Chapter 3 Answers to end of chapter questions

Self-test questions

What are the main differences between unregistered land and registered land in respect of how they are transferred?

Answer: Much of the process is similar in terms of the parties carrying out the four main stages:

1. negotiation and agreement;
2. formation of the contract and exchange of contracts;
3. transfer or conveyance of the legal estate;
4. registration.

The first two stages will be similar for both types of land. Proof of title in unregistered land will be by searches in the land charges register against the name of any estate owners identified in the bundle of documents making up a good root of title, such as old conveyances of the land. In registered land, the register is the proof of title. At the third stage, land is conveyed by deed, and the TR1 registration form is generally used as a basis for that deed nowadays even when the land is unregistered. Registration will be first registration rather than a registrable disposition.

Gary wants to buy Frank’s house. They have entered into an agreement ‘subject to contract’. What rights does this give Gary over Frank’s house?

Answer:

An agreement ‘subject to contact’ is an agreement in principle only and is not legally binding. Either party can pull out. This may be very disadvantageous for the other party, who will have spent money on searches, legal fees, surveys etc. It is not uncommon for a vendor to pull out of an agreement after receiving a higher offer – called gazumping – particularly in a rising market. Conversely, a purchaser may pull out unless the vendor agrees to a lower price. Purchasers can enter into ‘lockout’ agreements to try to deter gazumping by preventing the vendor from negotiating with other parties, but these agreements do not force the vendor to sell—see Pitt v PHH Asset Management Ltd [1994] 1 WLR 327. The only remedy will be damages.

See 3.3.1.

Gary and Frank have exchanged contracts for Gary to buy Frank’s house. The next day, the house burns down due to a lightning strike. Who is liable to rebuild the house— Gary or Frank?

Answer: Once the parties have exchanged contracts the property belongs in equity to the purchaser, although the vendor still hold the legal title but on trust for the purchaser. The purchaser must arrange insurance for this period. Gary is liable to rebuild the house.

Examination questions

Why are there formality requirements for the sale of land? What purpose do they serve? Do they do more harm than good?

Answer: There are three main areas of formality requirements for transactions involving land:
Contracts
Transfers (deeds)
Registration

Taking contracts first, Law of Property (Miscellaneous Provisions) Act 1989, s. 2(1) provides that:

“A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each”.

Failure to meet the formality requirements under s.2 LPMP 1989 will result in the contract being void. The contract must be signed by all parties - Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567.
However, there are a number of exceptions to this section, some set out in the section itself and others inferred. The Act expressly excludes contracts to grant leases not exceeding 3 years in length at full market rent- s.2(5)(a) LPMPA 1989, so most short leases do need to comply with it. There are some statutory exceptions, such as contracts made at auction, which are not governed by the section and so a binding and enforceable contract will arise as soon as the auctioneer’s hammer has fallen s.2(5)(b) LPMPA 1989.

An area which has given rise to judicial intervention is proprietary estoppel. The court in Yaxley v Gotts allowed a claim of proprietary estoppel to defeat the effect of s.2, as the court did not believe that unconscionable conduct or equitable fraud should be allowed to prevail.

However, in Cobbe v. Yeoman’s Row Management Ltd [2008] UKHL 55, the House of Lords held that the developer, Cobbe, understood that the agreement was not enforceable in law and the defendant had not encouraged Cobbe in his belief that the agreement would be binding. Therefore the essential features of proprietary estoppel were missing. It seems that is will be difficult for a businessman such as a property developer to make out such a claim.

In Whittaker v. Kinnear [2011] EWHC 1479, however, the High Court held that proprietary estoppel has survived the enactment of the 1989 Act and can be claimed as a defence to the lack of formalities. This case suggests that estoppel can still be pleaded in cases where the parties contemplated a formal contract. This was not a case concerning a property developer.

Turning to transfers of land, a conveyance must be completed in the appropriate form. Section 52(1) LPA 1925 provides that:

‘… All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed’.

The requirements of a deed are now found in s.1 LPMP 1989. This requires that the face of the instrument must make clear that it is intended to be a deed, and that it must be validly executed as a deed. That means it must be signed and witnessed. Usually, a TR1 form will be signed as a deed by the parties and is now used as the standard form of conveyance.

Turning briefly to registration [note: you will have more detail on this after reading chapter 4] When unregistered land is conveyed, there must be first registration of title. If the land is registered, there must be a registered disposition, and the new owner must be registered to become the legal owner.

The purpose served by formalities is to avoid doubts and arguments as to whether land was really transferred, to recognise that each piece of land is unique and that formality is advisable to ensure that all the parties are fully aware of the transfer. There is arguably a need for certainty, the prevention of fraud and to provide consumer protection for what is often a person’s most valuable asset.

Formalities could possibly cause an injustice where unscrupulous people take advantage of someone when a genuine agreement has been reached. However, despite Cobbe v. Yeoman’s Row Management Ltd [2008] UKHL 55, it has been established that proprietary estoppel can still exist in the context of informal transfers, though perhaps not with regard to experienced property developers.

[Note: a fuller answer could be given after reading the advanced material for this chapter].

Ali is buying a freehold house from Clara. The freehold house is unregistered land. Advise Ali what conveyancing processes are necessary, and when he will become the legal owner of the house.

Answer: The processes to go through are:

1. Negotiation and agreement;
2. formation of the contract and exchange of contracts;
3. transfer or conveyance of the legal estate;
4. registration.

Ali will begin the process by making an informal offer ‘subject to contact’ for the house. This is not binding on either party.

As the house is unregistered, Ali will need to see a ‘good root of title’ going back at least 15 years, most probably a conveyance of the land to Clara. These documents, such as conveyances, should reveal many of the interests in the land, but Ali will need to do a search of the Land Charges Register against the name of any estate owner he can discover. He should also visit the property and make sure that he understands the rights of any person in occupation of the land. Unlike registered land, there is no definitive proof of title of unregistered land. If Ali is in any doubt, he could ask Clara to register her title before transferring the house to him.

Once both parties are satisfied, a formal written contract will be entered into by each party which complies with Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989), s. 2. Once contracts are exchanged, Ali and Clara are legally bound to proceed with the sale and purchase. If they do not, a decree of specific performance may be issued. At this point Ali will have an equitable interest in the property.

The contract should be followed by a swift transfer of the property by deed complying with LPA 1925 s.52(1). Ali will become the legal owner of the property. However, he must now register the property with the Land Registry within two months or legal title will revert to Clara (for more on this point see chapter 4).