2011 Q2 Conveyancing Periodical- Stealing Registered Land

June 2011

by Julian Farrand QC LLD

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The particular focus of this article is neither title theft nor mortgage fraud. Instead, it is a squatter's rights and wrongs in respect of encroachments onto his neighbour's land where both titles are registered. The article has been prompted by a couple of judicial decisions this year concerning statutory provisions designed to deal with this situation included in the Land Registration Act 2002 following recommendations by the Law Commission and HM Land Registry in a joint report: 'Land Registration For the 21st Century' (2001 LAW COM No 271).

Previously, the general rule was that, if someone took adverse possession of any land, including buildings, the owner's title would be extinguished after 12 years and the squatter in possession would become the owner.  Such title theft in slow motion still applies to unregistered land. The Law Commission/Land Registry perceived "growing public disquiet" about this being too easy and often unfair (see report paras 2.69 - 2.74).  They observed:

"Although the popular perception of a squatter is that of a homeless person who takes over an empty house (for whom there is understandable sympathy), the much more typical case in practice is the landowner with an eye to the main chance who encroaches on his or her neighbour's land."

But they also considered that, as a matter of legal principle, it was difficult to justify the general rule in relation to registered land. This was because, as they stated: "the doctrine of adverse possession runs counter to the fundamental concept of indefeasibility of title that is a feature of registered title" (para.14.3). Nevertheless, they did not recommend the abolition of adverse possession for registered land but proposed a new scheme designed, in effect, to protect registered proprietors from land stealing by squatters. But, be warned, the scheme does not provide anything like absolute protection.

2002 Scheme

Section 96 of the Land Registration Act 2002 provides that no time limits  - whether 12 years or otherwise - in relation to recovery of land shall run against any person in relation to a registered estate in land and that, accordingly, no registered title can be extinguished by expiry of a period of limitation. However, this provision expressly does not apply to a chargee, so that actions for possession or foreclosure may still become statute-barred. Nor does the provision mean that it is not possible for a squatter on registered land to acquire title: he can apply to be registered with a possessory title, which may be upgraded after another 12 years to an absolute or good leasehold title (see ss.9(1)(c), 10(1)(d) and s.62(4)(5)).

Alternatively, there is the special scheme for squatters. Under para.1(1) of Sch.6 of the LRA 2002 (italics supplied for emphasis):

"A person may apply to the registrar to be registered as the proprietor of a registered estate in land if he has been in adverse possession of the estate for the period of ten years ending on the date of the application."

The Land Registry must give notice of the application, in effect, to all the persons whose estates or interests may be affected, including, of course, the current registered proprietor (para.2). A notified person may then require that "the application be dealt with under paragraph 5", which right is exercisable by notice to the Land Registry given within three months (para.3).  Under para.5, the applicant will not be entitled to be registered as proprietor unless one or other of three peculiarly restricted conditions is met. If not, he may make another application after a further two years adverse possession and will be entitled to become the new registered proprietor (paras 6(1) and 7). However, this outcome is not the real intention of the clause. As the Explanatory Notes to the statute state:

"The two year period is to enable the registered proprietor or registered chargee to take reasonable steps either to evict the squatter (or at least to start proceedings to do so) or to regularise the squatter's possession by negotiating a bilateral agreement under which he or she can stay as the proprietor's tenant or licensee."

In which case, the applicant squatter will not be registered (para.6(2)).

But, under the scheme, this successful defence of his land against a squatter can only be achieved if the registered proprietor duly gives notice requiring that "the application be dealt with under paragraph 5". If he fails to do so, the statute simply provides that: "the applicant is entitled to be entered in the register as the new proprietor of the estate" (para.4).  So registered land will have been stolen, notwithstanding the supposed indefeasibility of the previous proprietor's title.

The Cases

That is essentially what happened in Baxter v Mannion [2011] EWCA Civ 120.  In 1996, Mr Mannion bought a field and became registered as proprietor. Nevertheless, Mr Baxter kept horses on the field. In 2005, Mr Baxter applied to the Land Registry for registration of the field in his name on the basis that he had been in adverse possession since 1985, supporting the application with a statutory declaration to that effect. In 2006, the Land Registry sent to Mr Mannion a notice of the application. The notice contained a paragraph stating in bold type that if Mr Mannion objected or wished to give a counter-notice to the Chief Land Registrar he must do so before 12 noon on 8th May 2006 (i.e. 65 working days after the date of the notice, that being the prescribed period). The notice was accompanied by detailed explanatory notes and a simple form, for Mr Mannion to complete if he required the application to be dealt with under para.5.

For various incredibly heart-rending reasons, Mr Mannion failed to complete and return the form in time but, in September 2006, his solicitors requested an extension of time to object to Mr Baxter's application. There is no power under the legislation to extend the prescribed period, prospectively or retrospectively, and the Land Registry had, in fact, promptly registered Mr Baxter as the proprietor of the field on expiry of the stated deadline on 8th May 2006. So the land seemed well and truly stolen.

Extraordinarily, however, when the Land Registry replied to Mr Mannion's solicitors rejecting their request for an extension, they added that if he wished to pursue the matter he would need to apply for rectification of the register of title to the field. Accordingly, an application was made for an alteration of the register by substituting Mr Mannion's name for that of Mr Baxter on the basis that this would be "for the purpose of correcting a mistake" (ie within Sched.4 para.5(a) to LRA 2002).

Mr Baxter challenged the application so the matter was referred to a Land Registry Adjudicator. She heard evidence and found that he had not been sufficiently in possession of the field during the relevant period of ten years and ordered rectification against him. An appeal followed submitting that there was no "mistake" to be corrected: the Land Registry had acted correctly on the material before it and the registration of Mr Baxter as proprietor was a result of the failure of Mr Mannion to complete and return the form. This submission was rejected by Mr Justice Henderson and the appeal dismissed: it had been a mistake to register an applicant who did not satisfy the factual precondition of having been in adverse possession of the estate for the period of ten years.

Because the case was thought to raise an important issue of principle, a further appeal was permitted. In the Court of Appeal, counsel for Mr Baxter submitted that "the essence of the new scheme was simplicity so as to give certainty in dealing with ownership of land" (Para.19) and that "the intention was clear: a once and for all system by way of notice to be followed by a counter-notice, failing the latter, registration. That produced the intended clarity, certainty and simplicity" (para.21). But Lord Justice Jacobs thought this "would be an invitation to fraud" (para.26). Someone like Mr Baxter might have timed his application knowing the registered proprietor would be away for 65 days.  In his lordship's opinion (para.29):

"...it is impossible to draw any rational distinction between a mistake induced by fraud and a mistake induced by a wrong application. The reason for the mistake - that the Registrar was given false information - is the same in both cases."

Therefore, Mr Baxter's appeal was again dismissed and his name replaced by Mr Mannion's on the register. His title was not indefeasible.

Innocent third parties?

But Mr Baxter did get a long run as registered proprietor, some four years. Had he really been a fraudster, he would surely have sold or charged the field to a purchaser or lender, who properly relied on the register of title and subsequently became the registered proprietor or a registered chargee. Would Mr Mannion have been able to recover the field by rectification of title as against such innocent third parties? If so, registered conveyancing may rightly be regarded as unreliable.

Similar circumstances were considered by a Land Registry Adjudicator in Knights Construction (March) Ltd v Roberto Mac Ltd (+ Chief Land Registrar) [REF 2009/1459 but Decision dated 9th February 2011]. There the Salvation Army had applied for voluntary first registration of a Chapel with adjoining land in reliance on a statutory declaration as to destruction of title deeds and over 30 years possession. The Land Registry accepted the application, apparently without question or further investigation, and registered the Salvation Army as proprietor of the Chapel plus land. Two years later, in 2009, the Salvation Army sold the Chapel and land to Roberto Mac Ltd, which became registered as proprietor with title absolute. On the same date, a charge was registered in favour of Barclays Bank.

However, the evidence showed that the Salvation Army had never had an unregistered title to the land (as opposed to the Chapel) and also had never been in possession of it. It was held that the claimant company, the freehold owner with an unregistered paper title, was entitled to have the registered title rectified to exclude the land which had been included by mistake. So Roberto Mac Ltd lost the land and Barclays Bank, which was not a party to the proceedings, could no longer have a registered charge over it. Their remedies, if any, were not stated in the decision but presumably a claim for indemnity from the Land Registry will be made, since concern was expressed by the Adjudicator that, otherwise, there would be a breach of the Human Rights Convention (para.61).

Indemnity?

There was no suggestion of fraud, which would involve dishonesty on the part of the Salvation Army.  Nevertheless, the Adjudicator observed (para.81):

"There is no doubt that the registration of the Salvation Army as proprietor of the disputed land was a mistake.  The position in that respect, for present purposes, is the same as if a fraudster had forged the name of the freehold owner of unregistered land on a transfer to himself, got himself registered as proprietor and then transferred the title to Roberto Mac."

However, the position may not be precisely the same for indemnity purposes. True, Schedule 8 of the LRA 2002 provides (para.1(1)) that: "A person is entitled to be indemnified by the registrar if he suffers loss by reason of - (a) rectification of the register".  But it is also specifically provided that (para.1(2)):

"(b) the proprietor of a registered estate or charge claiming in good faith under a forged disposition is, where the register is rectified, to be regarded as having suffered loss by reason of such rectification as if the disposition had not been forged."

There is no equivalent provision, deeming rectification to be the reason for loss, where there has been no forgery but merely an application by a person, such as the Salvation Army, not entitled to be registered.  Then there can be rectification without indemnity.

In conclusion, there is a significant and relevant exclusion clause to be noticed in what, in substance, constitutes the Land Registry insurance policy guaranteeing a title.  Para.5 of Schedule 8 provides:

"(1) No indemnity is payable under this Schedule on account of any loss suffered by a claimant-

(a) wholly or partly as a result of his own fraud, or

(b) wholly as a result of his own lack of proper care.

(2) Where any loss is suffered by a claimant partly as a result of his own lack of proper care, any indemnity payable to him is to be reduced to such extent as is fair having regard to his share in the responsibility for the loss."

This must mean that a registered proprietor who fails to prevent part of his land being stolen by an encroaching neighbour cannot expect to be fully indemnified by the Land Registry.

Dr Julian Farrand QC LLD, is a solicitor and consultant to First Title Insurance plc.

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