562 Property Law

15.4.6. Interests of persons in actual occupation: the 2002 Act

The interests of persons in actual occupation are overriding interests under the 2002 Act as well, but the definition is different in several significant respects. The new definition, which appears in paragraph 2 of Schedule 3 to the 2002 Act, is (in so far as relevant here) as follows:

I N T E R E S T S O F P E R S O N S I N A C T U A L O C C U P A T I O N

2. An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for –

. . .

(b)an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so;

(c)an interest –

i.which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and

ii.of which the person to whom the disposition is made does not have actual knowledge at that time; . . .

15.4.6.1. Causal link between interest and occupation

The first point to make about this is that there is nothing to suggest that ‘interest’ is intended to mean anything different from what ‘right’ meant under section 70(1)(g) of the 1925 Act, and so consequently it is still not necessary for there to be any causal link between the interest and the occupation.

15.4.6.2. Meaning of ‘actual occupation’

Equally, there is nothing to suggest that ‘actual occupation’ is intended to bear a different meaning from that which it bore in section 70(1)(g) of the 1925 Act. If it does indeed mean the same, the old cases on what constitutes actual possession will therefore continue to be relevant. The paragraph is worded in such a way that ‘actual occupation’ appears to operate as a threshold test. In other words, a person claiming an overriding interest under this heading must first satisfy the court that she is in actual occupation within the meaning adopted in the old cases, before it can be established whether she is disqualified by paragraph 2(b) or (c) of Schedule 3.

15.4.6.3. The ‘notice’ element

By far the most important change is the qualification introduced by paragraph 2(c), which makes it explicit that actual occupation confers overriding status on interests only where the occupation would have been ‘obvious’ on a reasonably careful inspection of the land. The same criticisms can be made of this as are made in section 15.4.4 above in relation to the similar qualification of the easement and profit overriding interest category. By introducing what amounts to a ‘notice’

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qualification, the 2002 Act compounds the conceptual confusion as to the justifications for having an overriding interest class in the first place, and then makes matters worse by adopting an idiosyncratic notion of what constitutes notice, which is not obviously better than the traditional one.

There are other problems with the wording. Under paragraph 2(c)(i), it is the occupation, and not the interest, that has to be obvious. That means that, if a reasonably careful inspection would have thrown up clues as to the existence of the interest, but not as to the occupation (as could be said to have happened in Kingsnorth Trust Ltd v. Tizard, discussed in section 14.3.1 above), the interest will not be overriding.

Also, the timing of the ‘reasonable inspection’ is odd. The intention is surely that the purchaser/mortgagee should not be bound by an interest that he would not have discovered if he had made a reasonably careful inspection at a time when it is reasonable to expect him to make an inspection. If you are buying or taking security over land, the reasonable time to make an inspection is when there is still time for you to withdraw if there turns out to be something about the land that makes you decide not to proceed, or at least to renegotiate the terms. The ‘time of the disposition’ (i.e. the time when your purchase or mortgage is completed) is leaving it hopelessly late. Also, on this wording, if the title holder hides all traces of the interest holder’s occupation at the sensible time (i.e. the time when you – reasonably – do in fact make your inspection) but puts everything back by the date of the disposition, you will take subject to the interest – which is presumably not what was intended.

15.4.6.4. Can minors be in actual occupation?

There are other changes worth noting. The unnecessary ‘save where enquiry is made’ proviso in section 70(1)(g) (unnecessary because only confirming what would anyway be the case under the general law) is retained but qualified so that it applies only to someone who fails to disclose his interest ‘when he could reasonably have been expected to do so’. Enquiries of occupying interest holders are so rarely made in practice that this seems hardly worth saying. However, it may serve to provide another ground for challenging the already dubious decision of the Court of Appeal in Hypo-Mortgage Services Ltd v. Robinson [1997] 2 FLR 71, where it was held that a minor could not be in actual occupation under section 70(1)(g) of the 1925 Act. The reasons given were first, that minor children of a legal title holder ‘are only there as shadows of occupation of their parents’ (a concept flatly rejected by the House of Lords in Boland), and, secondly, that minors could not have been intended to have been included because ‘no enquiry can be made’ of them ‘in the manner contemplated by that provision’ (presumably because they would be too young to understand, or to take responsibility for their reply). Since the provision now contemplates that there may be circumstances when an interest holder could be asked but it would not be reasonable to expect him to give an accurate response, this ground for the decision also disappears. However, if the intention of the 2002

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Act was to allow the interests of minors to be overriding, this is a very oblique way of doing it.

15.4.6.5. Occupation of part

The opening words of paragraph 2 reverse the effect of the decision of the Court of Appeal in Ferrishurst Ltd v. Wallcite Ltd [1999] 1 EGLR 85, where it was held that a person has an overriding interest over the whole of the land to which his interest relates, even if he is in actual occupation of only part of it. The decision attracted some criticism, and, as Robert Walker LJ accepted in the case itself, it could lead to anomalous results:

[Counsel for the purchaser] suggested the example of a tenant of a small flat in the Barbican in the City of London who happened to have an option to purchase the freehold reversion to the entire Barbican estate, neither the lease nor the option being noted against the freehold title. That would, he suggested, mean that so long as he was in actual occupation of his flat, his option would bind a purchaser of the freehold of the entire estate; and also, he suggested, any tenant who subsequently took a lease of another flat in the Barbican.

The example is rather far-fetched but it still merits consideration. A purchaser of the entire Barbican estate would undoubtedly be advised by his solicitors that he should before completion make inquiries of every person who appeared to be in actual occupation of any part of the estate. Whether he would follow that advice to the letter would be up to the purchaser. He might prefer to rely on his rights against the vendor, who would presumably not be impecunious.

However, the reversal of the rule brings its own difficulties. As a result of the 2002 Act, the interest of the person in occupation will be enforceable against a purchaser only in respect of the part of the land the interest holder occupies, not in respect of the rest of it. Ascertaining precisely how much of a title is occupied is easy enough when the occupation is clearly confined to a physically discrete unit, as in the Barbican example, but not so easy when the land in the title is not divided into physically discrete units. Also, an interest over just the occupied part may not be of much use to the interest holder. In Ferrishurst, the Court of Appeal had had to distinguish an earlier Court of Appeal decision, Ashburn Anstalt v. Arnold [1989] Ch 1, where the opposite conclusion had been reached, leading precisely to such a result. The lessee of a shop had given up the lease of his shop in exchange for a right to a new lease of a shop to be built in a new development which was to be built on land including the site of his old shop. The decision that his right to a new lease was confined to the site of the old shop resulted in his having a right to a lease of a shop but only if one was built in a position in the new development where no shop unit was to be, or could possibly be, positioned. Even worse, it may lead to an outcome that is inefficient overall, in that allowing the interest holder’s right to be enforceable over part of the purchaser’s title may diminish the value of the purchaser’s title by an