The Three Categories of Overriding Interest (LRA 2002 Schedule 3)
LRA 2002 Schedule 3 sets out the interests that override registered dispositions and bind buyers on completion. Category 1 — short legal leases (para 1): legal leases of 3 years or less, including ASTs (typically 6-month or 12-month fixed terms, then monthly periodic) and all periodic tenancies, are overriding interests without registration; a landlord buying tenanted property takes it subject to all existing ASTs; also covers commercial continuation tenancies under LTA 1954 s.24. Category 2 — rights of persons in actual occupation (para 2): a proprietary right (beneficial interest, equitable interest, contractual right capable of binding successors) held by a person in actual occupation at the date of the disposition is overriding if: the occupation was apparent on a reasonable inspection; or the buyer had actual knowledge; Williams and Glyn's Bank v Boland [1981] HL — wife in actual occupation with beneficial interest under resulting trust bound the bank's mortgage; defeat mechanism: if the occupier was asked about rights and failed to disclose them, the overriding interest is lost; TR1 form requires seller confirmation that all occupiers consent to the transfer. Category 3 — legal easements (para 3): a legal easement or profit acquired by prescription, implied grant, or express pre-LRA 2002 grant is overriding if: buyer had actual knowledge; or it was patent on inspection; or it was registered within 1 year before the disposition. LRA 2002 reform: equitable easements are NO longer overriding interests (they must be registered as notices); transitional period (2003–2013) for pre-LRA 2002 interests to be registered has expired.
Due Diligence to Identify and Mitigate Overriding Interest Risk
Pre-completion steps for landlord buyers: (i) Physical inspection — inspect the property before exchange; note all signs of occupation (furniture, vehicles, personal effects, utility connections); identify all persons in factual possession including those not party to any lease; (ii) Written enquiries of occupiers — serve formal written enquiries on all occupiers asking them to confirm whether they have any legal or equitable interest in the property; failure to disclose defeats the overriding interest under Sch 3 para 2; (iii) TA6 / CPSE disclosure — the property information forms require the seller to disclose all occupiers and their rights; a false disclosure gives rise to a misrepresentation claim against the seller; (iv) Tenancy schedule — for investment property, require the seller to provide all tenancy agreements, a rent schedule, deposit protection details, and current arrears information; all ASTs are Sch 3 para 1 overriding interests regardless of register notation; (v) Title plan inspection — examine the title plan for apparent easements (tracks, paths, drainage runs) that may be legal easements and overriding even if not noted; obtain a legal easement search if adjacent development is visible; (vi) OS1 priority search — file before completion to obtain a 30-working-day priority period; complete within the period; (vii) Statutory declaration — for older properties with potential beneficial interest risks, consider requiring a statutory declaration from the seller and co-inhabitants; (viii) Title insurance — where residual overriding interest risk cannot be eliminated, specialist title insurance is cost-effective. Scotland: Land Registration (Scotland) Act 2012; different rules on short lease real rights and overriding interests; Scottish conveyancer required.