Once upon a time, buyers could avoid, or defer, paying stamp duty by “resting on contract”. In other words, buyers would pay the full purchase price for a property but relied on their rights under the contract for sale, rather than accepting a transfer and registering it at the Land Registry.
The litigation in Re Charlotte Street Properties Ltd (in administration) [2019] EWHC 1772 (Ch); [2019] PLSCS 128 concerned six investment properties in Manchester worth £1.6m. The landowner had contracted to sell them to a company (NEL), which he managed and controlled. The agreement provided that completion would take place when either one of the parties served a notice to complete. But the legal titles were still vested in the original landowner four years later, when NEL contracted to sub-sell them to Charlotte Street Properties Ltd (CSPL). CSPL was also managed and controlled by the original landowner and, once again, the contract provided that the transaction would be completed when either one of the parties called for completion.
NEL went into liquidation in 2015, following which the solicitors acting for the original landowner wrote to the liquidators to explain that he held the properties on trust for CSPL. When CSPL went into administration in 2017, the administrators called on the original landowner to execute transfers of the properties to CSPL. But he declined to do so. He claimed that there was no privity of contract between himself and CSPL, that NEL had not assigned its contractual rights to CSPL, that NEL and CSPL had not served notices to complete either contract, and that he was not under any contractual obligation to transfer the properties to CSPL.
Nonetheless, the judge ordered the original landowner to deliver executed transfers of the legal titles to the administrators. Clarke v Ramuz [1891] 2 QB 456 established that, once a seller has received the purchase price in full, it holds the property in trust for the buyer with no active duties other than to preserve the property and transfer it to the buyer at its direction. Furthermore, where property is held on sub-trust and the sub-trustees themselves have no active duties to perform, the sub-trustees are not entitled to assert any claim to the property and the trustee can thus act on the directions of beneficiaries under the sub-trust: Re Lashmar [1891] 1 Ch 258.
The purchase prices under both contracts had been paid. So the original landowner held the properties on trust for CSPL, which had “stepped into the shoes” of NEL and assumed its rights under the original contract for sale.
The judge acknowledged the Supreme Court decision on sale and leasebacks in Southern Pacific Mortgages Ltd v Scott [2015] EGLR 3, but ruled that this had established only that an agreement creating new rights and obligations (such as an obligation to grant a leaseback) will be enforceable only personally; it related to the creation, rather than the devolution or transfer, of beneficial interests. So, if an intermediate purchaser holds on sub-trust for a sub-purchaser, the original vendor can act on the directions of the sub-purchaser in accordance with Re Lashmar.
The original landowner had acknowledged CSPL’s beneficial interest. Consequently, he was estopped from denying that NEL’s rights had been assigned to CSPL. Therefore, CSPL was entitled to exercise NEL’s right to serve a notice to fix the completion date under the original contract for sale.
Allyson Colby is a property law consultant
