Perils of the owner-occupied croft (fuller version)

Section 19D(6) of the Crofters (Scotland) Act 1993 as amended (“the 1993 Act”) is very clear: “Any transfer of ownership of any part of an owner-occupied croft which is not a new croft created by a division under this section, and any deed purporting to transfer ownership of that part, is null and void.”

The words “null and void” are enough in themselves to strike fear into the heart of many property lawyers, and for good reason. Like a trap placed to catch the unwary, s 19D(6) of the 1993 Act can, and does, catch out the property lawyer who is unaware of the complex rules concerning owner-occupier crofters. It appears to be one of the few examples where crofting law trumps Scots property law.

Or does it? The answer is not straightforward. It depends not just on whether the deed in question is registered in the Land Register or the Register of Sasines, but also on whether or not the deed was registered before 8 December 2014, when the Land Registration (Scotland) Act 2012 came into effect.

The 1993 Act was amended by the Crofting Reform (Scotland) Act 2010, which introduced the concept of the owner-occupier crofter (s 19B of the 1993 Act) and set out the rules prohibiting the division of owner-occupied crofts without Crofting Commission consent (s 19D of the 1993 Act). This article explores the consequences of the 2012 Act in the context of the division of crofts by owner-occupier crofters. It is also a reminder that crofting law does not sit in isolation from Scottish property law.

Pre-December 2014 position

The Land Registration (Scotland) Act 1979 created a “positive” system of land registration protected by the Keeper’s indemnity. It was a radical departure from the principles of Scottish property law. The Act invested faith in the integrity of the new map-based public register, and this had an impact on deeds that – in terms of property law – were void or voidable. As a result of the positive system of land registration introduced by the Act, void titles (such as deeds purporting to divide owner-occupied crofts, which I refer to as “s 19D(6) deeds”) became voidable through the process of registration in the Land Register (a voidable title is valid until or unless it is set aside).

Section 3 of the 1979 Act vested the registered proprietor with a real right (usually of ownership), subject only to any matter entered into the title sheet and any overriding interests, of which the right of a crofter was one (1979 Act, s 28(1)). The Keeper was able to rectify the register against a “proprietor in possession” in very limited circumstances only, principally where there was an exclusion of indemnity or the inaccuracy had been caused “wholly or substantially by the fraud or carelessness of the proprietor in possession”. This is an example of the 1979 Land Register’s “bijuralism” and divergence of land registration law and property law.

In the instance of a s 19D(6) deed, the grantee would ordinarily be entered on the title sheet as the registered proprietor, without any exclusion of indemnity. Usually the Keeper would not be aware of the fact that the deed inducing registration was void. In the absence of any fraud or carelessness by the proprietor in possession, the registered proprietor’s title would be free from challenge. The fact that the interests of a crofter were an overriding interest would not be relevant here, as what is at issue is not the interest of any crofter (the land in question is an owner-occupied croft), but the validity of the disposition in terms of the law of land registration. There would be very few instances where the proprietor in possession had caused the inaccuracy by fraud or carelessness.

Effect of the 2012 Act

How is the situation different under the 2012 Act? The Act provides a rebalancing of the “positive” system of land registration to a more “negative” system that has more in common with the Register of Sasines, which is a “negative” register, and is more closely aligned with the principles of property law. A void deed such as a s 19D(6) deed cannot be cured by the process of registration in the Register of Sasines, as property law deems such a deed to be void and of no effect.

The 2012 Act overhauls the Keeper’s powers of rectification of the Land Register. The slippery concept of a “proprietor in possession” is replaced with a duty on the Keeper to rectify the register where she becomes aware of a manifest inaccuracy (s 80(2)). The obligation to pay compensation is very much more limited than the circumstances where the Keeper would indemnify a proprietor in possession. There is no liability to pay compensation where the inaccuracy “is caused by some act or omission on the part of the claimant”.

Section 50(2) of the 2012 Act provides that registration of a valid deed transfers ownership. A s 19D(6) deed is not valid, but void ab initio. Section 65 defines an inaccuracy as that which “misstates what the position is in law or fact”. Giving effect to a void deed, such as a s 19D(6) deed, would be a “manifest inaccuracy”. In the case of the s 19D(6) deed, it would also be manifest how the Keeper could rectify the register, which would be to amend the title sheet and enter the original owner (the granter of the void deed) as proprietor.

In such a case, even where the Keeper’s warranty has been provided, there would be no liability on the part of the Keeper to compensate if the inaccuracy was, or ought to have been, known to the applicant or the applicant’s solicitor (2012 Act, s 78(b)). The fact that a s 19D(6) deed is void should have been known at least to the applicant’s solicitor, if not to the applicant. Further, where the inaccuracy is attributable to the failure of the applicant or the applicant’s solicitor to comply with the duty of care owed under s 111(1) of the 2012 Act, there is no liability to compensate. In most cases of the registration of a s 19D(6) deed, the Keeper will not compensate. In the event she does compensate the party against whom the register is rectified (usually the applicant), she may be able to recoup her losses – including legal costs – from the applicant of his solicitor.

A solicitor acting in a crofting transaction would generally be expected in terms of professional standards to be aware that any deed purporting to divide an owner-occupied croft will be null and void, and will if registered cause an inaccuracy in the register. It is very unlikely that ignorance of the law, even of crofting law, would be an excuse.

Realignment – a limited exception

An exception to the above rules, known as realignment, applies where a person (A) who is not a proprietor, but who is entered in the title sheet as proprietor, purports to dispone land to B. A, or A and B, must possess the land peaceably and without judicial interruption for a continuous period of at least a year (2012 Act, s 86(3)). B must be in good faith, and the Keeper must have warranted A’s title. This would apply where A is registered as proprietor on the basis of a s 19D(6) deed. Realignment, which is an exception to the generally “negative” nature of the new register, will assist only in the small number of cases where an owner-occupied croft is purportedly divided by way of a registered disposition, and such a part of the owner-occupied croft is then disponed to a third party. However, the solicitor acting for B should become aware through an examination of title of the fact that A is not the true owner, and would advise his client accordingly. In light of such knowledge, B would not be in good faith. Equally, there may be cases where neither B nor his solicitor is aware of the fact that A is not owner, and where the Keeper sustains no loss as a result of any breach of the duty of care in s 111 of the 2012 Act.

The 2012 Act provides cold comfort for a solicitor, or his or her client, who registers a void s 19D(6) deed. The duty of care set out in s 111 will have the effect, in many cases, of making the solicitor liable for the inaccuracy. This could have serious financial and professional consequences for the solicitor involved. A property lawyer who acts in connection with the sale and purchase of croft land should be very wary where any deed (whether or not drafted by him or her) purports to transfer ownership of part of a croft. If I can end this article with a few crumbs of comfort, they are that the restrictive definitions of an owner-occupier crofter and owner-occupied croft in s 19B of the 1993 Act exclude various persons that, to a practitioner who is not an expert in crofting law, would seem to be owner-occupier crofters. But the matter of who is, and who is not, an owner-occupier crofter is a topic for another article.