We do not get too many cases in which section 1 of the Law of Property Act 1925 is at the heart of the decision. In Baker & Anor v Craggs  EWCA Civ 1126, the Court of Appeal has overturned the 2016 High Court decision (see CPI Update Issue 153 – January 2017).
This is the case in which a dispute arose over competing interests after registered proprietors dealt twice with the same piece of land: first by transferring it to Craggs, and second, during a registration gap, by granting an easement over the land to the Bakers. The High Court had ruled that an easement granted by registered proprietors to Mr and Mrs Baker over land that the proprietors had previously transferred to Craggs took priority over and bound Craggs’ ownership rights, owing to a failure by Craggs to achieve prompt registration. The proprietors had transferred some of their land to Craggs on 17 January 2012. Craggs applied for registration of title during the priority period of his official search but, because of a failure to respond in time to a Land Registry requisition, Craggs’ application was cancelled. Following a fresh and successful application, the transfer to Craggs was registered on 16 May 2012. However, in the meantime, the proprietors effectively dealt with the land again in the course of transferring adjacent land to the Bakers, by granting to the Bakers a right of way over the land they had already transferred to Craggs. Since the proprietors were still the registered legal owners of Craggs’ land, they had title to grant an easement over it. The transfer to the Bakers was duly registered with the benefit of the right of way. When the transfer to Craggs was eventually registered, the burden of the right of way was entered on his title. Craggs’ interest during the registration gap (i.e. between completion of his transfer and its registration) was an equitable fee simple. The Bakers’ interest was a legal easement. Whose interest took priority? The High Court had held that, although Craggs was the owner of the servient land in equity, was in actual occupation of it, and therefore had an overriding interest in the land, the overriding interest was capable of being overreached. And since the transfer to the Bakers in which the right of way had been granted was made by two trustees (the registered proprietors), Craggs’ right was overreached, and the Bakers’ easement was correctly registered with priority.
However, the Court of Appeal has overturned this decision, and has strongly rejected the High Court’s application of overreaching principles. Overreaching applies where the trustees of a trust of land, being at least two in number, convey the land to a “purchaser” (widely defined in property legislation) and provide a receipt for capital money arising. Applying the more technical language of the law, overreaching is achieved under section 2(1) LPA 1925 where there is a “conveyance to a purchaser of a legal estate in land”. The Court of Appeal ruled that, although section 1(4) LPA 1925 defines a legal easement (and other legal interests) as “estates” for the purposes of the LPA 1925, they are not in fact “estates”. Further, although the grant of an easement amounts to a “conveyance” for the purposes of the LPA 1925 (as that term is defined in section 205), overreaching can only be achieved under section 2(1) where there is a “conveyance to a purchaser of a legal estate in land”. The only estates in land that are capable of subsisting at law are the fee simple absolute in possession (freehold estate) and a term of years absolute (leasehold estate). The Court of Appeal said: “Accordingly, it would seem to follow that the doctrine of overreaching can only apply where such an estate in land is conveyed to a purchaser. The grant of an easement to a purchaser of land is not a conveyance of a legal estate in land within the meaning of section 1(1). Rather, it is the grant of an interest over land which, if it is granted for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute, is the grant of a "legal estate" within the meaning of subsections (2) and (4).... The reference to a conveyance to a purchaser "of a legal estate in land", in section 2(1), is naturally read as a reference to a conveyance of one of the two types of estate in land which section 1(1) has just told us are capable of being conveyed at law.”
The outcome of the appeal was that the grant of an easement over Craggs’ land, by the registered proprietors of Craggs’ land, was not capable of overreaching Craggs’ equitable ownership of that land. The easement would rank behind Craggs’ overriding interest and therefore, in effect, would not bind Craggs’ land.
The High Court decision had been much criticised. The outcome in the Court of Appeal appears to be more in line with our understanding of the concept of overreaching, which we normally expect to be relevant on the sale or mortgage of land. However, this orthodox application of overreaching principles does mean that a person acquiring an easement over land cannot fall back on overreaching to claim priority over the interests of beneficiaries under a trust, and care therefore needs to be taken to inspect land prior to the grant of an easement over that land. Overreaching is the process whereby equitable ownership in property is transferred to a claim to share in the sale proceeds. It is also a mechanism for freeing up the legal estate to enable the legal owners to transact without the need to involve equitable owners. However, the rights of equitable owners who are in actual occupation have the capability of binding dispositions of the land as overriding interests. For purchasers and mortgagees, if they fail to discover occupying equitable owners, at least the payment of purchase/mortgage money to the trustees of the trust (being at least two in number) will overreach the occupiers’ rights. However, for the grantee of an easement, that option is not available. The legal owners are not necessarily free to transact without the consent of equitable owners.
Of course, this litigation would not have occurred had Craggs’ initial Land Registry application not been cancelled through an inability to deal with a Land Registry requisition in time. This is not to infer that the inability was the fault of Craggs or his lawyers; it is just a reminder of the need to ensure applications are in order when presented to the Land Registry, and to be pro-active when receiving Land Registry requisitions. The moral of this case, perhaps, is that we must strive to avoid loss of priority through registration application cancellations.