Acquisitions and mergers

It has always been thought that an easement granted with a lease falls away if the lease is merged in the freehold. The Court of Appeal has now decided that this is not the case, in Wall v Collins and another.

The case concerned adjoining semi-detached houses, 231 and 233 Leigh Road, in Bolton.

Conveyancing history

• The houses were built pursuant to a building lease granted in 1910 for a 999-year term. The developer then assigned the lease of number 231, retaining the lease of number 233.

• The retained land included a passageway called South Road, running east-west between the two houses, and connecting the roads at the front and rear.

• The assignment included a right of way over South Road in favour of number 231.

• In 1986, the owners of the lease of number 231 bought the freehold of that property, but did not merge the leasehold into the freehold.

• In 1995, the same process occurred in relation to number 233.

• Both the freehold and leasehold interests in number 231 were sold to the claimant, Mr Wall, in 1999, and at that time the two interests were merged.

• In 2004, the freehold and leasehold interests in number 233 were also merged.

Thus, what had been a slightly messy split title had resolved into a comparatively neat side-by-side freehold arrangement, subject to two matters:

a) some additional land appurtenant to number 231 which had been acquired by adverse possession, which does not concern us; and

b) the fate of the right of way over South Road, in favour of number 231.

As is the way of things, dispute over the manner of exercise of the right of way developed into a dispute over the right itself.

Merger and easements

When a leasehold and freehold title to the same property come into common ownership, the leasehold title can ‘merge’ into the freehold, and effectively cease to exist. This is not automatic – the common owner must intend that it should happen.

When it does, it has always been thought to be the case that any easements granted by the lease come to an end. One of the main textbooks on easements certainly took that view, and that was also what the relevant Land Registry guidance said. As the defendants’ barrister was forced to concede in this case, though, these statements were in fact unsupported by any authority.

In Kent and another v Kavanagh and another, decided in 2006, the Court of Appeal had reached the opposite conclusion, admittedly in the specific statutory context of leasehold enfranchisement. The upshot was that where two former tenants had both enfranchised their leases, the process did not destroy the rights over each others’ properties which they had had as tenants, and which they continued to need for all practical purposes.

Right not attached to lease

The basis on which the Court of Appeal came to the same view in Wall was that while an easement must be appurtenant to a dominant tenement (in other words, it must benefit other land), it does not have to be appurtenant to any particular interest in that land. Termination of a lease, therefore – if it is a lease that contains the easement – does not in itself terminate the easement. The owner of the dominant tenement, whether freeholder or leaseholder, is entitled to enjoy the easement for the remainder of the period for which it was granted, ie the term of the lease. There is certainly some sense to this, as the Court observed in Wall:

‘… it is difficult to see why a lessee should be worse off, so far as concerns an easement annexed to the land, merely because he has acquired a larger interest in the dominant tenement.’

Right for longer than lease

Although that decision effectively gave Mr Wall all he would ever need, being a right for another 900 years or so, the Court went on to consider whether there was also a freehold easement arising by virtue of s62 of the Law of Property Act 1925. This familiar provision states that a conveyance of land is deemed to include:

‘… all… rights and advantages whatsoever, appertaining or reputed to appertain to the lands, houses or other buildings conveyed.’

So, when the freehold interest in number 231 was acquired in 1986, did the benefit of this easement pass with it? The key to the interpretation of the section, the Court held, lies in whether or not the right is in fact enjoyed, not under what title the right is enjoyed. Previous cases show mere permissive rights, or rights granted in connection with only a five-year tenancy, becoming enlarged into freehold easements upon the conveyance of the freehold. It would be odd if the fact of having a 999-year lease had prevented the same process in favour of Mr Wall.

Summary of rights enjoyed

The strict analysis here is that, following the 1986 conveyance of the freehold, number 231 enjoyed:

a) a leasehold easement over South Road derived from the 999-year lease, and binding the leasehold interest in number 233; and

b) a freehold easement over South Road arising out of s62, and binding the freehold interest in number 233.

The merger of the interests in number 231 did not destroy right a), which persisted for the benefit of the freehold owner, and the merger of the interests in number 233 left the freehold title bound by both interests.

Consequences

As in Kent, the outcome is at least neat in the particular circumstances, and tends to preserve the rights which, upon division of a property, the parties had anticipated that the divided parts would require. But it does raise a number of problems:

• There is a question mark over the extent to which the decision also applies to restrictive covenants, in the case of leases containing covenants by the landlord not to build on retained land, for example. Would the benefit of those covenants also transfer to the freehold upon merger? The comments of the Court tend to suggest not, but there is an uncertainty here.

• The Land Registry has had to issue a short correction of its previous guidance. This confines itself to giving an accurate statement of the law as it now stands; what it does not do is indicate how the Land Registry will now proceed when closing leasehold titles in the event of merger.

• The interim indication is that when closing leasehold titles after merger, if any rights granted under the lease will persist for the benefit of the freehold, the Land Registry will from now on make appropriate entries on the freehold title. It is to be hoped that any entries will clearly identify the easements concerned, and in many cases it will be desirable for a copy of the lease to be retained on file for reference purposes.

• Quite what will happen as regards leasehold titles that have already been closed upon merger is another matter. There must be many cases where the benefit of easements should have transferred to the freehold, at least for the remainder of the term of the lease, and the freehold titles will not reflect this. The Land Registry is currently reviewing its policies and practice, and the outcome is awaited.