Outline of Section 86

Part 9 of the 2012 Act is headed “Rights of persons acquiring etc in good faith."

The “etc” refers to provisions relevant to servitudes and encumbrances, not concerned with acquisition as such. This paper is concerned only with acquisition of ownership from a “disponer without valid title”²⁰ in terms of section 86. Part 9 also deals with the good faith acquisition of leases.²¹

The role of section 86 is provided for in section 50 concerned with transfer by disposition; the requirement that ownership of land is transferred by a valid disposition is stated in section 50(2) in the form of a rule, i.e. that

“[r]egistration of a valid disposition transfers ownership.” This positive proposition is fortified by being stated in the negative in the following sub-section: “[a]n unregistered disposition does not transfer ownership.”²² The prerequisite of registration provided for in section 50 is stated to be subject to the provisions of “(a) sections 43 and 86 and (b) any other enactment or rule of law by or under which ownership of land may pass.”²³ Section 43, concerned with “prescriptive claimants," provides for a provisional form of registration by the Keeper which remains provisional until the normal ten year prescription is completed.²⁴ It may be noted that sections 43 and 86 are complimentary in providing for a non domino transfers in the respective situations of, on the one hand, that fact being known to the Keeper and, on the other hand, it being unknown. Section 43 represents a new application of positive prescription in its familiar role providing for the obtaining of title to land through the passage of time on the basis of an ex facie valid deed; no more will be said of it.

The sphere of application of section 86 is defined in subsection 1: a non-owner (“A”) registered as proprietor and in possession of the land purports to dispone the land to a good faith party (“B”). This follows the SLC Report which states that “[t]he first condition for the realignment of rights is that the granter of the disposition in question is not the owner but is registered as owner.”²⁵ The following conditions – continuing the usage of “A” as non-owner registered as proprietor and “B” as good faith acquirer – set out in section 86(3) must be met:

20 s 86 subheading.

21 Under ss 88 and 89.

22 s 50(3).

23 s 50(4).

24 See D Johnston, Prescription and Limitation of Actions, 2nd edn (2012) para 17.18.

25 Report on Land Registration (n 4), para 23.4.

(i) the land has been in the possession, openly, peaceably and without judicial interruption –

(a) of A for a continuous period of at least 1 year, or

(b) of A and then of B for periods which together constitute such a period,

(ii) at no time during that period did the Keeper become aware that the register was inaccurate as a result of A (or B) not being the proprietor, (iii) B is in good faith,

(iv) the disposition would have conferred ownership on B had A been proprietor when the land was disponed,

(v) at no time during the period mentioned in paragraph (a) –

(a) was the title sheet subject, by virtue of section 67, to a caveat relevant to the acquisition by B,

(b) did the title sheet contain a statement under section 30(5), and (vi) the Keeper warrants (or is to be taken to warrant) A’s title.

Section 86 is the most important part of Part 9 of the 2012 Act dealing with the “realignment” of rights.²⁶ In the Consultation on Implementation of the 2012 Act, Professor George Gretton comments as follows on realignment:²⁷

The basic rule in the 2012 Act is that where an entry in the LR is not justified by the deeds, the LR is inaccurate and ought to be rectified. But the Act specifies an exception, in certain types of case where the rule is that the LR is not to be rectified, but instead, the parties should have the rights (or lack thereof) that the LR says they have (or that they lack). This is realignment.

It is the converse of rectification. Where there is realignment, the effect is that the entries in the LR are deemed accurate. Accordingly, where there is realignment, no question of rectification can arise.

The reference to realignment as the converse of rectification is, it would appear, on the basis that realignment provided for in the 2012 Act represent an opposite policy to the general one insofar as, in realignment, the incorrect

26 The label “realignment principle” seems more appropriate than “integrity principle”

which features as an alternative in the SLC papers: see Report on Land Registration (n 4), paras 13.12 and 23.4.

27 RoS, Post Consultation Report (n 2), part 9, para 9.3.

position prevails and is not open to rectification. It may be noted that the Registers of Scotland describe Part 9 as “an exception to the rule that if there is an inaccuracy in the Land Register it is to be rectified.”²⁸

Under section 86(3)(b), the fact that the person named as proprietor in the register is not actually the true proprietor must not be known to the Keeper or the acquirer. The acquirer will be in bad faith if he or she knows. The Keeper, knowing that the grantee cannot acquire because the party purporting to be grantor in fact has no right to the property, should obviously not register on a final basis.²⁹ Consistent with recognition of this is the prerequisite of section 86(3)(b) that at no time during the one year period did the Keeper become aware of the ownership issue. The Explanatory Notes³⁰ state that: “[i]n the absence of evidence to the contrary, the awareness of the Keeper referred to in subsection (3)(b) can be deduced from the information on the register.”³¹ In other words, the Keeper’s state of knowledge is assumed to be consistent with what appears to be the position as reflected on the register and any contrary allegation must be established by reference to the actual knowledge of the Keeper.

David Johnston QC, in the second (2012) edition of his definitive work on prescription in Scots law, distinguishes the section 86 scenario as

“entirely distinct”³² from the provisions that apply to “normal” prescriptive claimants under the 2012 Act’s revised position,³³ where the Keeper marks the entry provisional because he or she knows that the applicant named on the register is not the owner. The question whether acquisition in terms of section 86 is a form of prescription will be considered in a subsequent section of this paper.

Turning to the Explanatory Notes, the effect of section 86(1)-(3) is stated to be that:³⁴

if the register shows someone as proprietor, but that person’s title is in fact void, then when that person dispones the title to another (and that second person is duly registered as owner), if the requirements in subsection (3)

28 Registers of Scotland, Consultation on Implementation of the Land Registration etc. (Scotland) Act 2012 (2013) para 9.01.

29 But may do so on a “provisional” basis; see, below, n 32.

30 Prepared by the Scottish Government to assist the reader of the 2012 Act but not forming part of the Act and not endorsed by Parliament.

31 Explanatory Notes (n 29), para 201.

32 Johnston, Prescription (n 23), para 17.21.

33 Set out in Land Registration (Scotland) Act 2012, s 43.

34 Explanatory Notes (n 29), para 201.

(including regarding good faith and possession for one year) are met, then that second person acquires ownership.

This highlights the importance of the good faith and possession requirements, both of which are examined in more detail below.

Responding to an invitation by the writer to comment on section 86 and its application to a problem scenario – drafted for teaching purposes and presented later in this paper – Professor Kenneth Reid noted that the section’s solution was less radical than the “Midas touch” of the 1979 Act and provided the following example:³⁵

Suppose that land belongs to A. Forging A’s signature, B dispones the land to C, whose title is registered in the Land Register. Under the 1979 Act, C becomes owner on registration and, if C is in possession, A cannot get the land back but must make do with indemnity from the Keeper. Under the 2012 Act, C’s registration has no effect and A remains owner throughout. C then has a claim for indemnity against the Keeper.

Taking the same situation, but adding that C has disponed the land to D, under the 1979 Act he or she would, of course, be in the same protected position as C. D’s position, like C’s would be secure provided possession was retained. The Register would be inaccurate in showing C or D as owner and could, in principle, be rectified in the event of a loss of possession by the registered owner. Under section 86 of the 2012 Act, provided D’s acquisition was in good faith and the other requirements of the section are complied with, he or she will be owner. In this situation there would be no question of an inaccuracy in the register.

Section 86 appears to be an exception to the principle of nemo dat quod non habet.³⁶ Indeed, Johnston notes that section 86-89 are exceptions to the nemo dat principle.³⁷ Of course, the notion of registration as a guarantee of title necessarily involves some compromise in terms of adherence to nemo dat.³⁸ For Johnston the justification is the importance that the public

35 Email message of 20 March 2014 from Kenneth Reid to David Carey Miller. I am grateful to Professor Reid for agreeing to my reference in this paper to this and subsequent comments made by him.

36 Or, perhaps strictly correctly in terms of the sources of Scots law: “nemo plus juris ad alienum transferre potest, quam ipse haberet”: see Reid, Property (n 18), para 669, n 1. See also Report on Land Registration (n 4), para 19.2, n 2.

37 Johnston, Prescription (n 23), para 17.21.

38 See Report on Land Registration (n 4), para 21.21.

should be able to place reliance on the register, and it is essential to the land registration system that a registered title is guaranteed.³⁹

Before examining the possession and good faith aspects of section 86 in more detail, the position regarding the date of acquiring ownership may be noted. This is provided for in section 86(4)-(6). Where the land has been in the possession openly, peaceably and without judicial interruption of A for a continuous period of at least one year or of A and then of B – the good faith disponee – and their possession together constitutes a period of at least one year, ownership is acquired on the date on which the disposition in favour of B is registered.⁴⁰ Alternatively, where a continuous period of the requisite possession commences before registration in B’s name, but does not expire until a date later than the date of registration, ownership is acquired on the date on which the period of possession is completed.⁴¹