limited to the situation where more than one person is registered as proprietor and the registrar needs specifically to ensure that any underlying beneficial interests are overreached. The amendment suggests that rules do not have to be made at all to impose a duty on the registrar to enter a restriction in these circumstances.
I would like to tell Members of the Committee what happens under the current system in the simplest case when just two people own the land. It may help to elucidate why we believe that the rules as currently expressed are favourable. First, the register of the title records only the legal title and will show them as joint owners. They are in fact trustees for themselves. Under the general principles of property law, the underlying beneficial interest in land can be held by them either as tenants in common or joint tenants. If held by them as joint tenants, it means that when one of them dies the other acquires the whole of the property automatically.
The survivor therefore has full powers to dispose of the property and no restriction is needed. That is not the case with tenants in common. The effect of the provisions of the Law of Property Act is to transfer the beneficiaries' interests from the land to the proceeds of sale only if two trustees give a receipt for the moneys. The moneys can also be paid to a trust corporation. In this situation, a restriction is entered on the register stating that unless there is an order from the registrar or the court, no disposition by only one trustee will be registered. This restriction ensures that a second trustee is appointed to receive the moneys, or either the court or the registrar investigates the position as to why on the facts that step in not necessary. Members of the Committee will know that that is a common position.
Rules under the Bill will replicate the current arrangements. I therefore hope that with that explanation the noble Baroness, Lady Buscombe, will feel able to withdraw the amendment.
I thank the Minister for her response. Perhaps I may reiterate that our interest in tabling the amendment relates specifically to the position applying to joint tenants, not that of tenants in common. That said, I shall read what she had to say with care and decide whether to return to the matter on Report. On that basis, I beg leave to withdraw the amendment.
My Lords, as consideration in Committee of the Land Registration Bill is complete for today, this evening's Unstarred Question is no longer restricted to the one hour available for such dinner break business. Instead, a limit of one-and-a-half hours will apply. This change does not affect the maximum time available to my noble friends Lord Harrison and Lady Blackstone but it increases the maximum time available to other speakers from four to seven minutes. However, if noble Lords have already prepared four-minute speeches I am sure that the House will not object if they so restrain themselves.