Equitable easements – a trap for the unwary developer

When purchasing a development site, it is important to make sure that the site can be used for the purpose for which it is acquired. When it comes to easements, in theory a purchaser should not get any nasty surprises. However, overriding equitable easements can be hard to detect but can have costly consequences. What are they, what is their impact and how can the risk they present be minimised?

Types of easement

Legal easements must be noted on the title of the servient (ie burdened) land. An easement which is not noted on the title can only take effect as an equitable easement. The reason this matters is because of the way that they bind purchasers. A legal easement will bind all purchasers, regardless of whether they knew of it, whereas an equitable easement will only bind a purchaser who had knowledge. The problem with equitable easements is how "having knowledge" can be defined.

Equitable easements

There are three ways in which an equitable easement can bind a purchaser:

1. If it has been protected on the Land Charges Register as a D(iii) land charge. The purchaser's solicitors will search this register during the due diligence process so will uncover any such easement.
2. (In relation to certain equitable interests over unregistered land) if the purchaser actually knew of its existence (whether directly informed by the seller or the owner of the easement, or from its own investigations). Again, the purchaser here is not taken unawares.
3. If the easement forms an "overriding interest" within the meaning of the Land Registration Act 2002 ("LRA"). This means that it overrides the sale/lease of the land and binds the purchaser even though it is not noted on the title. Here is where things get trickier.

Overriding interests

Overriding interests are a strictly limited category prescribed by the LRA. An equitable easement will override the sale only if:

1. the easement was created before 13 October 2003;
2. the servient land (ie the land being purchased) was registered on or before 13 October 2003; and
3. the right was being "openly used and exercised" at the time of the sale.

The danger is that an easement, such as a right of way benefiting a neighbour, can be created by prescription (use for a period of 20 years) with no need for any paperwork or notification whatsoever. If it arose pre-2003 it could bind a purchaser, even one who did not know of its existence. The "openly used and exercised" requirement is objective. It does not matter that the purchaser did not spot it, only that they could have spotted it if they had looked.

The implication of overriding equitable easements should not be underestimated. In a worst case scenario, an overriding equitable easement may be fundamentally incompatible with the developer's plans for the site: a right of way may run straight through the middle of a proposed block of housing, for example. In areas where the neighbouring plots of land may not have changed hands for many years, the neighbours will be the only parties who can provide testimony as to the historic use of their property, and the developer may not be able to disprove their assertions that the easement had arisen prior to October 2003 and has been used ever since. The developer may have little choice but to negotiate with the owner of the easement for a release of the right in question, and this could prove expensive.

What can a purchaser do?

Developers should inspect the land very carefully prior to purchase. An easement does not have to be in use 24/7 to be "openly exercised and enjoyed". Is there any hint that the land may be subject to another party's right of way, drainage, light, storage or support? Are there any passageways or ditches which appear to cross over into neighbouring land? How does the neighbour access their land (this may not be the same as how they are supposed to access their land)? Are items left on the land which do not belong to the seller, and how long have they been there?

It would be wise to take copious photographs during the pre-purchase inspection, as it may be the only evidence the developer has to contradict any assertions by the neighbour. Make extensive enquiries of the seller too. If the site is too difficult, large or complex to inspect thoroughly, set aside some funds for dealing with any unexpected neighbouring rights.

Author: Julia Tobbell, Senior Associate, Real Estate Disputes, London

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