Knight v Fernley & Anor

An unregistered transfer of part of a registered title gives the transferee an equitable interest only in the land identified by the transfer. A person in actual occupation may have an overriding interest, but that interest can nevertheless be overreached where the registered estate is conveyed by two trustees and the purchase money is paid to them. The adequacy of the consideration is irrelevant to overreaching.

Where parties mistakenly identify the land comprised in a registered title, the mistake does not necessarily make the disposition void. If alteration of the register would prejudice the registered proprietor’s title, the proper route is ordinarily rectification under Schedule 4 to the Land Registration Act 2002, subject to paragraph 3.

The claimant purchased Plot 1 in a development but her solicitors failed to register the transfer. She therefore acquired an equitable interest and occupied the plot. The developers later transferred the whole registered title, which comprised Plot 1 and an adjoining off-cut known as Plot A, to the defendants. Both parties believed that the title comprised only Plot A, and the defendants paid £2,500.

The defendants became registered proprietors. The claimant sought alteration of the register and a declaration of ownership. The County Court held that her overriding interest had been overreached and that the transfer was not void for mistake. On appeal, the issues were whether the interest had been overreached and whether the register should be altered without treating the claim as one for rectification.

1. Overriding interest. The claimant had an equitable interest in Plot 1, coupled with actual occupation. It was therefore an interest capable of overriding the defendants’ registered disposition under section 29 and paragraph 2 of Schedule 3 to the Land Registration Act 2002.
2. Overreaching. The transfer was of the legal estate comprised in Title Number WT157289, not merely Plot A. The developers were two trustees of land. The disposition was therefore capable of overreaching the claimant’s equitable interest independently of section 2(2) of the Law of Property Act 1925, and the requirements concerning payment of capital money to two trustees were satisfied. Applying City of London Building Society v Flegg [1988] AC 54, the interest was transferred to the purchase money.
3. The very low consideration did not prevent overreaching. The legislation contains no adequacy requirement, and allowing adequacy to be examined would undermine the security of registered title. The claimant’s remedy for an undervalue lay against the trustees.
4. The claimant’s reliance on an estate contract under section 2(3)(iv) of the 1925 Act was misplaced. That exception concerned overreaching under section 2(2), whereas the present case involved overreaching independently of that subsection. Baker v Craggs [2016] EWHC 3250 (Ch) and [2018] EWCA Civ 1126 were distinguishable.
5. Mistake and rectification. The parties intended to transfer the legal estate identified by the title number. Their shared misunderstanding of what land that title comprised did not go to the terms of the transaction and was not a common mistake rendering the disposition void. The appeal grounds based on voidness therefore failed.
6. The claimant had expressly excluded rectification from her pleaded case. Since substituting her as proprietor would prejudice the defendants’ title, the claim was properly characterised as one for rectification. The claimant was invited to amend her pleading and pursue that issue under paragraph 3(2) of Schedule 4. If she did not do so, the appeal was dismissed. The court made no determination on whether rectification would ultimately succeed.

• High Court (Chancery Division): The appeal from the County Court at Bristol was dismissed on the pleaded grounds. The claimant was invited to apply to amend her claim to seek rectification under Schedule 4 to the Land Registration Act 2002.
• County Court at Bristol: Mr Recorder Hyam QC refused alteration of the proprietorship register and declaratory relief by order dated 19 March 2020, holding that the claimant’s overriding interest had been overreached and that the transfer was not void for mistake.