The Gazette of 31 March had a piece about chancel repair liability and the conveyancing process by Jennifer Slade, a senior lecturer in law at Northumbria University. It is academically grounded, and contains an interesting discussing of the topic, as well as sage practical advice, such as:
- Check the title deeds for any reference to or protection of the liability;
- If there is no such reference, consider if it is appropriate to perform a search and/or obtain insurance; and
- Keep track of any developments in the law or advice offered by the Law Society and HM Land Registry.
We should unreservedly endorse that advice. Unfortunately, however, we think it also has the potential to cause confusion both for conveyancers’ clients and their funders.
‘Arcane and unsatisfactory’
Chancel repair liability is certainly a difficult and complicated topic, but it should be remembered that there are no reports that anybody has bought land that was subject to the liability without having known about it. It came to the fore in the conveyancing process with the long series of litigation between the Parochial Church Council (PCC) of Aston Cantlow and Mr & Mrs Wallbank. In the words of Lord Nicholls of Birkenhead, it is ‘one of the more arcane and unsatisfactory areas of property law’.
At common law, the liability was simply legal and bound the owner of the land.
The 1925 property legislation made important changes to this position in relation to land that became the subject of compulsory first registration. First, registration with absolute title would vest in the proprietor an estate in fee simple in the land subject to the encumbrances and other entries in the title, such overriding interests as affected the land, and if the proprietor was not beneficially interested, such minor interests of which he had notice, but free from all other estates and interests whatsoever. (Section 5 of the Land Registration Act 1925, replacing section 7 of the Land Transfer Act 1875.)
If, from the title, the land appeared to be subject to chancel repair liability an entry would be made; if it did not so appear, any liability was protected as an overriding interest.
Transfers of registered land were also subject to overriding interests.
Land Registration Act 2002
The Land Registration Act 2002 made important further changes to the legislation, and separate provision for interests that override first registration (in schedule 1 of the LRA 2002) and those that override registered disposition (in schedule 3 to the LRA 2002).
One of the changes was that chancel repair liability lost its status as an overriding interest on 12 October 2013, though it continues to be classified as an interest in land.
The effect of first registration of a freehold estate with absolute title is now governed by section 11 of the LRA 2002. The estate is vested in the proprietor subject only to the following interests affecting the estate at the time of registration:
(a) interests which are the subject of an entry in the register in relation to the estate;
(b) unregistered interests which fall within any of the paragraphs of schedule 1; and
(c) interests acquired under the Limitation Act 1980 (chapter 58) of which the proprietor has notice.
If the proprietor is not entitled to the estate for his own benefit, or not entitled solely for his own benefit, then, as between himself and the persons beneficially entitled to the estate, the estate is vested in him subject to such of their interests as he has notice of.
If from the title the land appears to be subject to chancel repair liability, an entry will be made; if it does not so appear, any liability is not protected as an overriding interest, and the estate that is vested is not subject to the liability, unless it is the subject of an entry in the register. The only possible entry in the register is a caution against first registration.
The position with transfers of registered land is governed by section 29 of the LRA 2002.
(1) If a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration.
(2) For the purposes of subsection (1), the priority of an interest is protected: (a) in any case, if the interest – (i) is a registered charge or the subject of a notice in the register; (ii) falls within any of the paragraphs of schedule 3; or (iii) appears from the register to be excepted from the effect of registration, and […].
(3) Subsection (2)(a)(ii) does not apply to an interest which has been the subject of a notice in the register at any time since the coming into force of this section.
An interest that is not protected is postponed to the interest under the disposition – ex hypothesi the freehold estate itself.
Classically, a purchaser will have contracted to purchase Blackacre for an estate in fee simple absolute in possession subject to specified encumbrances and to overriding interests but otherwise free from encumbrances. He will have addressed the question of overriding interests in pre-contract enquiries.
Interest made
So what happens if an interest is made the subject of an entry in the register between exchange and the date for completion? The vendor contracted to sell free, but if the entry is not removed then he will be in breach of contract such that the purchaser is not required to complete the purchase, and is entitled to claim damages.
A purchaser who wanted to complete would nonetheless be well advised not simply to waive the vendor’s breach, but to stipulate for some reduction in price or other security as a condition of his being willing to complete.
The position is just the same with chancel repair liability as with any other matter that is made the subject of an entry in the register between exchange and completion: the vendor is at risk if he cannot get the entry off the title.
It would still be for the PCC to prove that the liability subsisted, and so a vendor could apply for cancellation of a notice, with the matter to be resolved before the Land Registration Division of the Property Chamber First-Tier Tribunal or the court.
Priority searches
As to priority searches, Ruoff & Roper (paragraph 30.009) explains that where a purchaser has applied for an official search with priority of an individual register or in relation to a pending first registration, and a third party then makes an application for an entry in the register, the registrar will defer dealing with the third party’s application until the end of the priority period.
This ensures that the purchaser’s subsequent application takes priority. Indeed, it may well be that the registrar makes no entry in respect of the third party’s application.
In such a context the PCC’s application for entry of a notice of chancel repair liability would not be dealt with until after registration of the purchaser, but that interest would have been postponed to the freehold, the interest under the disposition.
Jennifer Slade comments that the results might be these:
1. The PCC has lost priority against the buyer (and lender), but not against a future owner, and therefore the notice is a valid entry on the title.
2. The PCC has not lost priority, because it made its application before the operation of section 29; the processing of its application was simply delayed due to the official search. The notice on the title is valid and binding on the buyer, lender and future owners.
3. The PCC has lost priority against the buyer (and lender). However, it is uncertain whether this ‘cleans’ the title, and therefore prevents a PCC making a claim against a future owner or lender. It is also unclear whether it makes a difference if that future owner is a purchaser for valuable consideration or not. A notice is to be placed on the register until there is clarity regarding the legal position.
But these comments seem not to give full weight either to the words used in section 29, or to the processes of Land Registry. During the priority period conferred by a search with priority, the registrar will have deferred dealing with the PCC’s application, and on completion of the purchaser’s application the PCC’s interest will have been postponed to the interest under the disposition, the freehold free from this encumbrance.
Even if the registrar had not exercised his power to defer dealing with the application under section 72(5) of the LRA 2002, entry made during a priority period is ‘postponed to any entry made in pursuance of it’, thus to the interest under the disposition, the freehold – free from this encumbrance.
A purchaser who wanted to purchase Blackacre, whether or not there was any chancel repair liability (despite the fact that no liability appeared in the title), should consider whether the land is such that it could not be the subject of chancel repair liability (for example, land in the City of London, land at Clare in Suffolk, land that was vicarial land, land within section 52(1) of the Ecclesiastical Dilapidations Measure 1923 that has been sold after 14 July 1924, or land where the liability had been compounded under section 52(2) of the Ecclesiastical Dilapidations Measure 1923), and if it were such as could be subject to the liability then to seek insurance.
Land Registry does not consider the evidence for the subsistence of an interest that is the subject of a unilateral notice. It is for the applicant to consider that, subject to his duty to act reasonably under section 77 of LRA 2002, and his liability in damages if he does not act reasonably, as well as to the risk of costs before the court or the tribunal.
Similarly, it is for the owner of the land subject to a unilateral notice to consider the quality of the applicant’s evidence to his claim to have an interest that may be the subject of a unilateral notice.
We agree with the Gazette author in thinking that there would have been more obvious ways in which the legislation might have dealt with the effect of a purchase after 12 October 2013, and with priorities – the 1925 legislation was clearer. But we do not agree that there are the substantive problems at which the author hints.
Completion of a purchase post-12 October 2013 where there is no notice in the title is completion where the estate is free of chancel repair liability; and an application for the entry of a note of chancel repair liability during a priority period will not leave the estate subject to the liability after completion of an application to register a purchase where the application was made during the priority period.
Despite this, for some purchasers, the determining factor will be the approach taken by their funders. In the current climate this is likely to be risk-averse. It is a source of frustration that the Council of Mortgage Lenders still does not issue clear guidance on the subject, instead stating in its handbook that ‘you may wish to refer to the Law Society’s Handbook on the issue’.
That handbook does little more than suggest that ‘insurance may be considered as an option following the results of a search, or as an alternative to searching’.
In the short- to medium-term, solicitors and other conveyancers may still find themselves carrying out searches and effecting insurance in order to meet the requirements of funders.
Laurence Target is a senior associate, and Andrew Williams a professional support lawyer in the commercial property department at Trowers & Hamlins
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