Priorities and overreaching

Priorities and overreaching are the machinery by which land law decides whether a right is merely valid between its creator and holder, or whether it binds a later purchaser, mortgagee or other disponee. By Week 3, the essential move is from classification to consequences. Week 1 asked whether a claimant has an estate, a legal interest, an equitable interest or merely a personal right. Week 2 introduced the registered-title system and the basic replacement of notice by registration. This week asks the harder question: when interests collide, which survives?

The topic has two principal halves. First, the priority rules in the Land Registration Act 2002. Section 28 states the default rule: a disposition of a registered estate or charge does not of itself affect priorities. Section 29 then creates the central exception: a registrable disposition of a registered estate made for valuable consideration, once completed by registration, takes priority over pre-existing interests whose priority was not protected. The language is technical but the idea is simple. Registration is not only a mirror of title; it is also a priority-filter. Those who protect their interests by entry on the register, or who fall within the narrow category of overriding interests, bind the purchaser. Those who do not may be postponed.

Secondly, overreaching under the Law of Property Act 1925 may remove certain equitable interests from the land altogether. Where capital money is paid to two trustees or a trust corporation, a beneficiary’s equitable interest under a trust of land is transferred from the land to the proceeds of sale. The purchaser receives the land free of that beneficial interest, even if the beneficiary is in occupation and even if the purchaser knows of the beneficiary’s claim. That result is striking, and often harsh. It is nevertheless central to the 1925 settlement: purchasers should not have to investigate family trusts behind conveyances by properly constituted trustees.

The exam importance of the topic lies in sequencing. Many weak Tripos scripts identify an overriding interest and stop. That may be fatal. The correct analysis asks: what is the right; when was it created; was there a registrable disposition for valuable consideration; was the right protected by notice, restriction or overriding status; and, separately, was it overreached by payment of capital money to the right people? Occupation and overreaching must not be conflated. Actual occupation may protect a beneficial interest against a purchaser; overreaching may destroy its proprietary attachment to the land before the priority question can assist it.

For Cambridge purposes, the topic also rewards policy analysis. The cases expose a recurring tension between transactional security and home protection. Williams & Glyn’s Bank v Boland made actual occupation an effective shield for unregistered beneficial interests. City of London Building Society v Flegg showed that overreaching may deprive that shield of practical value. Abbey National v Cann then limited the ability of purchasers to generate priority by a notional moment of occupation before completion. These cases are not isolated authorities but stages in the law’s attempt to discipline hidden equities within a register-based system.

The modern law of priorities can be understood only against the pre-1925 world of equitable doctrine, conveyancing investigation and the doctrine of notice. Before the 1925 legislation, the purchaser of land was required to inspect title and was vulnerable to equitable interests of which he had actual, constructive or imputed notice. Equity’s maxim that a bona fide purchaser for value of a legal estate without notice took free of prior equitable interests reflected a moralised conception of priority. The innocent purchaser was protected, but only if he lacked notice; the purchaser who knew, or ought to have known, of an earlier equity was bound. This regime made conveyancing laborious and uncertain. It also required courts to decide whether a purchaser ought to have made enquiries, and whether physical occupation put him on notice.

The 1925 property legislation sought to simplify this position. Two related but distinct devices were introduced. The first was registration or other formal protection of interests. The second was overreaching. Overreaching was not an incidental detail; it was one of the organising ideas of the 1925 settlement. The designers of the legislation accepted that equitable interests under settlements and trusts could not simply be abolished. Instead, they relocated many such interests from land to money when the land was sold by the proper persons. The purchaser’s concern became formal: have the statutory requirements for payment of capital money been satisfied? If so, the beneficiaries’ equities were shifted to the proceeds.

This arrangement reflects an important compromise. Beneficiaries keep their equitable proprietary value, but not necessarily an equitable claim against the land itself. Purchasers are protected from undisclosed family arrangements. Trustees are interposed as the persons with power to give a good receipt. The requirement of at least two trustees, or a trust corporation, is designed to provide a minimum safeguard against fraud or improvidence. It is not a guarantee that beneficiaries will in fact receive value. Flegg demonstrates that risk vividly: elderly contributors lost their claim against the land because the purchase money was paid to two trustees, notwithstanding occupation.

Registered land added another layer. Early registration statutes preserved overriding interests because the register could never be a perfect mirror. Short leases, rights of persons in occupation and certain easements could bind without entry. Under the Land Registration Act 1925, actual occupation protected rights under section 70(1)(g). Boland interpreted that provision robustly and held that a wife’s beneficial interest, coupled with actual occupation, bound the bank. That decision made lenders and conveyancers attentive to occupiers’ rights and to the need for enquiries, consents and postponements.

The Land Registration Act 2002 retained the broad architecture but tightened it. Its declared policy was to reduce the category of overriding interests and to make the register more complete, especially in anticipation of electronic conveyancing. The Act replaced the older terminology with Schedules 1 and 3 and introduced a clear priority rule in sections 28 and 29. It also made the timing of registration central: valuable registrable dispositions gain priority only on completion by registration. Yet the 2002 Act did not repeal the fundamental accommodation between registered title and equitable occupation. Nor did it displace overreaching. The result is a modern system in which title is principally register-based but not exclusively register-contained.

The historical lesson for supervision work is that the law is not a single principle. It is a layered settlement. Notice has been displaced but not wholly forgotten; occupation still matters, but only within statutory limits; equitable beneficial ownership is proprietary, but may be overreached; and registration gives priority, but only for certain dispositions and only against interests whose priority is not otherwise protected.

The first principle is the distinction between validity and priority. A right may be valid as between the original parties but fail against a later disponee. An equitable easement, restrictive covenant or beneficial interest under a trust may exist perfectly well before sale. The priority question asks whether that right binds the later acquirer of the registered estate or charge. In problem questions, begin with creation, then move to priority. Do not use the language of overriding interests to rescue a right which has not been validly created.

The second principle is the default rule in registered land. Section 28 of the Land Registration Act 2002 provides that, except as provided by sections 29 and 30, a disposition does not affect the priority of an interest. This is sometimes called the basic rule of temporal priority. Earlier interests normally prevail over later interests. But this rule is often less important in purchaser cases than the statutory exception.

The third principle is the section 29 exception. Where there is a registrable disposition of a registered estate made for valuable consideration, and it is completed by registration, the disponee’s interest takes priority over prior interests whose priority was not protected at the time of registration. The statutory elements must be kept separate. There must be a registrable disposition; a mere contract is not enough. It must be for valuable consideration; gifts do not obtain the same priority advantage. It must be completed by registration; before registration, the disponee may have only an equitable interest. Finally, the prior interest must lack protection. Protection may arise by notice, by registered charge, by falling within Schedule 3 as an overriding interest, or by appearing from the register to be excepted.

The fourth principle is that actual occupation is a priority mechanism, not a free-standing property right. A person in actual occupation may have an interest which overrides under Schedule 3 paragraph 2, but only if there is an underlying proprietary interest. A licensee in occupation ordinarily has no proprietary interest to protect. A beneficiary under a trust may have one. A person with an equity by estoppel may also have one if the equity has crystallised sufficiently. The question is not whether occupation is sympathetic, but whether it is occupation of a right-holder at the relevant time, coupled with an interest capable of binding.

The landmark cases are best read as a progression from occupation-based protection to the limiting effect of overreaching and transactional timing.

Williams & Glyn’s Bank v Boland is the foundational modern case. The husband was sole registered proprietor. His wife had made substantial contributions and had a beneficial interest under a trust. She was in actual occupation. The bank took a charge from the husband alone. Because there was only one trustee, the wife’s beneficial interest was not overreached. Her actual occupation brought her within the overriding-interest provision under the 1925 Act. The case is important not merely because a spouse defeated a bank, but because the House of Lords refused to confine actual occupation narrowly. The wife’s occupation as a wife in the matrimonial home was sufficient; she was not to be treated as occupying only through her husband.

City of London Building Society v Flegg is the counterpoint. The elderly parents contributed to the purchase price and lived in the property. The legal title was in the names of their daughter and son-in-law. Those two trustees mortgaged the property. The House of Lords held that the parents’ beneficial interests had been overreached when the mortgage money was paid to two trustees. Their occupation did not matter because there was no remaining equitable interest affecting the land. Flegg is the case which prevents Boland from becoming an absolute home-protection doctrine.

Abbey National Building Society v Cann adds the timing principle. The mother contributed to the purchase price and moved into the house around completion. The purchase was funded by a mortgage. The House of Lords held that there was no moment of priority in which the mother’s occupation could defeat the lender’s charge. Acquisition and mortgage were one indivisible transaction. Cann is frequently misused. It does not say that occupation can never arise on the day of completion; it says that a person cannot obtain priority over a purchase-money mortgage by relying on a notional instant between acquisition and charge.

State Bank of India v Sood is a useful reminder that actual occupation is fact-sensitive. Temporary absence does not necessarily defeat occupation, but the claimant must still show a continuing physical presence or sufficient indicia of occupation. Later cases under the 2002 Act continue to insist that actual occupation is not the same as legal entitlement, intention to occupy, or emotional attachment.

Mortgage Corporation v Shaire is doctrinally important because it shows the court’s response where overreaching fails. There was only one trustee, so the wife’s beneficial interest was not overreached. The court then had to determine priorities and the extent of the lender’s remedy. The decision also illustrates the more flexible post-Trusts of Land and Appointment of Trustees Act 1996 approach to orders for sale, though that belongs primarily to co-ownership.

Baker v Craggs demonstrates the continuing force of section 29. An unregistered transfer was vulnerable to a later registered disposition. The Court of Appeal emphasised that completion by registration can confer priority under the statutory scheme even where the earlier claimant has a strong equitable claim. The case is a salutary warning: in registered land, failure to complete registration may be disastrous.

Taken together, these cases show a system which is protective but disciplined. Occupation can bind; registration can postpone; overreaching can remove; and timing can defeat artificial priority claims.

See practice questions section below.

See further reading section below.