Land Registry Principles

Priorities

Priorities refer to the respective rights of parties who have each been granted conflicting rights or interests in the same property. Rules on priorities determine whether one interest or right is superior to the other and accordingly that the latter yields to it. In extreme cases, which may involve fraud on the part of the vendor, priority issues determine which purchaser takes precedence.

Priorities are of importance the context of security.  A secured lender generally requires a first ranking mortgage.  Priorities determine which mortgagee is entitled to the proceeds of a sale of the property on realisation. Lower ranking mortgages yield to earlier mortgages.

Priority issues arise in relation to the creation of subsidiary interests in land such as leases and easements. They may bind the person who has granted them, but may not bind others whose interest has priority.  For example, where a lease is created after a mortgage has been granted, without the consent of the mortgagee, it is likely to be binding on the mortgagor, but not on the mortgagee.  In this case, the matter of priority would become critical if the mortgagee enforces its rights.

The basic principles of the law on priorities, is that as between competing deeds, the first in time prevails.  There are a number of significant modifications of this basic principle. Under the doctrine of notice, a later purchaser of the legal interest in interest who does not have actual or constructive (deemed) notice of the earlier equitable interests, takes priority over them.

The systems of registration of deeds and land (title) registration have further modified the above principles. In the case of the Registry of Deeds, a later purchaser is deemed aware of earlier deeds which are registered.  In the case of Land Registry, the rules have been entirely modified so that a purchaser for value who first registers, usually takes priority over all interests, other than interests that bind land without registration. Registration largely determines the position, irrespective of notice.

Legal Interests

A legal interest is an interest which has been established or transferred in accordance with the law applicable to it.  In the case of unregistered title, a legal interest arises and is transferred by conveyance from a legal owner of the full legal estate by deed. Registration of the deed is desirable so that it does not lose priority, but non-registration does not impair its validity as a legal interest.

An interest may not be a legal interest if the transferor did not have a full legal title.  In this case, the legal interest may reside with the third party. However, for pragmatic and historical reasons, a deed transferring the legal title, of sufficient vintage is deemed a sufficient root or basis of title on a sale or in legal proceedings, provided that it has formed the basis of later undisturbed enjoyment of the property. Most interests adverse to it would have been barred by the passage of time so that even if flawed, it is likely that the deed retrospectively becomes a sufficient basis of ownership.

In the case of registered title, the register itself is the State guaranteed foundation of ownership. The vesting of the legal interest in the registered title requires registration in the Land Registry. Until, there is an equitable interest, which is capable of being impaired or defeated by prior registration of another transfer or disposition for value, unless and then only for such time that it is protected by a priority search.

The doctrine of notice applies most pointedly where a person purchases a legal interest without notice of prior equitable interest.  In this case, a bona fide purchaser of the legal estate without notice takes free of prior equitable interest or equity. Equitable interests are typically unperfected interests such as an uncompleted or completed contract for the purchase of land and rights under trusts.

Equities

There are categories of mere equity.  These are rights to have transactions rectified, set aside, rights of tracing, and other rights which may be asserted by equitable remedy against the relevant party.  They do not give an estate in the land in themselves but are a mere right to take equitable proceedings.  Mere equities have a lower status than equitable interests and may be defeated by a party who acquires the equitable interest for value and without notice, at least in Ireland.

The Conveyancing legislation provides that a purchaser is not prejudicially affected by notice of an instrument fact or thing, unless he is aware of it or would have been aware of it if he had made such enquires or inspections as ought reasonably to have been made. Equally, the instrument, fact or thing must not come to the attention of his agent (in particular his solicitor / legal advisor) be such as would have come to that party’s attention had he made such enquiries as he ought reasonably to have made.

The above provision is subject to a new principle of overreaching, which applies to sales by certain trustees of land. With limited exceptions, a sale of the legal interest by two trustees of land or by a trust corporation, of land held under a trust of land, gives title to a purchaser for value, free from other interests (with limited exceptions) even where the purchaser has notice of them. The older rules apply in cases where there is not a trust of land with two trustees and are discussed below.

Notice and Duty to Investigate

Actual notice need not be arise from the same transaction.  If the buyer is actually aware of a third-party’s equitable interest, he buys subject to it.  It does not matter how he acquired the knowledge.  Mere rumour is not knowledge for this purpose.  It must be something more tangible.

Constructive notice is a basic principle of the conveyancing process.  The purchaser is deemed aware of that which would have come to his, his solicitor’s or other advisor’s notice or attention in the transaction, if had he made the proper enquiries, regardless of whether he in facts makes those enquiries or investigations. In effect, he is bound to make the usual enquiries and investigations, as he risks being bound by what he would have discovered.

Where a buyer or his advisor become aware of certain facts or circumstances which suggest the existence of other relevant facts or circumstances, the enquiries must be followed up and pursued in so far as reasonable.  If he or they refrain from undertaking the further reasonable investigations which should have been made he will be bound by the interests and rights he would have discovered.

Interests of Occupiers

A buyer is bound by matters which are apparent from inspection.  He purchases,  subject to the rights of persons in actual occupation of the property.  A buyer must also investigate the possible rights of such persons. This common law principle applies to unregistered title land. Such rights affect registered land without registration. They affect a purchaser from a single trustee of land, in the case of both registered and unregistered title.

Actual occupation requires some degree of permanence and continuity:  The degree of physical presence required depends on the nature of the land. Occupation by a representative may be enough   The occupation need not be inconsistent with the title of the vendor A person receiving long-term residential medical care may still be deemed in actual occupation: Shorter stays in hospital may be treated in the same manner.

The principle of notice applies under the Family Home Protection Act.  Where there is a spouse whose consent is required to the sale of the family home, the consent of that spouse must be obtained, if the buyer is on actual or constructive notice that the property is a family home.  The principle also applies to transfers which seek to avoid the respective rights of spouses and children in the context of judicial separation, divorce and family maintenance.

Where it becomes apparent that the sellers are trustees, the buyer is obliged to vouch that the trustees have powers of sale in the instrument creating the trust.

The principle of notice applies to purchasers, mortgagees and other parties acquiring an interest in the property. Such parties may only take free of earlier equitable interests and equities provided that they are purchasers for value of the legal interest without actual or constructive notice of the equitable interest.  They must give “valuable consideration, which need not necessarily be the full market value. There must be a payment of substantial value.  A mere gift is not sufficient.

The buyer, mortgagee or other transferees must be “a bona fide purchaser for value”. This means that he must have actual or constructive notice of an inconsistent earlier equitable right held by a third party. He must acquire the legal estate.

In Ireland, the bona fide purchaser for value of an equitable estate (as well as the legal estate), takes free of mere equities, of which he has no notice.  A mere equity is a right to take legal proceedings, which does not give an equitable interest in the land.  It may be a right to have a deed set aside or corrected etc.  A person who acquires an equitable interest for value (such as an equitable mortgage) takes priority over the rights of a person with a mere equity, in the property such as the rights of a person asserting a right to set aside a deed or to trace funds, which has been misappropriated.

Competing Interests I

The following general principles apply to the issue of priority between competing interests in the same property.   As between two legal estates or interests, the first in time prevails. This is based on the principle of equity that where the equities are equal, the first in time prevails.

However, the second might gain priority if there are unequal considerations between the competing parties.  If one party is involved in fraud or is grossly negligent, the other who might otherwise rank later may rank in priority. In this case, the entities are not equal.

The same principles apply between the holder of two equitable estates or interests. Generally, the first in time prevails.  If the prior owner is guilty of fraud or gross negligence, the second will prevail.

As between a legal and equitable estate, the earlier legal estate has priority over the equitable estate, being first in time. Where the earlier estate is an equitable estate and the later estate is a legal estate, the bona fide purchaser for value of the legal estate prevails in accordance with the above principles.

Similarly, a bona fide purchaser of the equitable estate prevails over the rights of mere equity where he does not have notice of it.

The holder of a prior holder of the legal estate or a legal mortgagee may lose priority even against the holder of a later equitable estate or interest if he has engaged in fraud or gross negligence. The onus of proof is on the later equitable mortgagee, who seeks to displace the normal order of priority.

There may be gross negligence where the first mortgagee allows the mortgagor to retain the deeds so that he can create an equitable mortgage by deposit.  Similarly, if the mortgagee holds the deeds but releases them to the mortgagor without good reason, a subsequent mortgagee may obtain priority, depend on whether in the circumstances, the first mortgagor has committed fraud or gross negligence.

Competing Interests II

As between two equitable interests whether purchasers or mortgagees, the general principle is that the first in time prevails.  Where the equities are equal, the first in time prevails in accordance with equitable principles.  However, the earlier party may lose priority if he is guilty of fraud or gross negligence.

A prior holder of the legal estate (such as a purchaser or mortgagee) may lose priority if he is estopped as against the holder of a later estate or interest, from denying priority.

There is an overriding principle which has been upheld in Ireland. Where a person incurs salvage payments; he may obtain priority over the holder of all other interests.  The payments must be in respect of the property and must have the effect of saving it from loss for the benefit of all parties.

The payment must be made by a person with an interest or right in the property, it must be done so voluntarily and not under a duty.  Salvage payments save the property for the benefit of all parties. It proceeds on the basis that it is equitable that the expenditure has priority.

Where a mortgagee is under an obligation to make further advances, he can tack these on to a later mortgagee.  They take priority notwithstanding that they exceed the amount of money owing on the date of notice of the subsequent mortgagee.

A prior mortgagee may retain security for future advances, unless and until he has actual notice of a later mortgagee.  Registration in the Registry of Deeds is not notice unless it comes to the mortgagee’s actual attention.  The same principle is reflected in the Registration of Title legislation.

The holder of an equitable interest may be the right to have the transaction enforced or completes against the owner/grantor under equitable principles. It may be the entitlement to complete and perfect the transaction by registration in the Land Registry.