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Rectification of the Register – Restoring AND Prioritising

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15/10/2014

A recent Court of Appeal decision has clarified the scope of the court’s powers to rectify the register and in particular whether rectification can deal with priority. In Gold Harp Properties Ltd v Macleod and others [1] the court held that the judge was entitled to not only restore an interest that was removed from the register by mistake, but also to give it priority to an interest which had been registered since the mistake.

Paragraph 8 of Schedule 4 of the Land Registration Act 2002 (the LRA) states that the powers of the court are “to alter the register, so far as relating to rectification, extend to changing for the future the priority of any interest affecting the registered estate or charge concerned”.

In the past, there has been a lack of clarity as to the interpretation of paragraph 8 – whether the court is limited to rectifying an interest by putting it back on the register, or whether it can also deal with its priority, so that if an interest was registered in the intervening period between the mistake and the rectification, could the court dictate that the restored interest took priority to the intervening interest?

Facts

J had leasehold titles in the top floor space and R the lower floor space of a residential property. With the intention of developing the entire property, R’s son then acquired the freehold of the entire property and, when J failed to pay ground rent, took the opportunity to forfeit the leases of the top floor. Ignorant of the steps R was taking, J sent the ground rent cheque one week later, which R did not cash. Instead R’s son sought closure of J’s leasehold titles on the basis that the leases had been forfeit. As a result J’s leasehold titles were closed at the Land Registry. R’s son re-let the top floor to, ultimately, company G, owned and controlled by a business associate of R.

Having discovered that their leasehold titles had been closed, J sought relief from forfeiture and damages for trespass together with rectification of the register. The judge at first instance held that J’s leases had not been terminated effectively and ordered that J’s title numbers be reinstated with immediate effect and that they rank in priority to G’s lease.

On appeal, G argued that, because its interest, which was registered prior to rectification of the register, would otherwise have had priority, the court could not alter the priorities. As G’s priority already existed, it argued that the Court’s alteration did not accord with paragraph 8’s requirement of “changing for the future” (emphasis added).

The Court of Appeal dismissed G’s appeal. It confirmed that paragraph 8 did not limit the court or the registrar to restoring an interest only, but it extended to the court or registrar changing what would otherwise be the priority between the parties. In other words, paragraph 8 extends to the court the power to give the party the priority which it should have had but for the mistake. To restrict paragraph 8 to restoration powers only would defeat its purpose to correct mistakes and also the consequences of those mistakes, and would not address the very issues which paragraph 8 was intended to address.

Comment

It is well known that the system of land registration only provides for qualified indefeasibility of registered title. This case has cleared up the ambiguity concerning the court’s powers to restore an interest to the register and clarified how far rectification of an error caused by the mistake extends.

Whilst third parties should be able to rely on the register in good faith, the Court of Appeal’s decision is a sensible interpretation of paragraph 8, and it should always be borne in mind that rectification can occur and prejudice their interests. Schedule 8 of the LRA, however, provides for indemnity in those circumstances.

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[1] [2014] EWCA Civ 1084