It has long been established that purchasers who pay a deposit that represents part of the purchase price for land are entitled to assert a lien over the land if, through no fault of their own, they are unable to obtain the conveyance for which they contracted because the seller defaults. The lien arises by implication of law in order to do justice between the parties.
In Chattey v Farndale Holdings Inc [1997] 1 EGLR 153 the Court of Appeal extended the principle to a buyer who had entered into an agreement to take a lease, which had yet to be granted, over a physically identifiable flat in a newly constructed block of flats. Can the court go further? Is it possible to give effect to a purchaser’s lien before any flats have been built? The point was raised in Alpha Students (Nottingham) Ltd (in liquidation) v Eason [11 December 2015], but still remains unanswered.
The litigation was triggered by sales “off-plan” of 131 student apartments in Nottingham for which the purchasers, from a variety of jurisdictions, had paid deposits of 50% of the purchase price. The company that owned the land collected deposits in excess of £3.2m before any construction had taken place, and then became insolvent.
The company’s liquidators received an offer from a potential purchaser who was willing to pay approximately £1.125m for the site. However, the buyers had registered unilateral notices to protect the agreements for lease in their favour, which needed to be removed from the register before the sale of the site could proceed.
The judge decided that the dispute about whether the purchasers of the flats were entitled to liens, and, if so, over what parts of the site, and in what proportions, could be transferred from the land itself to the pot of money obtained when the property was sold. He agreed that there was a real risk that the sale would be stymied if the liquidators had to bargain separately with each individual buyer to have the unilateral notices removed, with the result that there would be no money for any of them.
Furthermore, there might be an unseemly scramble on the part of the holders of the unilateral notices to be the last to agree to the removal of the notices, in the hope that the price for their co-operation would rise as time passed. It was in the interests of the buyers that the site changed hands. This would provide the fund from which they could be paid, if they were entitled to purchasers’ liens to protect their deposits.
Does the decision mean that the protection provided by registering a unilateral notice is, in fact, nugatory? It seems not. The unilateral notices did exactly what they were designed to do. They protected any priority that the individual purchasers under the agreements for lease might have enjoyed until the court ordered the removal of the notices on terms that, on the sale of the land, any liens that the individual purchasers might have over the land should be transferred to the proceeds of sale.
Meanwhile, the individual purchasers will be ruing the fact that they were so generous with their cash – and must now persuade the court that it can give effect to liens over flats that were never built in order to recover a fraction of the monies from which they were parted.
Allyson Colby is a property law consultant
