Realignment of Rights

General

The 2012 Act is intended to provide certainty to third parties that they can rely on the register and that they will receive a legal right to what the register contains. This is partly through the warranty provisions and partly through the realignment of rights provisions contained in Part 9 of the 2012 Act at sections 86 to 95.

They provide that where there is a latent (hidden) inaccuracy in the register then, provided certain conditions are met, on the registration of a deed in favour of an applicant, that applicant will receive legal title to what the register states.

The Keeper has a legal duty to rectify the Land Register where there is a manifest inaccuracy provided what is needed to be done is also manifest, subject to certain limited restrictions. Typically then, the register will be rectified to reflect the property law position. However, the provisions for realignment of rights provide for circumstances where the register is inaccurate in law or in fact, but is not to be rectified. The provisions mean that rather than the register being amended, the property law rights are instead aligned to what the Land Register states them to be.

A registration officer working in the Post Registration Enquiries team will require to consider whether realignment might have operated as part of assessing whether there is or is not a potential inaccuracy.

There are summaries below of the various realignment provisions, some worked examples, and information about the compensation arrangements following the operation of realignment for the person(s) who loses the ability to have the register rectified.

Realignment v. Prescription

Realignment cannot occur where a title with a latent inaccuracy is not transacted on. However, in such a situation the law of prescription may be relevant and may (depending upon the passage of time since the latent inaccuracy was entered in the register and whether possession is sufficient) render the registered title unchallengeable. See the Prescription and Limitation (Scotland) Act as amended by the 2012 Act.

Potential Requirement for Judicial Determination in Certain Cases

Whether realignment of rights may have operated is a matter for a registration officer in the Post Registration Enquiries team to consider when assessing requests for rectification of alleged inaccuracies in the Land Register, and they should also consider whether prescription may have rendered a title unchallengeable if realignment cannot have altered rights. In general terms, because realignment occurs by operation of law, registration officers will follow the presumption that it has occurred in relevant circumstances, unless a party obtains a judicial determination to the contrary. If there is any doubt as to the operation of realignment in a particular case, a judicial determination must be sought in order to show that the register is inaccurate and may also be necessary to make manifest what action is required on the Keeper's part to make it accurate. Once such judicial determination is obtained, the Keeper will be able to rectify the Land Register.

Realignment Provisions in 2012 Act

Realignment can only operate in relation to certain types of inaccuracy. The section below sets out the six situations where the realignment provisions can operate:

Realignment of Ownership on Transfer of a Registered Plot - s. 86 & 87

Section 86 of the Act lists the conditions that allow realignment to operate. When Seller A, whose title is in fact void, dispones the affected registered plot to Purchaser B, a third party who is transacting with Seller A, the conditions to be met are as follows:

(1) 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;
(2) 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;
(3) 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);
(4) That the disposition would have conferred ownership on Purchaser B if Seller A had been the legal proprietor when the land was disponed;
(5) That at no time during the one year period was there:

(a) a caveat on the title sheet, or
(b) a statement on the title sheet to qualify that the name and designation of the proprietor was not known with reasonable certainty; and

(6) 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 the example, realignment means that Purchaser B has the benefit of a title free from the threat of rectification.

Section 87 makes provision for realignment to operate where a disposition is granted/executed by a representative of a registered proprietor, such as a trustee, executor or attorney, on the same conditions.

Realignment of Tenancy on Registration of Assignation of a Registered Lease - s. 88 & 89

Realignment can also operate on leasehold titles where the lease has been acquired from an assignee who does not have a valid title. Realignment does not operate for:

assignations of non-existent leases (where for example the lease had terminated by an off-register event); or
invalid grants of new leases (where for example the granter did not own the land purportedly let).

For the realignment of an assignation of an extant lease to occur, the same criteria must be met as for Realignment of Ownership.

Section 89 makes provision for realignment to operate in the same circumstances when the assignation is granted/executed by a representative of the registered tenant, such as a trustee, executor or attorney.

Creation of a Servitude following a Grant by a Person not the Proprietor of Burdened Subjects - s.90

Section 90 allows for servitudes granted by a person who is entered in the proprietorship section of a title sheet for a plot of land, but whose title is based on an invalid deed, 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 at Realignment of Ownership.

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 that 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 entirely because a servitude could be 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 otherwise invalid servitude, this would have the effect of imposing servitudes upon properties without consent of the true owner(s) of the affected property.

Extinction of Omitted Encumbrance when Land is Disponed - s.91

A person acquiring ownership of land, having acted in good faith and providing the title is free from any caveat, receives the property free from any encumbrances omitted in error from the title sheet at the time of their acquisition.

The encumbrance will only be extinguished where the person acquiring ownership is doing so a year or more after the person granting the deed in their favour acquired ownership (or a combined one year period of ownership).

There is no requirement for possession as there is no question of there being a ‘true’ owner in this scenario.

Realignment cannot extinguish the following types of encumbrance:

public rights of way;
public paths designated under public path orders under the Land Reform (Scotland) Act 2003;
servitudes which burden land but were created other than by dual registration;
leases; or
encumbrances which do not require registration to be created.

These are types of encumbrance which the Keeper's warranty does not cover. In addition, this section does not apply to heritable securities omitted from a shared plot title sheet but entered in the sharing plot title sheet. (If the security only affected the shared plot then omitting it from the shared plot title sheet would allow realignment to operate.)

The types of encumbrance that realignment could affect include real burdens, and servitudes created by dual registration under section 75 of the Title Conditions (Scotland) Act 2003, or heritable securities which do not fall within the exception for those affecting a shared and sharing plot.

Extinction of Omitted Encumbrance when a Lease is Assigned - s.92

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:

a heritable security over the lease; and
those title conditions defined in section 122(1)(d) and (e) of the Title Conditions (Scotland) Act 2003, being a condition in a registrable lease where it relates to the land or a condition or stipulation imposed in an assignation of a lease or contained in a deed of conditions where the conditions are incorporated by the assignation.

An obligation to pay rent under a lease cannot be extinguished by operation of realignment. (An obligation to pay rent being one of the essentials for a valid lease.)

A leasehold title sheet created following the implementation of the 2012 Act will disclose only the leasehold conditions and not repeat the encumbrances pertaining to the plot of land or a head tenant's title if the registered lease is a sub-lease.

However, this form of realignment only operates in relation to encumbrances affecting the tenant's right and not real burdens etc affecting the plot of land/ownership right which may have been omitted from a lease title sheet completed under the 1979 Act (at which time the keeper did enter such burdens in lease title sheets too).

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 Charge Extinguished when Land Disponed - s.93

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. This means that the scenario where realignment could occur is:

A Limited owns property and grants a floating charge to B Bank plc;
A goes into receivership (this is crystallisation of the floating charge) and the property subject to the floating charge falls to be dealt with by the receiver;
Around the same time, A Limited grants a disposition of the property to C, but because the disposition is delivered after the date of crystallisation of the floating charge; the disposition to C is not valid;
C grants a disposition of the property to D;
Providing D is in good faith and is unaware of the crystallisation of the floating charge, on the date of registration of the disposition to D, the floating charge is extinguished and cannot now affect D's title to the property.

In contrast, if the disposition to D is never granted, then C's title would be subject to the floating charge.

For the avoidance of doubt, a floating charge is not a registrable deed.

When is the Keeper Aware of an Inaccuracy?

The Keeper is not 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 section 80. Accordingly, an unsubstantiated claim of inaccuracy intimated to the Keeper would be insufficient in itself to prevent realignment occurring. The following examples illustrate the scenarios most likely to be encountered:

Registration of void deed

Scenario

Effect of Registration under 2012 Act

How might Realignment affect the position?

The scenario is that Patrick Purchaser acquires land from Fred Fraudster who is impersonating Ivor Innocent, the actual owner of the land.

Ivor's signature on the deed is a forgery.

On registration of the deed in favour of Patrick he does not become owner: this is because 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 unless it was expressly limited or excluded.

However, Ivor remains owner. 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 in agreement.

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.

Real burden wrongly omitted from burdened property title sheet

Scenario

Effect of Registration under 2012 Act

How might Realignment affect the position?

The scenario is that Mary O'Brien owns a registered property.

The property was, at the time that Mary acquired it, subject to (burdened by) a real burden.

At first registration that burden was wrongly omitted from the title sheet because the burden still subsisted.

Mary receives the benefit of warranty at the time of registration that there were no omitted encumbrances but the land is still subject to/affected by the real burden. The title sheet is inaccurate and rectification could proceed if the inaccuracy was made manifest to the Keeper.

If that happened Mary might be eligible to request compensation for breach of warranty, depending upon the facts and circumstances, since there are limitations on when the Keeper is bound to pay compensation for breach of warranty.

After two years of ownership, Mary sells to the plot to Frank D'Mello. He is in good faith and knows nothing of the omitted encumbrance, nor is there any caveat on the title sheet.

On registration the disposition in favour of Frank, the real burden is extinguished. The register is no longer inaccurate and the person entitled to enforce the real burden can no longer do so. The former benefited property proprietor is now only eligible to seek compensation from the Keeper. This is provided by section 91. See above for types of encumbrance where realignment cannot operate to extinguish the encumbrance.

Heritable security wrongly omitted from title sheet

Scenario

Effect of Registration under 2012 Act

How might Realignment affect the position?

The scenario is that Mary O'Brien owns a registered plot.

At the time of first registration the plot was subject to a heritable security in favour of the Bank of Alba which was recorded in the Sasine Register.

In Mary's application for voluntary registration it was inadvertently wrongly indicated on the application form that a search for heritable securities had not disclosed outstanding heritable securities. In reliance on that information, the title sheet omitted the heritable security. Neither Mary nor the agents who submitted the application on her behalf questioned this omission following registration.

Mary receives the benefit of warranty at the time of registration that there were no omitted encumbrances which includes heritable securities but the land remains subject to the heritable security.

The title sheet is inaccurate and the security could be added to the title sheet if the inaccuracy was made manifest to the Keeper, for instance if Mary's agents had written post registration to advise of the existence of the security and providing the relevant information about it.

If rectification occurred, in theory Mary is eligible for compensation for breach of warranty, though it is unlikely that a claim would be successful if she ought to have been aware that the heritable security remained outstanding. Depending upon why the heritable security was not disclosed in the voluntary registration application form, the Keeper may be able to recover sums paid out in compensation as a result of the duty of care provisions relating to applicants and their agents.

After two years of ownership, Mary sells the plot to Frank D'Mello. He is in good faith and knows nothing of the omitted heritable security, nor is there any caveat on the title sheet.

On registration of the disposition in favour of Frank, the heritable security is extinguished and the payment of monies outstanding cannot be enforced by the heritable creditor via power of sale. The debt remains outstanding and payable by Mary and if the creditor cannot recover the monies payable then the creditor is eligible for compensation for their resulting loss. This is provided by section 91. See above for types of encumbrance where realignment cannot operate to extinguish the encumbrance.

Compensation

Compensation claims arising as a result of the operation of realignment are dealt with by Legal Services staff. This information is provided for background purposes only.

Where the realignment principles have operated and a good faith proprietor has acquired a right to what is entered in the register, another person may have been deprived of a right. For example, a person may have ceased to be the proprietor of land or have lost the right to enforce a standard security by selling the property.

In such cases, sections 94 and 95 allow for the payment of compensation by the Keeper to persons deprived of their rights. 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 incurred 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. There is no liability to pay compensation:

in so far as the claimant's loss could have been avoided by the claimant taking measures which were reasonable for them to take; or
in so far as the loss is too remote; or
for non-patrimonial loss.

Non-patrimonial loss would be such matters as pain, suffering or emotional harm (sometimes called solatium).