Mortgage – Priority – Registration – Purchase and onward sale of flat occurring on same day – Purchaser on onward sale financing transaction with mortgage loan from respondent bank secured by charge over the property – That money used by vendor to finance own purchase from developer – Vendor also granting charge to another company – Whether respondent entitled to enforce its security against later purchaser of property from company – Whether registration of unilateral notice protecting respondent’s subrogated interest under unpaid vendor’s lien so as to preserve priority of that interest – Whether notice required to refer to subrogated lien in addition to charge out of which that interest arising – Respondent succeeding in possession claim – Appeal dismissed
By two transactions taking place on the same day in March 2005, a developer sold a long lease of a flat to a purchaser (the original purchaser), who in turn sold it on to another party (the second purchaser) whose purchase was financed largely by a mortgage loan of £820,250 from the respondent bank. The respondent took a charge over the property to secure its lending. At roughly the same time, the original purchaser also granted a charge to another company to secure a guarantee
The original purchaser was registered as proprietor of the flat in May 2005 but the second purchaser did not obtain registration until much later. Meanwhile, in 2006 the respondent registered a unilateral notice on the charges register of the title to the flat to protect its charge. The charge in favour of the company was registered in April 2010. The respondent’s charge was eventually registered in February 2011 concurrently with the registration of the second purchaser as proprietor of the flat.
The company subsequently sold the flat to the appellant, who was one of its directors, pursuant to its power of sale as mortgagee. Before the appellant was registered as proprietor, the respondent brought proceedings against him for possession. It contended that: (i) its mortgage advance had been used to fund the original purchase of the flat from the developer; (ii) it was therefore entitled to be subrogated to the unpaid vendor’s lien held by the developer; (iii) the company’s charge took effect subject to that prior equity; and (iv) consequently, the respondent was entitled to enforce the lien against the appellant.
Summary judgment was granted in the respondent’s favour at first instance. The district judge held that the unilateral notice was effective to secure the priority of the respondent’s lien, notwithstanding that it specified the March 2005 mortgage as the interest to be protected, since the right of subrogation stemmed from the respondent’s position as a secured lender under that charge. In that regard, he held that a notice in respect of a charge was sufficient to protect any equitable interests arising therefrom. That decision was upheld on a first appeal and the appellant obtained permission for a second appeal.
Held: The appeal was dismissed.
The extent of the protection afforded by the respondent’s unilateral notice fell to be determined by reference to the Land Registration Act 2002 and the Land Registration Rules 2003. Consistently with the duty to act reasonably imposed by section 77 of the 2002 Act, if a unilateral notice specified the interest that it sought to protect, then it had to do so with as much accuracy as the person responsible for the notice could provide. However, it was not clear that a failure accurately to identify the interest claimed meant that the notice was ineffective to preserve priority. Further, even if the protection conferred by the respondent’s unilateral notice depended on the interests specified therein, then the effect of identifying the March 2005 charge would simply be to limit the interest for which the respondent obtained protection for to an interest arising out of the taking of that particular security. The respondent was not obliged to go further and identify the relevant interest arising from the taking of the March 2005 charge.
It was relevant that section 35(2) of the 2002 Act did not in fact require a unilateral notice to give any details of the interest sought to be protected but only required it to identify the beneficiary of the notice; similarly, under r 84(5) of the 2003 Rules, a unilateral notice had only to give such details of the interest protected as the registrar considered appropriate. The absence of any obligation on an applicant to specify the details of his interest beyond what the registrar might require could not be reconciled with a submission that a failure to spell out any alternative legal bases for protection emanating from the March 2005 charge was fatal to the protection of the respondent’s subrogated lien. There was nothing to suggest that the registrar had not been content to accept the details that were offered. If these were inaccurate or inadequate, they could have been corrected on an application to cancel the notice under section 36. In the event, the company had taken no steps at all to challenge the entry. It was not now open to it, or to the appellant as its successor in title, to contend that the notice failed to protect the priority of the respondent in respect of any interest in the flat that it derived from having lent the money under the March 2005 charge. On an application under section 36, the most that could be achieved would be the inclusion of some reference to the alternative subrogated security. In the meantime, the notice continued to confer priority on the respondent.
Mark Warwick QC and Charles Harpum (instructed by Colman Coyle Ltd) appeared for the appellant; Tom Leech QC and Nicole Sandells (instructed by Walker Morris LLP, of Leeds) appeared for the respondents.
Sally Dobson, barrister
