Overriding interests: register or die?

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13 May 2013


From Brian Chrystal, Consultant at Legal Futures Associate CLS Ltd

From midnight on 12th October 2013, there is an interesting change taking place with regard to some of the more exotic property law quirks that affect conveyancing transactions – overriding interests. Many lawyers feel that post this date these rights are culled and so of no more relevance to their transactions…however this is very clearly NOT the case.

An overriding interest is an interest in land that binds the registered owner of the land even though there is no record of that interest on the registered title. After 12th October 2013, six of the rights classified as “overriding” will lose a degree of their enforceability but not their actual enforceability. The owners of the various interests may lose their rights entirely if they haven’t already taken steps to protect themselves. Although six kinds of rights are affected (franchises, manorial rights, Crown rents, non-statutory rights relating to embankments and sea or river walls, payments in lieu of tithes and chancel repair) all but two – chancel repair and manorial rights (and especially rights to minerals) – are now of mainly historical interest.

Death for these rights will not be sudden. Even after October they will still be enforceable unless a register able transfer for value, or first registration, occurs and no notice or caution has been accepted by that time. The only difference for the owner of the rights until one of these events happens will be that the Land Registry will start to charge a fee (the amount not yet known), but that may be a minor barrier to protecting their interest depending on its perceived value – and that if they don’t register their interest they will then be at risk of losing it in perpetuity.

Manorial rights attached to former copyhold land were preserved after general enfranchisement (by the Law of Property Act, 1922). They include certain sporting rights and, more important nowadays, the right to minerals. Attempts to claim sporting rights are rare, mainly because their value is likely to be deemed not economic to contest. Minerals, however, may have great potential future value. The minerals themselves may have considerable economic value (and remember that “minerals” can include useful materials such as sand and gravel). The right itself may also have a “nuisance value” so the possibility of a claim by a purported owner may deter purchasers with development in mind, and owners may be prompted to establish the extent of their holdings and register them if they consider that there is a possibility of the surface being sold for development. The legal position on claims of trespass on minerals is unclear, so this can be a serious factor in an investment decision.

Chancel repair is a strange creature. It was largely disregarded as a threat to property owners until the Aston Cantlow case began its progress through the courts. By 2003, when the House of Lords found in favour of the Church authorities, it was well established on the conveyancing landscape. The size of the award (which including legal fees topped £750,000) awoke even the sleepiest conveyancer and the complexity of assessing potential risk and the degree of financial exposure kept them awake (and clearly troubled their Lordships).

A big difference between manorial rights and chancel liability should be the presence of the Church as overall beneficiary of claims against lay rectors (owners of burdened properties), but that is not working in practice. The registration process is legally the liability of the Parochial Parish Councils (“PCC’s”) as further explained in the Church of England’s “Chancel Repair Q&A’s 2012”. It explains that financial liability for the many listed buildings in its estate is met substantially by local fund-raising and comments that “Against that background, the Church cannot be expected to forego sources of funding to which it is entitled unless it receives adequate compensation”. Lay rectors are therefore seen as legitimate targets but PCC’s are to be the enforcers. The Q&A’s emphasise this by pointing out that PCC members act as trustees and can thus be have a fiduciary duty to safeguard all sources of income. One has to wonder if a PCC which chooses not to register, or simply fails to do so in time, will be exposed to a claim of breach of duty as a trustee…

One source of claims will soon be softened, however, when English Heritage hands over responsibility for grants to places of worship to the Heritage Lottery Fund on April 1st. 2013.  The Fund seems to plan to take a more accommodating view, not encouraging PCC’s to pursue lay rectors where “…it is evidently unreasonable for them to do so.”

Although it may be sensible that aged conveyancing animals such as these are put to sleep, the legislation has in fact allowed the rights to continue to be enforced until and unless first registration post 13/10/13 has occurred. As only circa 600,000 of the housing stock of residential properties (circa 23 million) change hands annually it could well be that the owners of the mineral and chancel repair rights have 50 years or so in which to protect and enforce their rights before all property is out of their reach with no caution entered…. But, as always, while any attempt at re-stating property law may give clarity at some point in the future, it creates short-term uncertainty. Lawyers and their clients cannot wait until all the conveyancing dinosaurs are dead: they have to continue to use all the resources of searching and insurance to allow them to act now with a sense of security, otherwise between initiating a transaction and the issue of the priority notice the property could still be blighted by one of these rights.

 



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