Baker & Anor v Craggs (Rev 1) [2018] EWCA Civ 1126

Case No A3/2017/0140

[2018] EWCA Civ 1126

IN THE COURT OF APPEAL (CIVIL DIVISION)

Venue ON APPEAL FROM THE HIGH COURT OF JUSTICE CHANCERY DIVISION BRISTOL DISTRICT REGISTRY

MR JUSTICE NEWEY

[2016] EWHC 3250 (Ch.)

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 16/05/2018

Before

LORD JUSTICE PATTEN

LORD JUSTICE HENDERSON

LORD JUSTICE FLAUX

Between

PAUL BAKERRespondents/

JODI BAKERClaimants

MARTIN CRAGGSAppellant/

Mr Ewan Paton (instructed by John Hodge Solicitors) for Appellant

Mr Thomas Talbot-Ponsonby (instructed by DWF LLP) for Respondents

Hearing Hearing date : 14 February 2018

Judgment

Introduction

[1]The novel issue raised by this appeal is whether the doctrine of overreaching in section 2(1) of the Law of Property Act 1925 (“LPA 1925”) is capable of operating in circumstances where the conveyance to a purchaser which is alleged to have the overreaching effect is the grant of an easement over land, and the equitable interest which is said to be overreached is not an interest in the easement itself, or even in the land conveyed to the purchaser with the benefit of the easement, but an interest in the servient tenement which the common vendor has previously contracted to sell to a third party, and which (following completion of that sale) the vendor holds as a bare trustee for the third party pending registration of his title with HM Land Registry.

[2]The land in question is registered land in England and Wales. In a little more detail, the salient features of the case may be simplified as followed: a) V is the common vendor of two adjoining properties, Blackacre and Whiteacre; b) V contracts to sell Blackacre to A, but omits to reserve a right of way over part of Blackacre in favour of part of Whiteacre; c) the sale of Blackacre by V to A is duly completed, and A (having gone into actual occupation of the relevant part of Blackacre) applies for registration of his title; d) due to problems with the registration of A’s title, A loses the benefit of the priority period applicable to his application for registration; e) meanwhile, V contracts to sell Whiteacre to B, and on completion of that sale purports to grant B the easement over Blackacre which V failed to reserve on the sale to A; f) B then applies to be registered as the proprietor of Whiteacre, and his title is registered with the benefit of the easement over Blackacre; and g) subsequently, when the problems with the registration of A’s title have been sorted out, A is registered as the proprietor of Blackacre, but subject to the easement in favour of Whiteacre.

[3]The instinctive reaction of most property lawyers to this sequence of events would probably be that it has nothing to do with overreaching, which is a process whereby a purchaser of land takes the land free of any equitable interests which affect it, and those interests are instead transferred to the proceeds of sale. Rather, the problem appears to be one of priorities, to be answered in accordance with the detailed rules contained in the Land Registration Act 2002 (“LRA 2002”). Applying those rules, the purported grant of the easement over Blackacre by V to B could not prevail over A’s right to be registered as the proprietor of Blackacre free from the easement, because A’s equitable interest in Blackacre under the bare trust arising on completion of his purchase was protected by his actual occupation of Blackacre, and was therefore an overriding interest under section 29 of, and paragraph 2 of schedule 3 to, LRA 2002, which V therefore could not defeat by the subsequent grant of the easement to B.

[4]As I shall explain, that is indeed in my judgment the correct analysis, and the doctrine of overreaching in section 2(1) of LPA 1925 has no part to play in resolution of the problem. The judge below was however persuaded that the grant of the easement by V to B was in itself a conveyance to a purchaser of a legal estate, which overreached the equitable interest of A in the servient tenement (Blackacre) and somehow transferred it into a corresponding interest in the proceeds of the sale of Whiteacre by V to B, even though A was not a party to that sale, A never had an equitable interest in Whiteacre, and no part of the proceeds of sale of Whiteacre was specifically attributed to the grant of the easement.

[5]Since the judge below was a very experienced Chancery judge (Newey J, now Newey LJ), the argument clearly merits careful consideration, although it was only one of several issues of fact and law which he had to determine (and no appeal is brought by either side in relation to any of those other issues). Nevertheless, with the greatest respect to the judge I have to say that his conclusion on this one point was in my view unsustainable. That is so for a number of reasons, of which the simplest is that section 2(1) of LPA 1925 applies only upon a conveyance to a purchaser “of a legal estate in land”, and although an easement is capable of being a “legal estate” in the nomenclature of LPA 1925, it is not “a legal estate in land”. By virtue of section 1(1) of LPA 1925, indeed the opening subsection of the entire Act:

“The only estates in land which are capable of subsisting or of being conveyed or created at law are – (a) An estate in fee simple absolute in possession; (b) A term of years absolute.”

[6]In granting permission to appeal on 17 May 2017, Lewison LJ commented that the grounds of appeal “raise an important question of interpretation of the LPA 1925 which has real prospects of success.”

[7]Newey J handed down his reserved judgment on 15 December 2016, after a hearing in Bristol on 15 November 2016. The dispute concerned a property called Waterside Farm in Radstock, Somerset, all of which had been owned by Mr Michael Charlton and his wife Maureen (“the Charltons”, who are “V” in my simplified version of the facts). During 2011 and 2012 the Charltons sold most of the farm, although they retained some premises now called the Old Stables where Mrs Charlton still lives. Her husband has sadly died since the events with which we are concerned.

[8]The present litigation arises from two of the sales that the Charltons entered into. The first in time of those sales was to the defendant Mr Martin Craggs (“A” in my simplified version) while the second was to the claimants, Mr Paul Baker and his wife Jodi (my “B”).

The basic facts

[9]There is no dispute about the basic facts, which I gratefully take from the judge’s judgment:

“5. The sale to Mr Craggs reached completion on 17 January 2012. A transfer of that date provided for parts of the farm to be transferred to Mr Craggs for £100,000. The land so transferred (“the Farm”) included some 18 acres of fields and barns with an adjacent yard. Mr Craggs was also granted, among other things, a right of way over a driveway leading from the yard. The transfer did not reserve any right of way over the yard in favour of the Charltons. 6. In accordance with normal practice, Mr Craggs’ then solicitors had undertaken a search at the Land Registry which gave Mr Craggs the benefit of a priority period up to 28 February 2012. The transfer was first lodged for registration on 10 February, but on 22 March the Land Registry pointed out that the access route was not shown on the plan annexed to the transfer and asked for the plan to be amended and initialled by the Charltons. The Land Registry agreed to extend the time within which its requisition was to be dealt with to 9 May, but the Charltons’ solicitors had still not returned the plan by that date. The application to register the transfer to Mr Craggs was therefore cancelled and a fresh application had to be submitted, with an amended plan, on 16 May. Mr Craggs was subsequently registered as the proprietor of the Farm with effect from 16 May. 7. In the meantime, however, the Charltons had transferred land to Mr and Mrs Baker. On 9 February 2012, the Charltons contracted to sell the Bakers both the farmhouse (for £625,000) and a barn (for £35,000). The sales proceeded to completion on 20 February, when two transfers were executed in favour of the Bakers. That relating to the barn (“the Baker Barn”) purported to grant the Bakers a right of way over the driveway in respect of which Mr Craggs had been granted a similar right and, further, across the yard that had been included in the transfer to Mr Craggs. Although the Bakers’ then solicitor had had sight of the transfer to Mr Craggs, it seems clear that none of those involved with the transfer of the Baker Barn to the Bakers appreciated that it provided for the Bakers to be given a right of way over land that had already been the subject of the sale to Mr Craggs. 8. The transfer of the Baker Barn was duly lodged with the Land Registry and the Bakers were entered on the register as its proprietors with effect from 14 March 2012. The property was, moreover, recorded in the register as having the benefit of the rights granted to the Bakers by the 20 February transfer of the Baker Barn. The Land Registry also, when registering Mr Craggs as the proprietor of the Farm in May 2012, recorded the property as subject to the rights granted in the transfer to the Bakers of the Baker Barn. 9. The present proceedings were issued on 26 March 2015. They principally raise the question of whether the Bakers do indeed have the benefit of a right of way over the yard at the Farm.”

[10]It can be seen, therefore, that the critical dates were: a) 17 January 2012, when the transfer of the Farm to Mr Craggs was completed; b) 9 February 2012, when the Charltons contracted to sell the Baker Barn to the Bakers; c) 20 February 2012, when the sale of the Baker Barn to the Bakers was completed, and a transfer of it in their favour was executed; d) 14 March 2012, when the Bakers applied to be registered as the proprietors of the Baker Barn with the benefit of the relevant easement over the yard included in the transfer to Mr Craggs; e) 9 May 2012, when the application to register the transfer to Mr Craggs was cancelled and the extended priority period which he had been granted came to an end; f) 16 May 2016, when Mr Craggs made his fresh application to be registered as the proprietor of the Farm; and g) later in May 2012, when his application for registration was implemented with effect from 16 May.

Common ground

[11]The judge went on, at [10], to identify various matters which were, and remain, common ground between the parties:(1) When the Charltons transferred the Farm to Mr Craggs on 17 January 2012, he became the beneficial owner of the Farm, but legal ownership of it did not pass until he was entered on the register as the proprietor of the property: see section 27(1) of LRA 2002, and Scribes West Ltd v Relfa Anstalt (No 3)

[2004] EWCA Civ 1744

[2005] 1WLR 1847

, at [9] per Carnwath LJ, with whom Rix and Mummery LJJ agreed.

(2) If Mr Craggs’ initial application for registration of the transfer to him had been in order, the grant to the Bakers of a right of way over the yard comprised in the transfer to Mr Craggs would have been ineffective. The Farm, of which Mr Craggs would have become registered proprietor, would not have been bound by the purported grant of the right of way.

(3) In the event, however, Mr Craggs’ first application for registration was cancelled. He must therefore be taken to have had no more than an equitable interest in the Farm when the Bakers applied for the transfer of the Baker Barn (including the right of way over the yard) to be registered.

(4) Under section 29 of LRA 2002, a “registrable disposition of a registered estate…made for valuable consideration” (such as the transfer to the Bakers) “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”. As a result, Mr Craggs’ interest in the Farm cannot prevail over the grant of a right of way over the yard unless it was “protected” when the transfer of the Baker Barn was registered; and, on the facts, that could be so only if the interest fell within a paragraph of schedule 3 to LRA 2002.

(5) The relevant paragraph of schedule 3 for present purposes is paragraph 2, which identifies one of the rights traditionally described as “overriding interests” in these terms: “Interests of persons in actual occupation 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 – … (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; … ” (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; … ”

(6) None of the exceptions to paragraph 2 can apply, including in particular that in paragraph 2(c) which cannot be in point given the Bakers’ knowledge, through their solicitors, of the transfer of the Farm to Mr Craggs.

(7) It follows that the Farm must be bound in the hands of Mr Craggs by the right of way granted to the Bakers unless (a) Mr Craggs was in “actual occupation” of the relevant land (as he contended, but the Bakers denied) and (b) his interest was not (as the Bakers contended, but Mr Craggs denied) overreached.

[12]The first issue which the judge had to decide was therefore whether Mr Craggs was in “actual occupation” of the relevant land on the relevant date. The judge dealt with this issue at [12] to [23], finding in the light of the evidence which he heard that Mr Craggs must have gone into actual occupation of the yard at the Farm soon after completing his purchase, and that he remained in actual occupation of it up to and including 20 February 2012. As I have said, there is no appeal against that finding of fact. Accordingly, it is now common ground that Mr Craggs will not be bound by the right of way granted to the Bakers unless his interest was overreached.

Overreaching: the key provisions of LPA 1925

[13]The key provisions in sections 1 and 2 of LPA 1925, as amended and in force at the relevant time, read as follows: “1 Legal estates and equitable interests(1) The only estates in land which are capable of subsisting or of being conveyed or created at law are— (a) An estate in fee simple absolute in possession; (b) A term of years absolute.

(2) The only interests or charges in or over land which are capable of subsisting or of being conveyed or created at law are— (a) An easement, right, or privilege in or over land for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute; (b) A rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute; (c) A charge by way of legal mortgage; (d)… and any other similar charge on land which is not created by an instrument; (e) Rights of entry exercisable over or in respect of a legal term of years absolute, or annexed, for any purpose, to a legal rentcharge.

(3) All other estates, interests, and charges in or over land take effect as equitable interests.

(4) The estates, interests, and charges which under this section are authorised to subsist or to be conveyed or created at law are (when subsisting or conveyed or created at law) in this Act referred to as “legal estates”, and have the same incidents as legal estates subsisting at the commencement of this Act; and the owner of a legal estate is referred to as “an estate owner” and his legal estate is referred to as his estate.

(5) A legal estate may subsist concurrently with or subject to any other legal estate in the same land in like manner as it could have done before the commencement of this Act.

(6) A legal estate is not capable of subsisting or of being created in an undivided share in land or of being held by an infant. … (8) Estates, interests, and charges in or over land which are not legal estates are in this Act referred to as “equitable interests”,… … 2 Conveyances overreaching certain equitable interests and powers (1) A conveyance to a purchaser of a legal estate in land shall overreach any equitable interest or power affecting that estate, whether or not he has notice thereof, if – … (ii) the conveyance is made by trustees of land and the equitable interest or power is at the date of the conveyance capable of being overreached by such trustees under the provisions of sub-section (2) of this section or independently of that sub-section, and the requirements of section 27 of this Act respecting the payment of capital money arising on such a conveyance are complied with; … (2) Where the legal estate affected is subject to a trust of land, then if at the date of a conveyance made after the commencement of this Act by the trustees, the trustees (whether original or substituted) are either – (a) two or more individuals approved or appointed by the court or the successors in office of the individuals so approved or appointed; or (b) a trust corporation, any equitable interest or power having priority to the trust shall, notwithstanding any stipulation to the contrary, be overreached by the conveyance, and shall, according to its priority, take effect as if created or arising by means of a primary trust affecting the proceeds of sale and the income of the land until sale. …” (a) An estate in fee simple absolute in possession; (b) A term of years absolute. (a) An easement, right, or privilege in or over land for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute; (b) A rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute; (c) A charge by way of legal mortgage; (d)… and any other similar charge on land which is not created by an instrument; (e) Rights of entry exercisable over or in respect of a legal term of years absolute, or annexed, for any purpose, to a legal rentcharge.

(b) a trust corporation,

[14]Section 27 of LPA 1925, to which reference is made in section 2(1)(ii), provides that:

“(1) A purchaser of a legal estate from trustees of land shall not be concerned with the trusts affecting the land, the net income of the land or the proceeds of sale of the land whether or not those trusts are declared by the same instrument as that by which the trust of land is created. (2) Notwithstanding anything to the contrary in the instrument (if any) creating a trust of land or in any trust affecting the net proceeds of sale of the land if it is sold, the proceeds of sale or other capital money shall not be paid to or applied by the direction of fewer that two persons as trustees, except where the trustee is a trust corporation…”

[15]Section 205(1)(ii) contains a broad definition of “Conveyance”, which “includes a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will”; and section 205(1)(x) defines “Legal estates” as meaning “the estates, interests and charges, in or over land (subsisting or created at law) which are by this Act authorised to subsist or to be created as legal estates”, while “equitable interests” mean “all the other interests and charges in or over land…”

[16]After setting out the main relevant statutory provisions, the judge began his discussion of the issue by referring to the relationship between overreaching and overriding interests, as it was explained by the House of Lords in City of London Building Society v Flegg

[1988] AC 54

. The case concerned a charge in favour of a building society executed by the registered proprietors and co-owners of a house in which the parents of one of them, who were at all material times in actual occupation of it, also had beneficial interests as a result of their contribution to the purchase price. The registered proprietors were trustees for sale (under the law as it then stood) by virtue of their co-ownership. Under section 70(1)(g) of the Land Registration Act 1925 (the predecessor of paragraph 2 of schedule 3 to LRA 2002) the equitable interests of the parents were protected by their actual occupation of the property, but the House of Lords nevertheless held that their interests had been overreached. As Lord Oliver explained, at 91:

“Once the beneficiary’s rights have been shifted from the land to capital monies in the hands of the trustees, there is no longer an interest in the land to which the occupation can be referred or which it can protect. If the trustees sell in accordance with the statutory provisions and so overreach the beneficial interests in reference to the land, nothing remains to which a right of occupation can attach and the same result must, in my judgment, follow vis-à-vis a chargee by way of legal mortgage so long as the transaction is carried out in the manner prescribed by the Law of Property Act 1925, overreaching the beneficial interests by subordinating them to the estate of the chargee which is no longer “affected” by them so as to become subject to them on registration pursuant to section 20(1) of the Land Registration Act 1925.”

The judge’s reasoning then proceeded as follows:

“30. The Bakers contend that the present case is comparable. The argument can be developed on the following lines. Despite executing a transfer of the Farm in favour of Mr Craggs, Mr and Mrs Charlton remained the registered proprietors of the property and, hence, its legal owners until Mr Craggs was entered on the register with effect from 16 May 2012. In the meantime, the Farm, like the Baker Barn (up to the point title passed to the Bakers), was subject to a “trust of land” within the meaning of the Trusts of Land and Appointment of Trustees Act 1996 (albeit that the Charltons presumably held the Baker Barn on trust for themselves while the Farm will have been held on bare trust for Mr Craggs) and the Charltons will therefore have had “all the powers of an absolute owner” as regards the Farm under section 6 of the 1996 Act. When, moreover, they granted the Bakers an easement crossing the Farm, the proceeds of sale (as part of the purchase price of the Baker Barn) were paid to two trustees. The requirements of sections 2 and 27 of [LPA 1925] were therefore satisfied: there was a “conveyance to a purchaser of a legal estate in land” (for relevant purposes, the easement) “made by trustees of land” (namely, the Charltons) and the proceeds of sale were paid to two trustees (again, the Charltons). Accordingly, Mr Craggs’ equitable interest in the Farm will (so it is said) have been overreached and subordinated to the easement.”

[18]The judge then recorded the submission of Mr Paton (appearing then, as now, for Mr Craggs) that the contentions of Mr Talbot-Ponsonby (appearing then, as now, for the Bakers) to the above effect were misconceived. Overreaching, Mr Paton argued, was the process by which equitable interests under a trust of land are converted to interests in the sale proceeds when that land is sold to a third party purchaser for consideration. It has nothing to do, submitted Mr Paton, with the question whether an easement over the Farm for the benefit of the Baker Barn, created during the “registration gap” after the Farm had been transferred but before title was registered, could bind Mr Craggs when he was registered as the Farm’s proprietor.

The judge continued:

“32. It has to be remembered, however, that, for the purposes of section 2 of [LPA 1925], “legal estate” is defined in such a way as to include an easement. It is, moreover, easy enough to envisage circumstances comparable to those of the present case in which common sense would suggest that overreaching should occur. Suppose, for example, that the Farm were held on express trusts and that its trustees were persuaded that it was in the interests of the beneficiaries that, in return for a payment, they should grant the (on this assumption, unconnected) owners of the Baker Barn an easement over the Farm. The easement should plainly, as it seems to me, prevail over the beneficial interests in the Farm, while the beneficiaries should have corresponding interests in the proceeds of the transaction. I do not think, therefore, that Mr Talbot-Ponsonby’s case can be discounted simply on the basis that the Charltons were purporting to grant a limited interested (viz. an easement) rather than to transfer the fee simple.”

[20]The judge then disposed of a suggestion by Mr Paton that, if the argument for the Bakers were correct, the Charltons would have been able to grant an easement binding the Farm even if the first application to register its transfer to Mr Craggs had been in order. As the judge pointed out, at [33], Mr Craggs would then have become the registered proprietor of the Farm with effect from the date when his original application had been lodged, with the consequence that the Charltons would no longer have been the registered proprietors of the Farm when the easement in favour of the Baker Barn was purportedly granted. The judge’s reasoning on this point was in my view plainly correct, and Mr Paton has not sought to suggest otherwise in this court.

[21]Finally, the judge considered the question whether Mr Craggs should be regarded as having had an “estate contract” in his favour during the registration gap, and (if so) whether it fell within the exemption from overreaching in section 2(3)(iv) of LPA 1925. The judge rejected the possibility, on the ground that a contract for the sale of registered land merges in a transfer, so the contract for sale of the Farm to Mr Craggs ceased to exist when the transfer of the Farm to him was executed. No challenge has been made by Mr Craggs to the judge’s reasoning on this point, but since it has been criticised by some commentators I should make it clear that I express no view on the question, one way or the other.

The judge then stated his conclusion, at [41]:

“In the circumstances, it seems to me that Mr Craggs no longer had the benefit of an “estate contract” by the time the Bakers were granted the right of way over the Farm; that section 2(3)(iv) of [LPA 1925] was therefore inapplicable; and that Mr Craggs’ rights will accordingly have been overreached and subordinated to the easement. In short, the Farm is bound by the right of way.”

It is, I think, clear from this concluding paragraph that the judge must have accepted the argument for the Bakers which he had summarised at [30]. Accordingly, he must have taken the view that the grant of the easement to the Bakers was a “conveyance to a purchaser of a legal estate in land” within the meaning of section 2(1) of LPA 1925, and that since the proceeds of sale of the Baker Barn were paid to the Charltons as two trustees of a trust of land, the grant of the easement overreached Mr Craggs’ equitable interest in the Farm.

Discussion

[23]I must now explain why I am respectfully unable to agree with the judge’s analysis, beginning with the point which I have already outlined at [5] above.

[24]Section 1(1) of LPA 1925, the first building block of the entire 1925 property legislation, states that the only estates in land which are capable of subsisting or of being conveyed or created at law, or in other words the only legal estates in land which are now capable of existing, are an estate in fee simple absolute in possession, and a term of years absolute. As the introductory note to LPA 1925 in Wolstenholme and Cherry’s Conveyancing Statutes, 13th edition (1972), says (Vol 1, p.32):

“Part I of the Law of Property Act 1925,… was entirely new; it effected a fundamental reform by reducing legal estates in land to two, namely, a fee simple absolute in possession and a term of years absolute…”

Previously, various other estates in land had subsisted at law, such as fee tails, life estates and determinable fees. Subject to transitional provisions, these were now abolished.

[25]Section 1(2) then creates a limited category of “interests or charges in or over land which are capable of subsisting or of being conveyed or created at law”. This category includes, by virtue of paragraph (a), an easement “for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute”, and thus includes an easement such as that which the Charltons purportedly granted to the Bakers. By virtue of section 1(4), the two estates in land referred to in subsection (1), and the interests or charges in or over land which are itemised in subsection (2), are together defined as “legal estates”, and that definition is reflected in section 205(1)(x). By contrast, all other estates, interests, and charges in or over land take effect as equitable interests: see section 1(3), and (again) section 205(1)(x).

[26]This is the carefully constructed conceptual framework within which the overreaching provisions in section 2(1) of LPA 1925 have to be placed. The opening words of the section confine its operation to cases where there is “[a] conveyance to a purchaser of a legal estate in land”. Section 1(1) has just taught us that the only legal estates in land which are capable of subsisting, or of being conveyed or created, are an estate in fee simple absolute in possession and a term of years absolute. Accordingly, it would seem to follow that the doctrine of overreaching can only apply where such an estate in land is conveyed to a purchaser. The grant of an easement to a purchaser of land is not a conveyance of a legal estate in land within the meaning of section 1(1). Rather, it is the grant of an interest over land which, if it is granted for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute, is the grant of a “legal estate” within the meaning of subsections (2) and (4).

[27]It is true that the expression “estate in land” is not itself a defined expression in LPA 1925, in the same way that “legal estate” is. It is also true that section 2(1) uses the expression “a legal estate in land”, which could at first sight be read as including the grant of an easement by reference to the separate definitions in LPA 1925 of “legal estate” on the one hand, and “land” (which includes an easement: see section 205(1)(ix)) on the other hand. This was, I think, what the judge probably had in mind in his judgment at [27] and [32]. Nevertheless, if section 2(1) is read in its context, coming as it does immediately after section 1, I do not consider this to be a tenable interpretation. The reference to a conveyance to a purchaser “of a legal estate in land”, in section 2(1), is naturally read as a reference to a conveyance of one of the two types of estate in land which section 1(1) has just told us are capable of being conveyed at law. If the draftsman (Sir Benjamin Cherry) had intended section 2 to extend to the grant of a legal easement, he would surely have made this clear. Moreover, the natural meaning to which I have referred is reflected in the language used by Lord Neuberger PSC in Edwards v Kumarasamy

[2016] UKSC 40

[2016] AC 1334

, at [23], where he said:

“Under the Headlease, Mr Kumarasamy was granted a right of way over the front hall, and as a matter of property law, a right of way over land constitutes an interest in that land, although it does not constitute an estate in that land: see subsections (1), (2)(a) and (3) of section 1 of the Law of Property Act 1925.”

[28]Mr Paton also referred us to other judicial statements which recognise that, since 1925, only two kinds of estate in land have been capable of subsisting, namely those referred to in section 1(1) of LPA 1925: see, for example, City of London Corporation v Fell

[1994] 1 AC 458

at 464G-H per Lord Templeman, and Turner v Chief Land Registrar

[2013] EWHC 1382 (Ch)

[2013] All ER (D) 340

(May), at [13] per Roth J.

[29]A point upon which Mr Talbot-Ponsonby, for the Bakers, understandably places some reliance is the undoubted fact that the grant of a charge by way of legal mortgage does have overreaching effect, provided that the proceeds of sale or other capital monies are paid to not less than two trustees or a trust corporation. That is what the House of Lords decided in the Flegg case. The answer to this point is, however, provided by section 87 of LPA 1925, which states that:

“(1) Where a legal mortgage of land is created by a charge by deed expressed to be by way of legal mortgage, the mortgagee shall have the same protection, powers and remedies… as if – (a) where the mortgage is a mortgage of an estate in fee simple, a mortgage term for three thousand years without impeachment of waste had been thereby created in favour of the mortgagee; and (b) where the mortgage is a mortgage of a term of years absolute, a sub-term less by one day than the term vested in the mortgagor had been thereby created in favour of the mortgagee.”

The mortgagee therefore has the same protection as if he had been granted a mortgage term by demise or sub-demise of the mortgaged property. Such a mortgage term would be a term of years absolute within section 1(1)(b). The fact that a charge by way of legal mortgage also falls within section 1(2)(c) does not in my view invalidate this reasoning. It merely shows that, for the statutory purpose of conferring protection on the mortgagee, a charge by way of legal mortgage is also deemed by section 87 to create an estate in land properly so-called. (a) where the mortgage is a mortgage of an estate in fee simple, a mortgage term for three thousand years without impeachment of waste had been thereby created in favour of the mortgagee; and (b) where the mortgage is a mortgage of a term of years absolute, a sub-term less by one day than the term vested in the mortgagor had been thereby created in favour of the mortgagee.”

[30]Mr Talbot-Ponsonby also mounted a rather esoteric argument based on section 1(6) of LPA 1925, which provides that a legal estate is not capable of being held by an infant. That provision is subject to transitional arrangements set out in schedule 1, but the relevant provisions in Part III of the schedule, headed “Provisions as to Legal Estate Vested in Infant”, apply only where prior to the commencement of the Act “a legal estate in land” is vested in an infant beneficially, or held in various other specified ways. If “legal estate in land” is here to be given the narrow meaning for which Mr Craggs contends, what was to happen if (say) a rentcharge were vested in an infant before the 1925 Act came into force? The rentcharge would have become a legal estate, as defined in section 1(4), but could not have been a “legal estate in land” within the meaning of section 1(1). There are, I think, two answers to this point. The first answer is that the draftsman’s choice of language in a transitional provision is not a safe guide to the meaning of “a legal estate in land” in section 2(1), at the very forefront of the new legislation. The second answer is that a rentcharge vested in an infant before 1925 would not have disappeared without trace if it could not be brought within Part III of schedule 1 to LPA 1925. It would instead have taken effect in equity as an equitable interest within section 1(3).

[31]For these short reasons, therefore, I am satisfied that the judge was wrong to conclude that the grant of the easement over the yard by the Charltons to the Bakers was capable of engaging the overreaching provisions in section 2(1), because it was not a conveyance to a purchaser of “a legal estate in land” within the meaning of the section. This conclusion is in my view reinforced by some of the conceptual difficulties to which the judge’s analysis would give rise. On the assumption that section 2(1) did apply, its effect would be to overreach “any equitable interest… affecting that estate”, which would have to mean an equitable interest in the legal estate conveyed to the purchaser, namely the easement itself. But the easement had no prior existence before it was granted by the Charltons, and the equitable interest which Mr Craggs had was his beneficial interest in the servient tenement under the bare trust arising on completion of his purchase, not an equitable interest of any description in or over the land sold to the Bakers.

[32]This leads me on to what I would regard as the second main objection to the judge’s analysis, namely the conceptual impossibility of identifying any part of the proceeds of sale of the land sold to the Bakers to which Mr Craggs’ equitable interest could somehow have attached once it had been overreached. Overreaching occurs where the relevant proceeds of sale or capital money are paid to at least two individual trustees or a trust corporation, typically in accordance with the requirements of section 27 of LPA 1925 (quoted above). But in the present case, as I have explained, Mr Craggs had no prior equitable interest in the subject matter of the relevant conveyance, namely the grant of the easement itself to the Bakers, he was not a party to the sale to the Bakers, nor was there any apportionment of the proceeds of sale paid by the Bakers to the Charltons. To my mind, Mr Talbot-Ponsonby had no remotely convincing answer to the problem of how Mr Craggs’ equitable interest in the yard as part of the servient tenement could somehow be translated into an interest in part of the purchase price of the different land (the dominant tenement) sold by the Charltons to the Bakers. This point was not explored at all by the judge in his judgment, but in my view it provides another convincing reason for holding that his approach was flawed.

Conclusion

[33]If the other members of the court agree, I would therefore allow the appeal, make a declaration in the opposite terms to that made by the judge, and direct the necessary alterations of the relevant titles to be made under schedule 4 to LRA 2002. I do not understand there to be any dispute about the nature of the necessary alterations. In addition, the judge ordered Mr Craggs to pay damages of £250 to the Bakers for interference with their alleged right of way over the yard. That order, too, must be reversed.

Flaux LJ:

[34]I agree.

Patten LJ:

[35]I also agree