This guidance covers realignment of rights, which can offer protection against rectification to titles registered under the 2012 Act.
In certain circumstances, latent inaccuracies in the land register can’t be rectified. In these cases, property rights of the parties involved will be realigned by operation of law to accord with what is in the register.
Realignment operates automatically in situations where:
- a person without a valid title is registered as owner, and
- we have granted warranty to the title, and
- the owner transfers the land to a third party who is acting in good faith with no knowledge of the inaccuracy, and
- the land in question has been possessed by the seller or seller and purchaser openly and peaceably for at least a year
Realignment may deprive a person of a right. They may be able to seek compensation from us.
We will follow the assumption that realignment has occurred in relevant circumstances. In case of a dispute, the ‘true’ proprietor may seek a judicial determination to prove that the land register is inaccurate.
Background
The key purpose of a system of land registration is to provide a clear and unequivocal statement of the legal owner of any particular area of land, together with details of the rights and encumbrances that pertain to that area. Third parties who wish to transact on a property should be able to rely on this statement and be assured they will acquire rights based on what the land register discloses.
Land Registration (Scotland) Act 1979 (the 1979 Act)
Under the 1979 Act title flowed from the register. Section 3(1)(a) of the 1979 Act provided that registration had the positive effect of creating rights. In the case of ownership, this meant that a person would own whatever was included in the registered title. In some cases, under property law rules the register could be inaccurate in showing a person as the owner but the effect of section 3(1)(a) coupled with the rules for rectification in section 9, most notably that a title sheet could not be rectified if it prejudiced a proprietor in possession (unless certain conditions are met), provided certainty for people who transacted with registered land: they obtained title to what was included in the register.
Land Registration (Scotland) Act 2012 (the Act)
The Act continues to provide the certainty that third parties can rely on the register and that they will receive a legal right to what the register contains. This is partly achieved through the realignment of rights provisions contained in Part 9 of the Act. These provisions provide that where there is a latent inaccuracy in the register, provided certain conditions are met, on the registration of a deed in favour of an applicant, they will receive legal title to what the register states.
Under the Act, the Keeper has a duty to rectify the land register where there is a manifest inaccuracy provided what is needed to be done is also manifest, subject to limited restrictions. Therefore, generally the register will be rectified to reflect the property law position. However, exceptionally Part 9 of the Act provides for circumstances where the register is inaccurate in law or in fact but is not to be rectified. In these cases, the property law rights are altered rather than the register being amended. In these cases, property rights are aligned to what the land register states them to be. This is known as the realignment of rights.
Transfer of title
Section 86 of the Act lists the conditions that allow realignment to operate. For example, when Seller A, whose title is in fact void, dispones a registered plot to Purchaser B, a third party who is transacting in good faith with Seller A. The conditions to be met are as follows:
- That the land has been possessed openly, peaceably and without judicial interruption for a period of at least a year by Seller A, or by Seller A and Purchaser B for a period that together constitutes a year or more;
- That the Keeper was not aware during that period that the register was inaccurate in showing that Seller A (or Purchaser B) was the registered proprietor;
- That Purchaser B purchased the property in good faith (this 'good faith principle' applies not only at time of acquisition but throughout the one year possession period);
- That the disposition would have conferred ownership on Purchaser B if Seller A had been the legal proprietor when the land was disponed;
- That at no time during the one year period was there:
- a caveat on the title sheet, or,
- a statement on the title sheet to qualify that the name and designation of the proprietor was not known with reasonable certainty; and,
- that the Keeper warranted (or is to be taken to have warranted) Seller A's title.
Where the conditions are met, realignment occurs by operation of law. If all the criteria are met in our example, realignment has occurred and Purchaser B has the benefit of a title free from the threat of rectification. Annex 1 gives an example of the differences between the operation of the 1979 Act and 2012 Act in relation to a void deed.
In considering the criteria, the Keeper cannot be considered to be aware of an inaccuracy until such time as she has fully satisfied herself as to its existence, i.e. that an inaccuracy is manifest in terms of s.80(1). Accordingly, an unsubstantiated claim of inaccuracy intimated to the Keeper would be insufficient in itself to prevent realignment.
Where the Keeper warrants or is taken to warrant the title, in order for realignment to operate in the absence of anything contrary, the implication is that any form of restricted or limited warranty would prohibit realignment.
Leases
Realignment can also operate on leasehold titles where the lease has been acquired from an assignee without valid title. However, realignment can only occur on invalid assignations of existing leases and is not viable for assignations of non-existent leases or invalid grants of new leases.
For the realignment of an assignation of an extant lease to occur the same criteria must be met as for realignment of ownership.
Acquisition from a representative
Part 9 of the Act allows for realignment to operate where a disposition or assignation in favour of a good faith purchaser is delivered by a representative of the registered proprietor, such as a trustee, executor or attorney. In these cases the conditions set out for realignment of ownership and leases must be met.
Servitudes
Section 90 allows for servitudes granted by a person who is entered in the proprietorship section as proprietor but whose title is based on an invalid title to become valid through the realignment principle. In order for realignment to occur, the proprietor of the benefited property must be in good faith in addition to the other conditions outlined above for the realignment of ownership.
The realignment of a servitude can apply to a servitude right created over an area of land that has been granted by a person entered in the register as proprietor of that land, but whose title is in fact invalid. The realignment provisions only apply to the grant of a new servitude and do not apply in cases where an area of land is disponed and it appears from the register that there is a servitude benefiting the property but the servitude is actually invalid. In this situation the realignment of right provisions do not make the servitude right good. The reason for this is that a person purchasing a property with the benefit of a servitude cannot place reliance on the servitudes set out in the title sheet without the caveat that a servitude could have been extinguished by way of an off-register event, such as negative prescription. If a servitude has been extinguished in such a manner, it cannot simply be reinstated by the transfer of a property which had previously been the benefited property. If realignment operates to validate an invalid servitude, this would have the effect of imposing servitudes upon properties without consent.
Realignment of Encumbrances
Disponed land
A person acquiring ownership of land, having acted in good faith and providing the title is free from any caveat, obtains the property free from any encumbrances omitted in error from the title sheet at the time of their acquisition.
There is no possession requirement for the realignment of encumbrances as there is no question of there being a 'true' owner in this scenario. The acquisition is legitimate, the inaccuracy lies in the fact that a valid encumbrance has been omitted from the title sheet. Although there is no possession requirement, the encumbrance will only be extinguished where the person acquiring ownership is doing so a year or more after the person granting the deed acquired ownership (or a combined one year period of the granter and grantee ownership).
The encumbrances that the acquirer is protected against are those that the Keeper would warrant have not been entered in the title sheet. For example, if the Keeper has warranted that a title sheet is not subject to any standard securities, but in fact there is an outstanding security not disclosed on the register, the realignment of right provisions would have the effect of extinguishing this encumbrance.
The realignment provisions do not however apply to any encumbrance which does not require to be entered in the land register. For example, there are certain encumbrances excluded from warranty by the 2012 Act such as public rights of way and paths delineated in an order under section 22 of the Land Reform (Scotland) Act 2003, and these are exempt from the realignment provisions. Encumbrances that are not capable of registration such as short leases and off-register events such as servitudes acquired by prescription, are not affected by the realignment provisions.
In addition, this section does not apply to heritable securities omitted from a shared plot title sheet by virtue of s.18(3)(b).
Assigned lease
Section 92 of the Act provides that for an assignation of a lease there are only two distinct types of encumbrance capable of being extinguished by virtue of the realignment provisions. The first is heritable securities over the lease and the second is title conditions (more particularly those defined in s.122(1)(d) and (e) of the Title Conditions (Scotland) Act 2003).
On registration of a leasehold interest under the 2012 Act, the Keeper will generally exercise her statutory discretion to create a leasehold title sheet separate from the landlord's title sheet. Such leasehold title sheet will disclose only the leasehold conditions and not repeat the encumbrances pertaining to the landlord's title. However, the encumbrances referred to above relate to the leasehold interest only and do not refer to the omission of any title conditions affecting the Landlord's title which may have been omitted in error from a tenant's title sheet created under the 1979 Act. Rectification of a leasehold title sheet created under the 1979 Act where the omission of an encumbrance relative to the landlord's interest is discovered would be possible if what was required to be done was also manifest, provided that section 91 (extinction of encumbrance when land is disponed) had not extinguished the same in relation to the landlord's title. Where title conditions affecting a landlord's title were shown in a leasehold title sheet created under the 1979 Act, but have been omitted from and extinguished on the landlord's title under s.91, the extinguished burdens cannot be leasehold conditions since tenants are only under a burden to comply with the title conditions in the landlord's title.
Floating charges
Realignment has the effect of protecting a bona fide grantee from the risk of a floating charge crystallising over their property where the floating charge was granted by a predecessor in title of the person who disponed the property to them.
Compensation
Where the realignment principles have operated and a good faith proprietor has acquired a right to what is entered in the register, a person may have been deprived of a right, for example a person who has lost land or the right to enforce a standard security. In such cases, provisions in Part 9 allow for the payment of compensation by the Keeper to such persons deprived of the right. Payment of compensation by the Keeper under these provisions does not extinguish any rights which the claimant may have against another person in respect of the loss compensated, however a condition of the payment is that the claimant assigns these rights to the Keeper. The claimant must therefore sign an assignation as a prerequisite to a payment of compensation by the Keeper.
The compensation payable includes reimbursement of reasonable extra-judicial legal expenses and compensation for other consequential loss. Proof that a claimant has paid for extra-judicial legal expenses and the date of that payment (as well as evidence of when any consequential loss was actually sustained) will be required in order to calculate any interest due. Section 94(6) sets out limits to the compensation the Keeper is liable to pay, for example, no compensation is payable for non-patrimonial loss.
View further guidance on compensation.
Judicial determination
Realignment occurs by operation of law and the Keeper will follow the presumption that realignment has occurred in relevant circumstances, unless a party obtains a judicial determination to the contrary.
If the Keeper is in any doubt as to the operation of realignment in any particular case, a judicial determination must be sought in order to show that the land register is inaccurate and potentially to make manifest what action is required to make it accurate. In such cases, where it has been determined that realignment has not occurred, the Keeper will be able to rectify the register.
Annex 1
Registration of void deed under 1979 Act
This example demonstrates the effect when a void deed is registered under the 1979 Act. As a result of the terms of section 3(1)(a), the registration of a void deed can have the effect of making the registered proprietor owner. This, of course, is contrary to the general rules of property law.
Here we have 3 characters, Ivor who has a title to the property recorded in the Register of Sasines. Fred, who impersonates Ivor while he is away on a round the world cruise and who dispones the property to Patrick.
Under the 1979 Act, on the registration of the disposition in favour of Patrick he acquires ownership immediately and as long as he is in possession of the property he is invulnerable to rectification. Ivor loses ownership of the property, he cannot get his property back as long as Patrick is in possession. His only recourse is to ask for indemnity from the Keeper.
This is the classic example of bi-juralism, in property law terms Ivor is still the owner but registration law says that Patrick is the owner.
Registration of void deed under 2012 Act
We will now look at the same scenario under the 2012 Act
There is no provision in the 2012 Act that is equivalent to section 3 of the 1979 Act. So on the registration of the deed in favour of Patrick he does not become owner, as the rules of property law apply: a void deed has no legal effect.
As long as RoS was not aware of the fraud, Patrick would be entered in the proprietorship section of the title sheet and would receive the Keeper's warranty. However, Ivor remains owner and the register is inaccurate, as it mis-states what the position is in law.
If Ivor can establish that there is a manifest inaccuracy in the register, he could get the register rectified and get his property back. If this was to happen, Patrick would obtain compensation from the Keeper. It is likely that in this scenario the matter would have to be judicially determined unless the parties are agreement.
Now we will look at how realignment affects this scenario.
2012 Act: realignment of rights following void deed
A new character now enters the scenario. Patrick has now sold the property on to Patricia.
The criteria for realignment of rights to happen are in place, over a year has elapsed since Patrick was entered in the property section of the title sheet and he has possessed the property for that period, Patricia is in good faith, there is no caveat on the title and Patrick received warranty from the Keeper.
On the registration of the disposition in favour of Patricia, she becomes owner. The register is no longer inaccurate. Ivor has now lost ownership of the property. He is now only eligible to get compensation from the Keeper.