REF/2005/1186

The Adjudicator to Her majesty’s Land Registry
LAND Registration act 2002

IN the matter of a reference from hm land registry

BETWEEN:

Highland Loughborough Limited

APPLICANT

and

Metrobrook Limited

RESPONDENT

Property Address: The Blue Boar Public House and land Loughborough Leicestershire LE11 5BG
Title Numbers: LT247143, LT294338 and LT337087

Before: Mr Edward Cousins sitting as The Adjudicator to HM Land Registry

Sitting at: Procession House
On: Monday 29th January 2007

Applicant Representation: 	Jonathan Small QC of Counsel instructed by Messrs Boodle Hatfield, Solicitors
Respondent Representation: 	Helen Galley of Counsel instructed by Messrs Grower Freeman, Solicitors

DECISION
(Corrected pursuant to Rule 57 of the Adjudicator to Her Majesty’s Land Registry (Practice and Procedure) Rules 2003)

RIGHTS OF PRE-EMPTION – created prior to 13th October 2003 – whether such a right can be registered under the notice procedure under the Land Registration Act 2002 s 32(1) – the effect of s 115 – whether a restriction in Form L under s 42(1) be registered in the alternative

Cases referred to:
Pritchard v Briggs [1980] Ch 338
Specialty Shops v Yorkshire and Metropolitan Estates Limited [2003] 2 P & CR31

	THE APPLICATION
1.	Before the Court there are three conjoined applications made by Highland Loughborough Limited for cancellation of three unilateral notices (“the Notices”) dated 9th March 2005 registered by Metrobrook Limited (“the Respondent”) against each of three registered titles, namely LT247143, LT294388, and LT337087.  The Notices were entered in order to protect rights of pre-emption affecting the land in those titles.  The rights of pre-emption are contained in a Supplemental Agreement dated 27th March 2001 at clauses 5.8.1 and 5.8.2. The applications for cancellation are dated 16th March 2005.  The matter comes before me as a trial of a preliminary issue as ordered on 29th March 2006 in accordance with Rule 31 of the Adjudicator to HM Land Registry (Practice and Procedure) Rules 2003 in the following terms:

“Whether the rights granted to the Respondent by Clause 5 of the Supplemental Agreement referred to in the Statements of Case amount to an interest affecting a registered estate within the meaning of section 32(1) of the land registration Act 2002”

2.	The grounds for the applications by the Applicant to cancel are that, even if the rights of pre-emption still exist (and there is no admission that they do), the Respondent is not entitled to register the same to protect such rights as they are not capable of protection by means of the Notices. This submission is based upon the judgment of the Court of Appeal in the case of Pritchard v Briggs [1980] Ch 338.  Despite this contention, the Respondent continues to maintain its objection to the cancellation of the Notices. Following the letters of objection from the Respondent’s solicitors dated 30th March 2005 and the subsequent notices of objection under Section 73 of the Land Registration Act 2002 (“the 2002 Act”) the matter was referred to this Office on 25th July 2005.  

3.	I should state that as an alternative contention, the Respondent (through its Counsel) sought to argue that a restriction in Form L should be registered against the three titles.  Technically, this matter was not before me at the hearing on 29th January 2007 as it was not the subject of a referral from H M Land Registry.  I will, however, deal with this alternative application de bene esse.

THE ISSUE
4.	The issue in this case is whether or not there is any power to register the Notices in favour of the grantee of rights of pre-emption which was granted pursuant to the Supplemental Agreement made prior to the coming into force of the Land Registration Act 2002 on 13th October 2003.  The Respondent maintains that the power to register such Notices does exist.  The Applicant maintains that they cannot be so registered.

THE SUPPLEMENTAL AGREEMENT - THE RELEVANT TERMS
5.	It is first necessary to consider and construe the relevant terms of the Supplement Agreement. The history of the matter is as follows: by an Agreement dated 16th June 1999 (“the Principal Agreement”) the Respondent entered into an Agreement with Ashquay Group plc as to the acquisition of certain defined land (“the Site”) in Loughborough, Leicestershire on the terms contained in the Principal Agreement.  Subsequently the Respondent entered into the Supplemental Agreement with Ashquay (Loughborough) Limited and Ashquay Group plc, as Surety, for the development of the Site on the terms therein contained.  There was a further Supplemental Agreement entered into on 7th August 2001 between the same parties and a fourth party (Dundas Properties Limited) for the release of Ashquay Group plc and the substitution of Dundas Properties Limited.  That Agreement is not relevant to the current proceedings.  I should also add that on 20th August 2001 Ashquay (Loughborough) Limited changed its name to the Applicant in these proceedings. Thus the Supplemental Agreement was entered into between the parties prior to 13th October 2003.

6.	Clause 5(1), and in particular sub-clauses 5.8.1 and 5.8.2 (the latter being wrongly referred to as 5.8.3 in correspondence) contain the relevant terms of the right of pre-emption (or the right of first refusal as it is referred to) in respect of the Site.

7.	Clause 5.1 provides that if at any time after 27th March 2001 the Applicant and/or the Surety wish to sell (but not lease, mortgage or grant any rights over) any interest they hold in the Site and/or the Development as defined), or in any part or parts thereof, they shall first give a written notice (“the Written Notice”) to the Respondent of their wish.  Under clause 5.2 the parties shall then have 21 days from the receipt of the Written Notice by the Respondent to agree a price to be paid by the Respondent for such interests held in the Site and/or the Development.  Sub-clauses 5.3 to 5.7 provides the process to be followed following the Written Notice, including the determination of the price in the absence of any agreement between the parties pursuant to clause 5.2.

8.	Clause 5.8 of the Supplemental Agreement further provides as follows:-

“For the avoidance of doubt:

5.8.1	No part of the Site and/or the Development shall be offered for sale unless [the Applicant] shall have first complied with the provisions of clause 5.1 to 5.7 hereof.

5.8.2	All the interests of [the Applicant] and the Surety in the Site and the Development must first be offered for sale to [the Respondent] under and be subject to the process described by, clauses 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 and 5.7 hereof before either the Surety [or the Applicant] is permitted to offer for sale or transfer any part of the Surety’s shareholding in [the Applicant].”

9.	Following this, practical completion of the Development took place on 15th April 2004.  Since then neither the Applicant nor the Surety have embarked upon the procedure set on in clause 5 as to the sale of any interest they hold in the Site and/or the Development.  In other words the event triggering the exercise of the rights of pre-emption has not yet occurred.  As I have stated above, however, on 9th March 2005 the Respondent registered the three Unilateral Notices against the Titles at H M Land Registry on the contention that it had an interest to protect.

10.	The short question thereof arises as to whether the Notices can be maintained in the Register in these circumstances when the terms of the Supplemental Agreement providing for the rights of pre-emption preceded the coming into force of the Land Registration Act 2002 and in the absence of any triggering event which would create an option to purchase.

THE LEGAL POSITION
Section 115 of the 2002 Act
11.	I should refer to section 115 of the 2002 Act in so far as rights of pre-emption are concerned.  This provides as follows:-

“(1)	A right of pre-emption in relation to registered land has effect from the time of creation as an interest capable of binding successors in title subject to the rules about the effect of dispositions on priority. [my italics]
(2)	This section has effect in relation to rights of pre-emption created on or after the day on which this section came into force.”

12.	Several important considerations arise from the enactment of this section.  First, it is not retrospective i.e. the rights of pre-emption have to have been created on or after 13th October 2003.  Secondly, it is, in effect, a statutory reversal of the dicta in Pritchard v Briggs [1980] 1 Ch 338 where the Court of Appeal held that a right of pre-emption unlike an option to purchase did not confer an immediate interest in the land.  Until the triggering event occurs the grantee of the right of pre-emption does not have an interest, legal or equitable in the land (see Barnsley’s Land Options, Fourth Edition, paragraph 6-009). The problem for the Respondent in the present case is, therefore, that they cannot rely upon the provisions of section 115 of 2002 Act to support the registration of the Notices. 

	Part 4 of the 2002 Act
13.	The Respondents therefore seek to argue that the provisions of Part 4 of the 2002 Act can be prayed in aid in support of its contention that the Notices are an appropriate method of protecting its rights of pre-emption. That Part deals with the entry of Notices and Restrictions.  Sections 32 to 39 are concerned with Notices and sections 40 to 47 deal with Restrictions.  Section 32 provides as follows:-

“(1)	A Notice is an entry in the Register in respect of the burden of an interest affecting a registered estate or charge [my italics]
(2) 	The entry of a Notice is to be made in relation to the registered estate or charge     affected by the interest concerned.”

14.	Section 32(3) further provides that the fact that an interest is the subject of a Notice does not necessarily mean that the interest is valid, but it does mean that the priority of the interest, if valid, is protected for the purposes of sections 29 and 30, which deal with priorities.

15.	Section 33 is concerned with excluded interests such as an interest arising under a trust for sale which cannot be entered in the Register.  Section 34 provides that a person who claims to be entitled to the benefit of an interest affecting a registered estate or charge may, provided it is not excluded by Section 33, apply to the Registrar for the entry in the Register of a notice in respect of that interest.  The relevant application will be for a unilateral notice unless the relevant registered proprietor consents to the entry of the notice.  Section 35 makes provision for unilateral notices and section 36 sets out the scheme for cancellation of such notices.  I shall deal with the question of the entry of a restriction in the Register, below.

16.	I should also make reference to the general interpretation section of the 2002 Act, section 132. In particular, sub-section (3)(b) provides that in the 2002 Act references to an interest affecting an estate or charge are to an “adverse right affecting the title to the estate or charge”.

Cautions
17.	I should also state in this context that since 13th October 2003 the previous method of lodging a caution with the Registrar against dealings pursuant to section 54 of the Land Registration Act 1925 (as amended) is no longer possible since the repeal of that Act by virtue of the provisions of the 2002 Act.  Thus, the only method possible for a person seeking to protect an interest is now by way of the registration of a notice pursuant to the provisions contained in Part 4. As I have stated above, this must be in respect of the burden of an interest affecting a registered estate or charge.  

 18.	The regime under which a caution could be lodged to support a right of pre-emption prior to 13th October 2003 was precarious and impermanent. It was described as “essentially a procedure…. not an interest in land” (Clark v Chief Land Registrar [1993] Ch 294 at p 314, affirmed [1994] Ch 370). It entitled the cautioner to be warned of any proposed dealing with the property, and to be given an opportunity to assert priority for his interest, but it did no more than that (ibid. at pp 383, 314). It did not confer any priority in itself. In short, it was effective to gain notice of dealings – not to override purchasers. By contrast, where there is a Notice on the Register that entry protects the priorities.

19.	I appreciate that as a matter of practice the Land Registry tended to allow  cautions lodged in the Register to remain there.  It must be said, however, that on an application to have the caution vacated in an appropriate case the court would so order.  Its precarious nature is illustrated in the case of Specialty Shops v Yorkshire and Metropolitan Estates Limited [2003] 2 P & CR 31 where Park J directed that the cautions lodged at the Land Registry be vacated.  Following the case of Pritchard v Briggs he held that until the triggering event (however it may be expressed) occurs the grantee to the pre-emption contract does not have an interest, legal or equitable capable of being protected by the lodging of a caution under section 54 of the 1925 Act (at p.416, paragraphs 22 and 25).  Any rights held by the cautioner were only contractual.  

20.	There was some discussion between Counsel whether the relevant parts of the judgments in Pritchard v Briggs were obiter and therefore not binding upon me.  Mr Small QC made detailed submissions on this point during the course of the hearing. In that case the grantor granted a right of pre-emption, but before any triggering event had occurred the grantor granted an option to a third party. Subsequently the triggering event under the right of pre-emption arose.  The question, therefore, was one of priorities. Did the right of pre-emption have priority as it was granted before the option, or did the option have priority as was granted before the triggering event under the right of pre-emption arose?  For the purposes of this decision I accept that the judgments of the Court of Appeal on the point that the option in that case took priority over the right of pre-emption, since the right of pre-emption did not create any interest in the land by itself as no triggering event had occurred at that stage, formed part of the ratio decidendi of the case (see Goff LJ at p 389B-C, 394F, Templeman LJ at 418B-E, and Stephenson LJ 422H). Even if I am wrong on this point it is clear that the Court in that case stated that a right of pre-emption, unlike an option, did not confer an immediate interest in the land the subject of the grant until the triggering event occurs. Whether it did after that event was a matter of debate (see Goff LJ at p 396F-G, and contra Templeman LJ at p 421C-D, Stephenson LJ at p 423B-C).

21.	Thus, dependent upon the wording of the contract, the grant of right of pre-emption does not, of itself, confer an interest in the land upon the grantee.  It could do once the triggering event occurs entitling the grantee to exercise the right in which case it is in effect converted into an option which is capable of registration.  

THE DECISION ON THE RIGHTS OF PRE-EMPTION
22.	In my judgment, therefore, and having regard to the facts of the present case it is plain that a right of pre-emption created prior to October 13th 2003 cannot rank as a proprietary interest in land.  Further, in my judgment it cannot form the subject matter of a notice because it is not in itself  “an interest affecting a registered estate or charge” for the purposes of section 32(1) of the 2002 Act.  In short it is not an interest in land.  It is a mere spes contingent upon the occurrence of certain events under a contract.

23.	I am fortified in this interpretation by the virtue of the fact that it was perceived to be necessary to enact the provisions of section 115 of the 2002 Act so as to enable rights of pre-emption to be classified as interests capable of binding successors in title for the future. Such rights granted post 13th October 2003 are, therefore, sufficient to fall within the terms of section 32(1) for the purpose of entering a notice “in respect of the burden of an interest affecting a registered estate or charge”, meaning an adverse right affecting the title to the estate or charge as statutorily defined by section 115.  The fact that there has been this statutory intervention post the 2002 Act means that this provides a fundamental weakness in the Respondent’s case as to the circumstances before.

THE PROPOSED RESTRICTION IN FORM L
24.	I finally turn to the provisions of section 41 of the 2002 Act. This defines the nature of a restriction being an entry in the Register regulating the circumstances in which a disposition of a registered estate or charge may be the subject of an entry in the Register.  Section 41 deals with the effect of the entry of such a restriction, and section 42 sets out the power of Registrar to enter a restriction.  In particular section 42(1) provides that the Registrar may enter a restriction if it appears to him that it is “necessary or desirable to do so for the purpose of, inter alia,

1.	preventing invalidity or unlawfulness in relation to dispositions of a registered estate or charge, 
2.	….
3.	protecting a right or claim in relation to a registered estate or charge.”

Sub-section 2 provides that no restriction may be entered under sub-section 1(c) for the purpose of protecting the priority of an interest which is, or could be, the subject of a notice.  This means that there can be no overlap between the provision as to notices and the provisions as to restrictions.

25.	Putting aside the fact that there has been no formal referral of any dispute to this Office in relation to the desire on the part of the Respondent as to the entry of a restriction in the Register of Title, I consider that such an application would be without merit.  I re-iterate the point made above, that the scheme under clause 5 of the Supplemental Agreement is for the grantors (the Applicant and/or the Surety) in certain circumstances to give the Written Notice to the Respondent if they are desirous of selling any interest they hold in the Site and/or the Development.  Any “interest” that the Respondent has in the Site and/or the Development is merely a spes granted as a contractual provision in the Supplemental Agreement.    In short, unless and until the Applicant signifies their intention of their desire to sell, at which stage the Written Notice should be given to the Respondent, there is no interest to protect. Further, there is, and has been, no disposition of registered estate in respect of which any invalidity or unlawfulness should be prevented.  Nor is there any right or claim in relation to that registered estate or charge which similarly should be protected.

THE DECISION ON THE PROPOSED RESTRICTION
26.	In such circumstances, I reject the Respondent’s contention that a restriction in Form L, or indeed any restriction, should be entered against the Applicant’s title.

27.	Accordingly, I shall direct the Registrar to give effect to the original applications.

Dated this 29th January 2007
Re-dated this          February 2007

By Order of The Adjudicator to HM Land Registry