Separate but equal

This article provides a general overview of the protection of third party interests on relationship breakdown. By third party interests, we mean an interest in favour of someone other than the owner of the affected property. These interests may take various forms. However, in the context of relationship breakdown, such interests usually relate to a non-owning party’s claimed beneficial interest in the property (perhaps arising under a trust of some description), or a statutory right of occupation arising under the Family Law Act 1996.

This article covers how the interests of spouses or civil partners may be protected where the property in question is registered with Land Registry. This paper does not deal with the position relating to cohabitees.

The basics

The Land Registration Act 2002 (LRA 2002) provides for two types of entry that may be made in the register of title for the protection of third party interests: notices (under section 32); and restrictions (under section 40). Before a non-owning party may apply for either to be entered in the register of title, it is necessary for them to demonstrate two things: that they have an interest in the property; and how that interest arose.

This requirement often causes some confusion, as there may initially appear to be irreconcilable differences between property law, the statutory provisions governing registered land, and the law and practice relating to financial remedies in relationship breakdown.

A party may be entitled to a share of the matrimonial / civil partnership assets following relationship breakdown, with the courts having wide discretionary powers (under the Matrimonial Causes Act 1973 or the Civil Partnership Act 2004). However, rights accruing upon the dissolution of a marriage / civil partnership, with the exception of those under the Family Law Act 1996 (FLA 1996), are not in play here, as we are primarily concerned with matters of property law.

Practitioners often lodge applications to ‘protect their client’s position’, perhaps pending the outcome of mediation

To find out more about protecting third party interests, see Land Registry Practice Guide 19, available from the Land Registry website. (www.landregistry.gov.uk)

Protecting a claimed interest

It is often the case when lodging applications with Land Registry that an applicant will simply state that their client has an interest in the property by virtue of the fact that they are the spouse or civil partner of the registered proprietor, and that the property forms part of the wider assets of the marriage / civil partnership. However, their status as spouse or civil partner does not automatically mean that they acquire an interest in the property.

Practitioners realising the importance of protecting their client’s interest in a property, and concerned that the other party may dispose of this to defeat a claim, often lodge applications to ‘protect their client’s position’, perhaps pending the outcome of mediation, without first considering what form of independent interest their client may have in the property, how it has arisen, and if it can be protected by an entry in the register.

There are two options for protecting a claimed interest: notices and restrictions.

Notices

A notice is an entry in the register in respect of the burden of an interest affecting the registered title.

A person who claims to be entitled to the benefit of an interest affecting the registered title may apply for the entry in the register of a notice in respect of that interest (section 34 of the LRA 2002). The application may be for either an agreed notice or a unilateral notice.

In the absence of the registered proprietor’s consent, an agreed notice can be entered in the register of title only if the registrar is satisfied as to the validity of the applicant’s claim. Such applications are generally supported by evidence, such as a copy of the order or instrument giving rise to the interest claimed.

However, the registrar does not have to be satisfied as to the validity of an interest that is to be protected by a unilateral notice. An applicant does not, therefore, have to lodge any evidence in support of the claim, but must nevertheless describe the nature of their interest, so that the registrar can be satisfied that it is one that may be protected by a notice.

The effect of a notice is very limited, as it does not guarantee that the interest it protects is valid, or even that it exists. However, once entered in the register, a notice will protect the priority of that interest. Basically, this means that a subsequent purchaser or mortgagee will take the property subject to the interest whose priority is protected by the notice.

Applications for an agreed notice are made using Land Registry application form AN1. Applications for a unilateral notice are made using form UN1.

However, the entry of a notice will not be appropriate in all cases. Section 33 of the LRA 2002 lists a number of interests that cannot be protected by the entry of a notice. These include an interest under a trust of land (such as a claim to a beneficial share in the property). Claims of this nature may be protected by the entry of a restriction.

Restrictions

In general terms, a restriction is an entry in the register that regulates the power of a registered proprietor to deal with or dispose of the property. A restriction ensures that a prior condition must be met before a disposition, or a certain type of disposition, can be registered. Restrictions can be, and usually are, used to protect interests under a trust by ensuring that the overreaching requirements are met on a disposition of the property.

Applications for the entry of a restriction are made using Land Registry application form RX1. There are two types of restrictions: standard and non-standard.

Standard restrictions are those that follow one of the forms set out in schedule 4 to the Land Registration Rules 2003. These standard restrictions are intended to cover the vast majority of situations where a restriction is required. Each standard form of restriction is identified by either one or two letters of the alphabet – for example, form A, form N or form II.

All other forms of restriction are classed as non-standard. The registrar will approve an application for the entry of a non-standard restriction only if satisfied that the terms are reasonable and do not place an unreasonable burden on the registrar.

In the absence of the registered proprietor’s consent, a restriction will be entered in the register only if the applicant can demonstrate that they have a sufficient interest in the making of the entry.

An applicant will therefore need to set out in the application the nature of their interest and how it arose, using either panel 12 or 13 of form RX1. If the interest arises from a document, such as a court order or trust deed, a certified copy should accompany the application.

Case studies

The following are examples of third party interests that may arise in the context of relationship breakdown, and how they might be protected.

Home rights

The FLA 1996 confers on a non-owning spouse or civil partner a right to occupy the matrimonial / civil partnership home. This right of occupation constitutes a charge over the property that can be protected in the register of title by way of a notice.

This type of interest is always protected by the use of an agreed notice. However, the application must be made using Land Registry application form HR1 (rather than form AN1 or UN1).

Financial remedy proceedings

One class of interests that could be protected by the use of a notice are those known as pending land actions (within the meaning of the Land Charges Act 1972). In brief, a pending land action is an application to the court claiming a proprietary interest in land. Applications for a property adjustment order affecting registered property in financial remedy proceedings would fall within this definition, and be capable of protection by the use of a notice. The application to Land Registry may be made immediately after the application for the property adjustment order has been filed with the court.

An application could be made to enter either an agreed or a unilateral notice in respect of the proceedings.

An application to enter an agreed notice must be accompanied by a copy of the court application, which would then be open to public inspection (under section 66 of the LRA 2002). In view of this, it might sometimes be considered more appropriate to apply for the entry of a unilateral notice.

An application to enter a unilateral notice must contain either a statement or certificate in panels 11 or 12 of form UN1, with sufficient information to satisfy the registrar that the claim to be noted is a pending land action. The statement could read something like this: ‘The claimant in a financial remedy application in the Bristol District Registry of the High Court for a property adjustment order against the legal estate in the property (Court Reference BS351234).’

However, should the action before the court consist merely of a claim to an interest under a trust of land, then it would be possible to apply only for the entry of a restriction.

Interests under a trust of land

If one spouse or civil partner is registered as the sole proprietor of the property, and the other party is entitled to a beneficial share, then the spouse or civil partner who is the sole legal owner will hold the property on a trust of land.

In such circumstances, the non-owning party could only protect their interest by the entry of a restriction. An application may be made for the entry of a restriction in standard Form A, or standard Form II; the latter would ensure that written notice of a disposition is given to a named person before registration of that disposition.

It is important to understand that neither of these restrictions would prevent a disposition of the property, as the purpose of a form A restriction is to ensure that, on any sale or disposition of the property, the beneficial interests are overreached (by payment of capital money to two trustees or a trust corporation). The only purpose of a form II restriction is to ensure that the non-owning party is given notice of the disposition.

In the absence of a formal declaration of trust dealing with the beneficial interests, it would be necessary to establish that there is an implied, resulting or constructive trust, by reason of some agreement or contribution to the acquisition and / or maintenance of the property.

In the likely event of the registered proprietor failing to co-operate, the applicant must satisfy the registrar that they have a sufficient interest in the making of the entry, by providing details of how the beneficial interest under the trust of land has arisen, if the application is to proceed.