The Land Registry advises prospective tenants to protect agreements for lease by registering an agreed or unilateral notice against the landlord’s title. The question that arose in A2 Dominion Homes Ltd v Prince Evans LLP [2015] PLSCS 225 was whether such a notice protects the subsequent lease if a lender has registered a legal charge in the interim.
The company was the successor to a housing association that had entered into an agreement with the owner of a block of flats for the grant of 33 long leases following completion of certain building works. The purchase price was £3,730,450 and the deposit paid was in the sum of £1.25m.
The solicitors who acted for the association registered a unilateral notice against the freehold title to protect the agreement. The freeholder subsequently charged its freehold interest to its bank. The legal charge prohibited the freeholder from granting leases without the bank’s prior consent, but the bank was not asked to consent before completion of the leases in accordance with the agreement for lease. The bank’s charge was registered before the leases, and the company took the view that the association’s solicitors had been negligent and that the lender’s security took priority.
The judge applied Williams v Burlington Investments Ltd [1977] 121 SJ 424, where the House of Lords held that a contingent right to a charge over unregistered land, which had been registered as an “estate contract”, was binding on a mortgagee whose mortgage was created before the contingency happened – and dismissed the company’s claim. The registration of the notice gave it, and the leases when granted, priority over the bank’s security.
Under section 29(1) of the Land Registration Act 2002, where a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration. Under section 29(2), an interest is protected if it is the subject of a notice in the register.
The agreement for lease was protected by a unilateral notice and, therefore, took priority over the legal charge. The company’s rigid distinction between the agreement and the subsequent leases was artificial and wrong. The leases were the product of the agreement and the priority conferred on the agreement by the unilateral notice protected the completed leases as well.
It would have been very worrying indeed, had the court upheld the company’s claim. Had the company been right, the registration of a notice would not confer any protection on prospective tenants at all, which would be extremely surprising, especially if the intending tenant has paid a substantial deposit under its agreement for lease.
There was, however, a sting in the tail. The judge appeared to base his decision on the fact that the leases conformed “strictly” to the terms of the agreement protected by the unilateral notice, leaving us to question what the position would have been had there been any changes to the leases before they were granted.
Allyson Colby is a property law consultant
