Who is thy Neighbour?

Chaudhary v Yavuz [2011] EWCA Civ 1314 (22 November 2011)
Introduction
The issue was whether an informal easement and not registered at the Land Registry could be effective against a purchaser of the land over which the easement would be exercised.
Gray and Gray Elements of Land Law, 5th edition (2009), paragraph 8.2.24 notes 
"It is a standard feature of land registration the world over that a disponee’s mere knowledge of a protectable, but unprotected, interest does not normally affect the title derived from registration. This reluctance to allow the traditional doctrine of notice to intrude upon registers of title is deeply embedded in the origins of the Land Register and has persisted to the present day.
As Cross J observed in Strand Securities Ltd v Caswell [1965] Ch 373, at 390A-B, it is ‘vital to the working of the land registration system that notice of something which is not on the register should not affect a transferee unless it is an overriding interest’. Title registration is intended to mark ‘a complete break’ from the equitable rules which formerly governed land law priorities. In consequence there has been a general rejection, no less so in England than elsewhere, of any temptation to qualify the system of title registration by the importation of an equitable doctrine alien to its central purpose."
Background
The Claimant was the owner of 37 Balaam Street, Plaistow, London E13, The Defendant his neighbour at 35 Balaam Street. On each site there is a building with commercial use on the ground floor and residential use above.
Between the two properties lies an alleyway, included in the title to number 35. Before the litigation there was a metal stairway in this alleyway, leading up to a level area at first floor level, including a balcony along the side of number 37.
Access was gained by way of this metal structure to the first floor premises of both number 35 and number 37. At that time there was no other access to the first floor of either building.
In April 2009 contractors on behalf the defendant cut the connection between the stairs and number 37 and removed the balcony along the side of number 37, thereby rendering it impossible to gain access to or from the upper floors of number 37.
The Claimant issued proceedings alleging these acts were unlawful, and he was entitled to a right of way over the staircase and the balcony, which was binding on the Defendant.
At first instance the judge accepted the Claimant was entitled to an easement by estoppel and granted injunctions accordingly. The Defendant appealed.
Key facts
The reader is referred to the judgment for the full facts. However the following is germane
1          In 2005 there was only one upper floor at number 37. The then owner applied for planning permission to extend it, and in July 2005 he sold it to a company owned by Mr Asad Chaudhary, son of the Claimant. Planning permission was granted and building works commenced which involved creating a second floor at number 37. That went beyond what was permitted by the planning permission. Until that time, access to the first floor of number 37 had been gained internally.
2          In early 2006 number 37 was transferred into the name of the claimant. The claimant and the then owner of number 35 Mr Vijayan  (vijay) made an arrangement, under which the claimant  (or his company) paid for the building of a metal staircase in the alleyway which at first floor level gave access on one side to number 35 and on the other side, over a landing, to number 37.
3          Later in 2006 the claimant heard that Mr Vijay was planning to sell number 35. The claimant realised there was no document to record any right of access over the staircase and landing. His solicitors drafted a deed for the grant of an easement. Mr Vijay’s did not execute the deed…
4          The Claimant failed to register a unilateral notice under section 34 of the 2002 Act. If that had been done before Mr Vijay’s sale of number 35, the purchaser would have taken subject to the rights to which the notice related: see section 29(2)(a)(i),
5          in December 2006 Mr Vijay contracted to sell number 35 to the Defendant. The sale was completed immediately, the Defendant being registered as proprietor in March 2007. The property was sold "subject to the Incumbrances on the Property". Incumbrances were defined as "the entries in the Property and Charges registers of the title except financial charges and subject to covenants, conditions, restrictions, reservations and terms of the lease". There were no relevant entries on the register.
6          It is common ground that the metal structure including the staircase and the landing area in the alleyway was discoverable by inspection before the contract, and that it would have been apparent on inspection that the landing area led to doors in the side of number 37 at first floor level, from which it could be inferred that access to and from those parts of number 37 was gained over the metal structure.
7          At first instance it was held the Claimant’s right was binding on the Defendant on two alternative bases. First that the Claimant had been in actual occupation of part of number 35, so that the right was an overriding interest. Secondly, the right would have been binding by way of constructive trust, because of the terms on which the Defendant acquired the property.
The defendant appealed both grounds. The first upon the application of the 2002 Act. The second on case law (constructive trust).
The 2002 Act
The starting point was section 28 and 29 to which the reader is referred to.  It is worthwhile noting Schedule 3
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
(a) …
(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;
Overriding interest
For the purpose of the 2002 Act the claimant’s rights would only be binding if they amounted to an overriding right i.e.  actual occupation under Schedule 3 paragraph 2.
Was the Claimant in actual occupation of any part of number 35 at the time of the transfer to the Defendant or his registration as proprietor?
In Saeed v Plustrade [2002] EWCA Civ 2011 it was said, on a concession by Counsel, that the exercise of an easement giving a right to park a car on particular land meant that the owner of the car was in actual occupation of the space, so that such rights as he had would be an overriding interest.
Ruoff & Roper on Registered Conveyancing notes at paragraph 10.019 that this confuses "actual occupation" with "actual use", and that the correct view is that the enjoyment of a right such an easement over burdened land does not amount to actual occupation of the land for this purpose.
in  Celsteel Ltd v Alton House Holdings Ltd [1985] 1 W.L.R. 204 Scott J observed, [2005] 1 W.L.R. 204 at 219E, that the plaintiff who was in actual occupation of a garage demised to him was not in actual occupation of any part of the driveway over which he asserted his easement to get to and from the garage.
On the First issue Lord Justice Lloyd held there was no actual occupation of any part of the metal structure by anyone which could give the Claimant’s rights the status of an overriding interest.
There was no findings of fact as to how the metal structure was used at any given time, other than that it was used by the Claimant’s tenants to get to and from their flats on the upper floors of number 37 as well, of course, as by the Defendant’s tenants to get to and from theirs in number 35. There was no indication that it was used otherwise than for passing and repassing between the street and the relevant flat or flats. Such use did not amount to actual occupation.
The Court of Appeal noted that  no-one else was in occupation of the metal structure either, but not every piece of land is occupied by someone, let alone in someone’s actual occupation (as distinct from possession).
As to the claimant’s argument that the claimant having put the metal structure in place was in occupation by virtue of the structure itself the Court of Appeal disagreed. The metal structure became part of the land on any basis, regardless of whether any part of it, as a chattel, belonged e.g.  a right to remove it  to the owner of number 37, as opposed to his neighbour on whose land it was placed.
 It became part of what could be used or occupied. It could not be said that its presence on the land of the Defendant was itself occupation of that land by the person who paid for it to be put up in the first place. Occupation must be, or be referable to, personal physical activity by some one or more individuals: see Lord Wilberforce in Williams & Glyn’s Bank v Boland [1981] AC 487 at 505B-C – "physical presence, not some entitlement in law".
Accordingly the defendant was successful on the first ground of appeal.
Constructive trust
At first instance the court held that regardless of the failure of the Claimant to have a unilateral notice entered on the register to put others on notice of the right he claimed, the right was binding in conscience on the Defendant because of the terms of the contract under which he bought the property.
Further the metal structure was discoverable by inspection, so as to give notice to the person inspecting that there might be rights of access from the upper floors of number 37 to the street and back, and thus  the rights fell within Standard Condition 3.1.2(b) (those discoverable by inspection of the property before the contract)
The court of Appeal noted the existence of the metal structure was obvious on even a casual inspection of the land to be sold to the Defendant and thus the rights claimed by the Claimant were within the terms of Standard Condition 3.1.2(b), as being discoverable by inspection of the property before the contract. The Defendant could not complain to Mr Vijay under the contract about the existence of this easement, if it turns out to be binding on him, as the judge has held. The vendor did not contract on the basis that there was no such easement.
The court then reviewed a number of authorities including Lyus v Prowsa Developments Ltd [1982] 1 W.L.R, Ashburn Anstalt v Arnold [1989] Ch1. Lloyd v Dugdale [2001] EWCA Civ 1754.
In  Lyus v Prowsa Developments Ltd [1982] 1 W.L.R. A building company was developing an estate, which was subject to a mortgage in favour of a bank. The company agreed to sell a plot to the plaintiffs, which was to be transferred to them once the house had been built on it. The plaintiffs had paid a deposit. The company then became insolvent. The bank as mortgagee contracted to sell land to the defendant, including that which the plaintiffs had agreed to buy. The contract was expressed in terms to be subject to and with the benefit of the contract made between the company and the plaintiffs.
The bank need not have done this, because its mortgage had priority over the plaintiffs’ contract, being earlier in date. Before the date of the bank’s sale to the defendant, the defendant’s solicitors wrote to the bank’s agents giving an assurance that the defendant would take all reasonable steps in its power to make sure that the interests of contracting purchasers (such as the plaintiffs) were dealt with quickly and to their satisfaction.
The Court of Appeal distinguished this case on a number of grounds. First, in that case the third party rights in question were specifically identified in the contract under which the defendant agreed to buy the property. Secondly, the bank had no need to protect itself as regards enforcement of the plaintiffs’ contract, because it could not be effective against the bank whose mortgage had priority. Thirdly, the plaintiffs could have done nothing by way of registration or otherwise to ensure that a purchaser from the bank was affected by their rights. A caution had been registered to protect their position as against a purchaser from the original vendor company, but that was of no avail against the bank or a purchaser from.
Having considered the case law the Court of Appeal found:
1          At first instance the present case proceeded on the basis that the metal structure was discoverable by inspection, so as to give notice to the person inspecting that there might be rights of access from the upper floors of number 37 to the street and back, and therefore the rights fell within Standard Condition 3.1.2(b).
2          In addition at first instance it was found to be equally unconscionable for the Defendant to deny a right whose existence he could have ascertained merely by inspecting the property as in Lyus v Prowsa to deny the right which was identified in the contract.
3          This would have very wide ramifications. The incorporation in a contract for the sale of land of the Standard Conditions of Sale was widespread. If the relevant incumbrance is protected by actual occupation, within the terms of Schedule 3, paragraph 2, to the Act, then it will bind the purchaser in any event, as it would also if it is a legal easement or profit à prendre within Schedule 3 paragraph 3. But if it is any other form of right, such as an equitable easement or other proprietary estoppel right (as here), then the judge’s reasoning would make it binding on the purchaser despite the fact that it could, and in terms of the 2002 Act should, be protected by registration or a notice on the register, and despite the fact that, unlike in Lyus, there is nothing in the contract to draw specific attention to it.
4          There was no English case in which Lyus has been used successfully to make binding on a purchaser an interest which could be but was not protected on the register as against him, other than Lloyd v Dugdale at first instance (overturned on appeal) and the present case, also at first instance. Lyus is an exceptional case, and it is right that it should be.
5          In the absence of any express reference in the contract to the rights asserted by the Claimant and an express provision requiring the purchaser to take the property subject to those rights, it is not sufficient that the metal structure was apparent on inspection of the land which was to be bought, and that it would have been apparent that it served as an access for the upper floors of both properties. Thus the defendant was successful on the second ground of Appeal.
Conclusion
There are some valuable lessons here. A reminder of change brought about by the 2002 Act and the meaning of Occupation. Particularly the need to avoid confusion between actual occupation and actual use.  Occupation must be, or be referable to, personal physical activity by some one or more individuals: see Lord Wilberforce in Williams & Glyn’s Bank v Boland [1981] AC 487 at 505B-C – "physical presence, not some entitlement in law".
Here clearly the claimant should have sought to protect his rights with a notice on the register. Of note was the fact that the third party’s rights were only identifiable by general words in the contract i.e.  Standard Condition 3.1 . That was insufficient to find that it would be unconscionable for the Defendant to obstruct the use of the structure by the Claimant and his tenants.
Kind regards
Today's Conveyancer