Priority of Interests

Land Law > Priority of Interests

Priority determines which interests survive when land is sold or mortgaged, and which are defeated. Candidates frequently lose marks by misapplying the basic rule (first in time), by confusing registered interests with minor interests, or by failing to check whether an earlier interest is registered or overriding. Priority is one of the most heavily tested topics in SQE1 Land Law.

What Is Priority of Interests in SQE1?

Priority is the mechanism by which the law determines which of two or more conflicting interests in the same land takes precedence. Under the Land Registration Act 2002, the basic rule is that priority follows the order of registration: the first registered interest has priority. However, there are important exceptions, particularly for overriding interests and interests created before the 2002 Act came into force.

In the context of registered land, a purchaser or mortgagee is bound by interests that are registered or overriding, but not by interests that are neither. Priority rules do not arise in a vacuum; they follow from the classification of the interest (legal or equitable, registered or overriding). When you analyse whether an earlier interest survives a later purchase or mortgage, you must apply the priority of interests rules systematically, starting with classification of the interest.

Key Principles for SQE1

The Basic Rule – First Registered Has Priority (s.28 LRA 2002): Under s.28 of the Land Registration Act 2002, an estate, right, or interest is subject to any estate, right, or interest which is registered or is an overriding interest at the time of the disposition. In simple terms: the first registered interest has priority over later interests. This applies to dispositions of registered land (sales, mortgages, grants of easements).
Registered Interests vs Overriding Interests: Registered interests are recorded on the charges register and have priority in order of registration. Overriding interests (actual occupation, short leases, easements) also have priority, but the LRA 2002 modified the rule: many overriding interests are no longer automatic—they depend on actual occupation at the time of the disposition, and exceptions apply.
Mortgages and Priority – The Registered Charge: A legal mortgage of registered land takes effect as a registered charge (s.23 LRA 2002). The mortgagee's interest is registered on the charges register. Priority of mortgages is determined by the order of registration. A first mortgagee has priority over a second mortgagee, regardless of the value of each mortgage. When a property is sold, the first mortgagee's interest is paid off first from the sale proceeds; the second mortgagee is paid only if sufficient proceeds remain.
Notice and Restrictions – Protecting Minor Interests: A minor interest (equitable interest) can be protected by entry on the register (notice or restriction). A notice protects the interest but does not guarantee priority. A restriction prevents dealings with the land unless the restriction is complied with. These are protective devices rather than priority devices.
Unregistered Land Priority – The Old Rule: For unregistered land (rare but still tested), priority of equitable interests follows the doctrine of notice: a later equitable owner takes subject to an earlier equitable owner unless they are a bona fide purchaser for value of a legal estate without notice. This is distinct from registered land priority rules.
Caveats and the Transitional Problem: Before the LRA 2002, interests were protected by entry of a caveat (a notice of claim). Caveats are no longer used for registered land but may still be relevant for older transactions. Do not confuse caveats (unregistered protection) with notices (registered protection).

Exam tip

In a priority question, always ask: what interests are involved? Are they registered, overriding, or neither? Apply the basic rule: first registered has priority. If an earlier interest is not registered, check whether it is overriding (actual occupation, easement, short lease). If an interest is neither registered nor overriding, it is defeated by a purchaser. For mortgages, the order of registration on the charges register determines priority. Do not get distracted by the value of interests or the date of creation; the register is the determinative document.

How This Appears in SQE1 Questions

A scenario presents a property with a first registered mortgage (M1) and a second registered mortgage (M2), with M1 earlier on the register. The property is sold, and the sale proceeds total £400,000. M1 is for £200,000; M2 is for £150,000. The question asks how much each mortgagee receives. M1 is paid in full (£200,000); M2 is paid £150,000 from the remaining £200,000, and the owner receives the balance. M1 has priority because it was first registered, and the statutory rules on application of sale proceeds follow that priority. If M2 had been registered first, M2 would have priority and be paid in full first.

This is a classic SQE1 trap.

Common Mistakes Students Make

Applying the wrong priority rule – Students sometimes apply the "first in time" rule (older interests have priority) without checking whether the rule is registered land or unregistered land. In registered land, it is first registered that has priority.
Treating all overriding interests as equal – Some overriding interests are automatic (short leases, easements); others depend on actual occupation. The disclosure exceptions for actual occupation make this complex.
Confusing registered interests with priority – A registered interest is protected, but if there is an earlier registered interest, the later one does not have priority. Registration protects against unregistered interests, not against earlier registered interests.
Ignoring the classification step – Students often jump to priority without first classifying the interest. Is it legal or equitable? Registered or overriding? Without classification, priority analysis is incomplete.

Quick Summary

Basic rule: first registered interest has priority – under s.28 LRA 2002 for registered land.
Registered interests have priority in order of registration – recorded on the charges register.
Overriding interests also bind – but are subject to disclosure exceptions (actual occupation).
Mortgages follow the same rule – first registered charge has priority; later charges are subject to earlier ones.
For mortgages, sale proceeds are applied in priority order – first mortgagee paid in full first; second mortgagee paid from remainder.

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Priority of Interests for SQE1