Despite the forward looking language of Schedule 4 of the Land Registration Act 2002, a recent Court of Appeal decision shows us that there is some degree of “retrospective” effect to a rectification of the register under the Land Registration Act 2002 in the way that the Act changes “for the future” the priority of interests affecting a title. For students of land registration law and practice, Gold Harp Properties Ltd v Macleod & Others [2014] EWCA Civ 1084 merits a detailed inspection. It provides us with a Court of Appeal level opinion on what was thought to be the “prospective” effect of rectification under Schedule 4 of the Land Registration Act 2002.
In particular, it analyses what is meant by the wording of paragraph 8 of Schedule 4 which states that: “The powers under this Schedule to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned.” Do the words “changing for the future” mean that rectification has a prospective effect only and cannot operate retrospectively?
In simple terms, the case analyses the outcome of a rectification where, after the making of the initial mistake in the register (e.g. B is incorrectly registered as proprietor in place of A) a transaction occurs in favour of a third party (e.g. a lease is granted by B to C). If A successfully applies to have the register rectified so that A is restored to the register as registered proprietor (e.g. the transfer to B was forged) does A become subject to the lease in favour of C, or is A restored to the register with priority over C? In the current case, a leasehold title (Lease 1) had been incorrectly closed down following a purported but ineffective forfeiture. A new leasehold title (Lease 2) had been created which had twice been assigned before rectification of the register was ordered to reinstate the incorrectly determined Lease 1. The Court of Appeal ruled that the effect of changing for the future the priority of these two interests through rectification meant that, henceforth, Lease 1 enjoyed the right to possession of the property and therefore had priority over Lease 2.
Lord Justice Underhill did not wish to become fixated on the concepts of “prospective” and “retrospective” effect. These were not words used by the statute. The important question was how rectification was to have the effect of “changing for the future the priority” of an interest. In his view (with which the two other Lord Justices agreed), the effect of changing priorities for the future meant that up until the time of rectification, Lease 2 enjoyed priority (and the fruits of it – e.g. the right to possession of the property) but as from the time of rectification, Lease 1 took priority so that “for the future”, Lease 1 enjoyed the fruits of priority, and the right to possession. One can see why Lord Justice Underhill did not wish to become fixated on the concepts of “prospective” and “retrospective” effect. His decision changes priorities for the future. However, it also has the effect that a lease granted in the past, at a time when the lessee might have believed he/she was “first in time”, is relegated to second in line. This is both prospective and retrospective. But “changing for the future” the priorities of interests granted in the past must necessarily have this effect.
Lord Justice Underhill recognises that his opinion “appears to be contrary to that advanced in Ruoff & Roper and Megarry and Wade and accepted by the Deputy Adjudicators in Piper Trust Ltd v Caruso (UK) Ltd [2010] EWLandRA 2009/0623 and DB UK Bank Ltd v Santander UK plc [2012] EWLandRA 2011/1169”. He also recognised that his opinion harms the alleged principle of the “integrity of the register” in relation to which Megarry and Wade says: “Retrospective rectification would do violence to the integrity of the register and therefore, in this respect, rectification of the register differs from rectification of an instrument, which is retrospective to the making of the instrument.” The theory is that one ought to be able to trust what appears on the register. If the apparent proprietor grants a lease, one ought to be able to assume that the lease will give the tenant the first right to possession. However, his view is that “the guarantee of title conferred by registration is well understood not to be absolute;” by which he means that a registered title is always vulnerable to the possibility of a rectification, with the counter-balancing compensation of an indemnity if loss is suffered as a result.