Appellants occupying property under oral agreement with option to purchase – Owner charging property and subsequently transferring it to respondent – Respondent seeking possession – Whether option to purchase overriding interest – Whether enquiry to be made prior to grant of charge or prior to transfer of freehold – Claim for possession allowed – Appeal dismissed
In 1980 the appellants, Erhart and Alison Koehler, moved into 91 Birmingham Road, Allesley, Coventry, pursuant to an oral agreement with “J”, the owner of the property at that time. It was agreed that the appellants were entitled to live at the property rent-free for as long as they wished during J’s lifetime and that they had an option to purchase the property. In 1982 J granted the respondent a charge over the property to secure a substantial debt that J owed to the respondent. In 1991 J transferred the freehold of the property to the respondent for £89,000 and in satisfaction of the remainder of the debt. In 1992 the respondent commenced possession proceedings against the appellants. The judge held that the respondent was entitled to possession.
The appellants appealed, contending that the option to purchase granted to them by J was binding on the respondent as a successor in title by virtue of being an overriding interest within section 70(1)(g) of the Land Registration Act 1925. That section states that the rights of a person in actual occupation of land are to be overriding interests “save where enquiry is made of such person and the rights are not disclosed”. It was submitted that the enquiry made by the respondent should have been made before J charged the property to him in 1982. The respondent submitted that the enquiries made prior to the transfer of the freehold in 1991 had been sufficient, and as the appellants had failed to disclose their option to purchase, section 70(1)(g) of the Act did not apply. The judge held that the respondent was not bound by the option to purchase because it had not been disclosed despite sufficient enquiry having been made prior to the transfer in 1991.The appellants appealed.
Held: The appeal was dismissed.
The respondent had acquired the freehold interest from J in satisfaction of a debt knowing that he could not have immediate possession. The transaction resembled foreclosure and accordingly section 34(3) of the Act applied and registration operated as if the proprietor of the charge “had been the purchaser for valuable consideration of the land under a subsisting power of sale”. Therefore, the respondent, as the former chargee, was to be regarded as a prospective purchaser prior to the transfer of the freehold in 1991, and the latest time for enquiries in such instances was just before the registration of that transfer. Consequently, the respondent’s enquiries had been made within time and as the appellants’ option to purchase granted by J had not been disclosed, it was not an overriding interest. Abbey National Building Society v Cann [1991] 1 AC 56 and Lloyds Bank plc v Rosset [1991] 1 AC 107 considered.
Donald McConville (instructed by Richards Heynes & Coopers, of Coventry) appeared for the appellants; Robert Lamb (instructed by Band Hatton, of Coventry) appeared for the respondent.
Thomas Elliott, barrister