Gold Harp Properties v MacLeod [2015] 1 WLR 124

Key point

  • Under Para 8 Schedule 4 Land Registration Act 2002, the power of rectification can change the priority of interests with retrospective effect – it postpones an interest created between the corrected mistake and the date of rectification

Facts

  • The claimants (Cs) were tenants of two flats on the top floor of a building
  • The landlord successfully applied to the land registry to have their leases (to be referred to collectively as L1) removed on the basis that they were forfeited
  • The top floor was then entirely leased to Gold Harp (D) and the lease (L2) was registered
  • Cs successfully sought the rectification of the registry as the leases had not been effectively terminated, the judge’s order gave L1 priority to L2
  • D appealed on the basis that L2 should have priority to L1 as it had been registered before L2 was reinstated

Issue

  • Para 8 of Schedule 4 Land Registration Act 2002 (‘LRA 2002’) provides that the power to rectify the register extends to changing ‘for the future’ the priority of any interest affecting the registered estate concerned
  • Does the power to rectify extend to postponing priority of an interest that is registered before the rectification?

Held (Court of Appeal)

  • Appeal dismissed; L1 should have priority to L2
  • Para 8 of Schedule 4 LRA 2002 gives the courts the power to postpone the priority of L2

Underhill LJ

Scope of power to rectify under Schedule 4

  • He referred to:
    • Interest A: mistakenly removed from the register and subsequently corrected by reinstatement
    • Interest B: created between the mistaken removal and date of rectification
  • Under Para 8 the courts have the power of not just restoring an interest A to the register but changing the priority as between A and B: [93]
  • The words ‘for the future’ does not mean rectification cannot change the priority between A and B; the only priorities that could be changed are necessarily interests that have already been created: [94]
  • Furthermore, if the priority between A and B could not be changed, A would in many cases become valueless, as in the present case: [95]

What then does the words ‘for the future’ mean?

  • The owner of the reinstated interest can exercise his rights to the exclusion of competing interests from the moment that the order is made but cannot be treated as having been entitled to do so before the order
  • This means, while Cs have the right to occupy after the order of rectification, before rectification they had no such right and could not claim profits from occupation from D

Commentary

  • Underhill LJ’s analysis differs from some prominent authors including Megarry and Wade, who argued that rectification has only prospective effect and thus cannot change the priority of interests created before the rectification was ordered
  • The main argument advanced for such a construction is that it protects the integrity or indefeasibility of the register, or in other words, it ensures the register accurately reflects the interests in the property it concerns
  • Underhill LJ acknowledged this argument but stated at [98] and [99] that the LRA was not intended to provide absolute indefeasibility and rectification can have the potential to prejudice the interests of third parties who have relied on the register – Para 2 and 3 of Schedule 4 and the right to an indemnity in Schedule 8 allow a fair balance to be struck between competing interests