The law concerning legal estates and beneficial interests in land

What is an estate in land?

An estate in land is essentially the legal and beneficial rights and interests a person has over land and property. The majority of land law is comprised in the Land Registration Act 2002 which simplified and updated the law which had, until then, dated back to 1925.

The Land Registry is a government run register of ownership of all the land and property in England and Wales, except for land and property that remains unregistered because it has not been sold or transferred (or otherwise dealt with) for very many years. The 2002 Act makes this Register a complete picture of title (ownership) to land and property, and shows the rights, obligations and interests attaching to or affecting the land.

What is a legal estate?

Theoretically, all land belongs to the Crown. Strictly speaking therefore, a person cannot own land but, instead, owns a series of rights in relation to that land which is known as an ‘estate’. Under the 2002 Act, a land owner can own either the Freehold estate or the Leasehold estate in land which will then be registered at HM Land Registry.

On a transfer or grant of property, the legal owner/s will be registered by HM Land Registry as the Registered Proprietor/s with the appropriate class of legal title, depending on the nature of the land. It will be up to the land registrar which class of title will be registered based on the legal documentation and evidence provided on the transfer or grant.

Freehold title

  • Absolute title: the best form of legal title to land. The legal estate is vested in the registered proprietor and is subject only to entries on the register and to overriding interests.
  • Possessory freehold title: registered where there is a lack of documentary evidence of title, for instance, if the title deeds have been lost and it means there is no absolute guarantee of title at the time of registration. After 12 years, the registered proprietor can apply to have it upgraded to absolute title.
  • Qualified freehold title: this is rare, and if given where there is a fundamental defect with the legal title (for instance, there has been a breach of trust).

Leasehold title

  • Absolute leasehold title: as above, and the registered proprietor will also be subject to covenants in the lease.
  • Good leasehold title: this is where the right of the landlord to grant the lease is not guaranteed.
  • Possessory leasehold title: same as possessory freehold.
  • Qualified leasehold title: same as qualified freehold.

Joint legal owners

Where there are two or more legal owners, they will all be registered as joint registered proprietors. As legal owners, they jointly own the legal estate and it cannot be ‘divided’ between them, nor can any of them own a divisible ‘share’ of the legal estate. Therefore, on the sale or other transfer or disposition of the land, each registered proprietor must be a party to any mortgage deed, sale contract, lease or transfer.

If one of the legal owners dies, the legal title passes automatically to the remaining legal owner/s.

Legal interests

A legal interest is a legal right over land which is effectively a complete, permanent and absolute form of ownership. For example, a legal easement is a legal right of way over someone else’s land, sometimes created by a formal legal deed. The 2002 Act requires that a Notice must be entered in the register for the servient land (the land over which the right is exercised) and, if the dominant land (the land exercising the right) is also registered – the benefit must be entered in the register for the dominant land.

The following legal dispositions also create a legal interest and must be registered in order to operate in law:

  • A rentcharge, ie. the land is charged with the payment of an annual or periodic sum to a rent charge owner (this does not include rent paid under a lease).
  • A charge by way of legal mortgage.
  • A right of entry exercisable over or in respect of a legal term of years absolute or as an extension to a legal rentcharge.

Equitable or beneficial interests

Equitable (or beneficial) interests in land and property are effectively the financial interests in property, for instance:

  • The interest of a beneficiary under a trust. A trust exists when the legal estate in property is held by one person (known as a trustee) upon trust for another (known as a beneficiary), either because an express trust is created or because equity recognises that a trust exists in the circumstances.
  • Co-ownership – where, for example, two or more are joint registered proprietors and they own a specific share of the value of the property.
  • An interest arising under a contract relating to a legal estate or legal interest, for instance, a written agreement to buy land (ie. on exchange of contracts).

Legal interests not created correctly in law

The law requires a formal legal deed to be properly executed in order for a legal estate or interest in land to be created. If the requirements are not satisfied, the estate will remain a beneficial interest in the land until the formalities are complied with.