News

Philip Rainey QC and Chris Heather QC appeared in the case Rees v 82 Portland Place Investments LLP and 82 Portland Place (Freehold) Limited

• Share

18th May 2020

Rees v 82 Portland Place Investments LLP and 82 Portland Place (Freehold) Limited

Snowden J

Friday 15 May 2020

[2020] EWHC 1177 (Ch)

Background

This appeal concerned the consequences (due to a mistake by the Land Registry) of the non-registration of a notice claiming a new lease of a flat pursuant to the Leasehold Reform, Housing and Urban Development Act 1993.

In order to understand the issues, it is necessary to set the facts out in some detail.

The Appellant took assignment of the lease of Flat K at 82 Portland Place, London (the “Building”) on 1 September 2011. As part of the assignment, she obtained the benefit of a section 42 notice under the Leasehold Enfranchisement Act 1993 (the “1993 Act”), which had been served by her predecessor in title on 5 August 2011. The premium proposed in the notice was £1.8 million.

The section 42 notice was served against Howard De Walden Estates Limited (“Howard De Walden”), who then owned the freehold to the Property (the “Original Title”). The Building was also subject to a headlease dated 28 November 1924 for a term of 99 years. As the headlease only had 12 years left to run, Howard De Walden was the competent landlord for the purpose of the 1993 Act.

Concurrently, a process of collective enfranchisement to acquire the Building from Howard De Walden was already under way following a notice under section 13 of the 1993 Act served on 11 September 2009. This had the effect of suspending the Appellant’s section 42 notice until the enfranchisement process was complete.

In order to protect her interest, the Appellant applied to enter two unilateral notices (UN1) against the registered titles of the freehold reversion and the headlease on 19 September 2011.  The application in respect of the freehold title was rejected by the Land Registry in error.  A UN1 was however entered against the headlease title.

Matters rested there until the collective enfranchisement process was completed on 7 March 2017.  The Second Respondent was the Nominee Purchaser, which acquired the freehold and the headlease. The headlease was merged into the freehold.  On the same day, the Second Respondent granted the First Respondent a concurrent, overriding lease of Flat K for a term of 999 years without payment of a premium and at a nominal rent.  On 4 April 2017, the Second Respondent was registered as the freeholder of the Building at the Land Registry (with a new title number) and on 6 April 2017 the First Respondent was registered as the overriding lessee of Flat K (the “New Titles”).

At this point, things became interesting.  In reliance upon what was said to be “usual practice” upon merger, the Land Registry migrated the UN1 from the (closed) headlease title onto the Second Respondent’s new freehold title and (because it was a derivative interest) also entered it onto the First Respondent’s new overriding leasehold title.  The Land Registry also attached to the UN1 the original registration date of 19 September 2011 – effectively back-dating it to a date prior to the freehold transfer.

The Respondents contended that because the s.42 notice was not registered against the freehold at the date of completion, they were not bound by it and that it therefore lapsed.  The Appellant contended that it was now clear from the Titles that the UN1 was registered at the completion date of the freehold transfer and hence that the Respondents were bound by the s.42 notice.  The Respondents countered by contending that the migration of the UN1 from the old headlease title was itself a mistake by the Land Registry.

The County Court trial

The Appellant commenced proceedings in the County Court. She sought a declaration that the Respondents were bound by the s.42 notice, on the footing that the Land Registry’s actions on completion of the freehold transfer were correct; and if not then an order for rectification of the Register under Schedule 4 of the Land Registration Act 2002 in order to correct the mistake in 2011.  The Respondents counterclaimed for declarations that they were not bound by the s.42 notice and to alter the Register to remove the UN1.  The trial Judge, HHJ Gerald, found that there were two essential issues to be determined.  Firstly, whether the unilateral notice which had been registered should have been carried over by the Land Registry from the original headlease title to the freehold title acquired by the Second Respondent.  Secondly, whether there had been a mistake of law by the Land Registry in failing to register the UN1 against the freehold title in 2011 which the Court should rectify by exercising its powers under Schedule 4 of the Land Registration Act 2002 (the “2002 Act”).

The Judge referred to section 97 of the 1993 Act and sections 28 and 29 of the 2002 Act, which address how registerable dispositions are to be prioritised in the Register. In summary, HHJ Gerald held that:

• Applying Wiggins v Regent Wealth [2015] 1 WLR 1188 and Curzon v Wolstenholme [2018] P&CR 9, the failure to register the UN1 against the freehold Title in 2011 had the consequence that the Appellant’s rights under the s.42 notice were not protected against the Second Respondent;
• The UN1 should not have been migrated from the old headlease title onto the new freehold title on merger of the headlease into the freehold after its transfer to the Second Respondent (and therefore should not have been entered against the First Respondent’s overriding leasehold title either);
• A mistake had been made by the Land Registry, but it would not be unjust for the alteration of the Register not to be made and the rectification claim therefore failed.

An interesting point which was determined in the County Court was the effect of section 139(1) of the Law of Property Act 1925 (the “1925 Act”).  The Land Registry had relied on this section as part of the justification for migrating the UN1 from the old headlease title onto the new freehold title on merger.  S.139(1) provides that where the reversion is surrendered or merged, the incidents and obligations which existed prior to the merger would be preserved.

HHJ Gerald held that the starting point would be what incidents and obligations existed before the merger, which would have affected the lease being merged. Even where the identity of the landlord changes or the freehold has been merged with the headlease, the freeholder is bound by the same incidents and obligations as the headlessee.

However, the Judge found that the 1993 Act obligation to grant a new lease would not have affected the original reversion mentioned in section 139 i.e. the headleasehold interest if there had been no merger, because the headlessee was not the competent landlord as defined in s.40 of the 1993 Act. As such, there was no “incident or obligation” to carry forward to the freehold title. Moreover, section 139 only existed to preserve self-evidently existing “incidents and obligations” which could not be deemed to exist in the present case.

HHJ Gerald also found that the jurisdiction to rectify the registers for mistake extended to mistakes of law.  A cross-appeal by the Respondents on this point was not pursued.

Permission to Appeal

An application for permission to appeal to the High Court was determined by Fancourt J on 24 January 2019.  Giving his reasons, Fancourt J agreed with the Judge’s interpretation of s.139 LPA 1925, and held that in any event the merger could only take place after completion of the freehold transfer and therefore that the s.42 notice had ceased to have effect before the merger and before s.139 could operate.  Permission to appeal on those grounds was refused.

Fancourt J gave permission to appeal against the refusal of rectification of the Register.  By a respondent’s notice, the Respondents contended that even if rectification of the Register could be ordered, that would not give the court power to revive the s.42 notice because (unlike an estate contract) the notice itself ceased to have effect for all purposes for want of registration.

The High Court appeal

Hearing the appeal to the High Court, Snowden J took those issues in reverse order, considering first whether if it directed the rectification of the Register the Court had the power to make a consequential order that the Second Respondent was bound by the section 42 notice and secondly whether HHJ Gerald was wrong to find that it would not be unjust for the alteration not to be made.

Does the court have the power to make a consequential order?

The Respondents argued that the Court had no power under Schedule 4 of the 2002 Act to make an order binding the Second Respondent, as it would essentially “revive” the section 42 notice which had ceased to have effect as a result of section 29 of the 2002 Act. This argument was rejected by the High Court.

Relying on McLeod v Gold Harp [2015] 1 WLR 1249 (CA), Snowden J held at paragraph [33] that when deciding to grant rectification of the register, the court has the power to make ancillary orders to correct the consequences of a mistake. In doing so, Snowden J held that the Court has the power to change the priorities between interests in the Register.

The Respondents had sought to distinguish Gold Harp, as the case concerned leases which had continued to be valid at all times. By contrast, they said, the non-registration of a s.42 notice (or a s.13 notice) under the 1993 has the effect of extinguishing the section 42 notice completely.  They relied on the Court of Appeal’s decision in Curzon v Wolstenholme [2018] P&CR 9, whereby the freeholder of a block which was subject to an unprotected section 13 notice transferred his freehold interest to his wife, and then took a transfer back.  The result was that the section 13 notice ceased to have effect, even though the freeholder once again had title.  That, they argued, is different from the position where there is an estate contract, which would continue to bind the freeholder in those circumstances.

Snowden J found that Curzon was an “extreme case on the facts”, and that it did not apply to the facts of the present case because Curzon was not a case where there had been any mistake in relation to the section 13 notice.  Snowden J held at paragraph [43] that if Curzon had involved a mistake on the Register the Court would have had the power to alter it and make an order deeming section 19(3) of the 1993 Act to have operated on the transfers from husband to wife and back. With that being the case with regard to section 13 notices, Snowden J held that he saw no reason to reach a different conclusion with regard to section 42 notices.

Would it be unjust for the alteration not to be made?

Paragraphs 2 and 3 of Schedule 4 of the 2002 Act give the Court the power to rectify a mistake on the register where the proprietor of an estate has by fraud or lack of proper care caused or contributed to the mistake, or where it would be “unjust for an alteration not to be made”.

Snowden J approved the analysis by the Law Commission in its 2018 Report on Updating the Land Registration Act 2002 in which it said that the requirement in paragraph 3(2)(b) to show that it would be unjust to refuse rectification imposes a more demanding test than the requirement in paragraph 3(3) to show exceptional circumstances.

He also referred to its summary of the presumptions underlying the provisions as to rectification of the register: firstly, where the register can be rectified, it should be, and secondly, rectification is not to be ordered against a proprietor in possession of the land. This is on the basis that if the Court or the Registrar refuses to rectify the Register, the applicant may seek an indemnity.

It was common ground that by dint of s.131 of the 2002 Act, all the parties were either in possession or deemed to be in possession.  The Respondents as the freeholder and concurrent landlord in possession against whom rectification was sought were therefore entitled to the protection given by paragraph 3(2) in relation to the claim for rectification of their titles.

The Appellant contended that the test is simply whether it is unjust not to rectify and that this involves a weighing of all the facts. It should not start from the position of HHJ Gerald that non-registration alone is not enough.

The Appellant argued that the approach taken by HHJ Gerald was too extreme in following the decision in Wiggins v Regents Wealth Ltd [2015] 1 WLR 1188, which held that the purpose of the system of land registration served to “immunise” a subsequent purchaser from anything which was not registered. Whilst Snowden J was sympathetic to the argument, and thought that HHJ Gerald was “probably not right” to say that “the very purpose” of registration was to “immunise” a purchaser for valuable consideration from “anything”, he held that he did not need to make a decision on the point as it would not make a difference to the present case.

Whilst it was accepted that the Respondents were aware of the fact that there was a s.42 notice which was not protected by a UN1 on the title, the Respondents were not aware of the reason for non-registration.  They did not know that it was a result of a mistake by the Land Registry.  The bare fact of knowledge of an unprotected interest is not a factor upon which weight could have been placed on when determining the requirements of paragraph 3(2)(b).  However, Snowden J thought that HHJ Gerald “may not have been right if he meant to suggest that a proprietor’s knowledge of an unprotected interest, no matter how extensive, could never be relevant to any rectification case.”

The Appellant also argued that HHJ Gerald was wrong to discount the additional £1.8 million premium that the Appellant would have to pay to acquire a new lease under a second section 42 notice.  However, Snowden J held that the legislation contained no suggestion of how value might be taken into account in any assessment of whether it was unjust for rectification not to be granted.  Snowden J also considered it significant that the Appellant did not face losing her rights, because she retained the right to acquire a new lease (by a second s.42 notice) and her loss was simply financial.

The Judge rejected the notion that not granting rectification would result in the First Respondent receiving a windfall. He distinguished Sainsbury’s Supermarkets Ltd v Olympia Homes Ltd [2016] 1 P&CR 17, where the mistake had resulted in the registered proprietor potentially getting a windfall by being able to demand a payment which was never part of the agreement between the parties. In the present case, the issue of whether the Appellant was entitled to a new lease and the price to be paid for that new lease formed no part of the determination of the amount payable by the Second Respondent to Howard De Walden for the freehold; the two processes were completely separate procedures.

In the circumstances, Snowden J held that HHJ Gerald’s decision was correct; the Appellant had failed to show that it would be unjust not to rectify the Register and the appeal was dismissed.

Comment

The decision in Rees sheds some further light on an issue which has not been explored in great detail by the Courts. Whilst it may feel counter-intuitive that a clear mistake by the Registry which would cause the Appellant to have to pay an additional £1.8 million for a new lease should go unrectified, to have made a decision in favour of rectification on the particular facts would go beyond any existing authority and carry risks, including the risk of reintroducing concepts of actual notice into the Land Registration scheme.

With the Appellant potentially being able to make claims for an indemnity against the Land Registry for their initial wrongful rejection of her application, or in negligence against her former solicitors for not following this up, there was nothing to say that the Appellant would not be able to be compensated in a way in which the Respondents’ proprietary rights were not affected – particularly since they did not set out to exploit the error.

Snowden J’s decision that the court would have had the power to make a consequential order to revive a s.42 notice if it had ordered rectification of the Register takes the decision in Gold Harp a step further.  It will be interesting to see whether, and if so, how this jurisdiction is developed by the courts in subsequent cases.

The Appellant was represented by Christopher Heather Q.C. instructed by David Conway & Co

The Respondents were represented by Philip Rainey Q.C. instructed by Cripps Pemberton Greenish

A copy of the judgement can be found here.

(with thanks to Andrea Campos-Vigouroux for the assistance in preparing this article)

• Share