Can you protect a pre-emption right by entry of a restriction and a notice at the Land Registry?

Against a background of litigation in relation to a boundary dispute between the parties, under the terms of a Court order Mr and Mrs Law had been given "the first option to purchase" two parcels of land known as the Woodland and Sovereign Meadows. This right arose in the event of Mr and Mrs Haider who owned the land deciding to sell it. The Laws protected that pre-emption right by registering a notice against the titles affected, thereby ensuring that the right had priority in relation to any subsequent dealings with the land. They Laws also sought to enter a restriction against the titles, which would prevent any dealing with the land being registered without confirmation from the Laws that the Court Order which gave effect to the pre-emption right had been complied with. Mrs Haider objected to the entry of the restriction against the title to the Woodland.

The case was initially heard by the First-tier Tribunal who decided the application for the restriction should be cancelled and also raised issues as to whether, because of the way it had been drafted, the pre-emption right was void for uncertainty or in fact spent because the Haiders had at one point invited the Laws to make an offer to purchase the land.

On appeal to the Upper Tribunal (UT) it was found the pre-emption right was valid (certain terms could be implied in relation to the right to ensure it was effective) and remained in force (because the Haiders failed to specify the price they wanted for the land when they invited the Laws to buy it, it could not be said the Laws pre-emption rights had been exhausted). The UT then considered the issue of the restriction.

Section 42 of the Land Registration Act 2002 provides that the registrar may enter a restriction in the register if it appears to him that it is necessary or desirable to do so for the purpose of:

• preventing invalidity or unlawfulness in relation to dispositions of a registered estate or charge
• securing that interests which are capable of being overreached on a disposition of a registered estate or charge are overreached, or
• protecting a right or claim in relation to a registered estate or charge

The section goes onto say that in relation to protecting a right or claim no restriction may be entered for the purpose of protecting the priority of an interest which is, or could be, the subject of a notice, a step the Laws had taken. The UT however found that a restriction could still be entered for the purpose of preventing an invalid or unlawful disposal- a different and additional protection. It was noted that "the nature of a right of pre-emption is such that it imposes on the grantor a negative obligation requiring the grantor to refrain from disposing of the land in the way specified without performing the obligation to the grantee to give the grantee the rights to be conferred on the grantee." The restriction would therefore prevent an unlawful disposition occurring in relation to the pre-emption right. It was also noted that while Land Registry practice guide 19 refers to the entry of a restriction in relation to a pre-emption right where the agreement "expressly limits the registered proprietor’s powers to make a disposition"’ the statutory provision is not limited to such a case and the practice guide should not be read as having that effect.

Comment

The decision makes clear it should be possible to protect a pre-emption right both by way of entry of a notice and a restriction, even if the agreement containing the pre-emption right does not expressly provide for the entry of a restriction or expressly limit the registered proprietor's powers to make a disposition.

The case also highlights the need for detailed and well thought out drafting in relation to pre-emption rights however they arise and ensuring the intentions of the parties are accurately recorded. For example the pre-emption right did not expressly deal with what would happen if the Haiders wished to gift the land to another party. Could they then defeat the Laws right by giving the land away? It appears so, the UT finding that there was no implied term preventing the Haiders making a gift of the land and the pre-emption right was found not to extend to the Haiders’ successors in title except their personal representatives. It was also found that a grant of a lease of the land (even a 999 year lease) would not be caught by the wording of the pre-emption right in this particular case which talked of the Haiders "selling..the remaining land".

Law v Haider [2017] UKUT 212 (TCC)