A vendor/purchaser trust arising on exchange of contracts for the sale of property is incapable of being the subject of a charging order where the contract prohibits assignment or sub-sale of the purchaser’s interest.
The High Court has considered this issue in Lowry Trading Ltd and another v Musicalize Ltd and others [2024] EWHC 2653 (KB).
The case concerned an application for a final charging order against Openshaw, Orpington, Kent, a substantial residential property. The claimants had obtained judgment of £6.3m against the defendants and argued that the second and third defendants, the Andersons, had a beneficial interest in the property.
Fisher contracted to sell the property to the Andersons in January 2019 for £2.65m. The conditions of sale provided that the buyer could not transfer the benefit of the contract and the seller could not transfer the property to anyone other than the buyer. Fisher allowed the Andersons into possession under an assured shorthold tenancy pending completion in September 2019.
The Andersons failed to complete and Fisher served a notice requiring them to complete within 10 working days. When they failed to do so, Fisher was advised to rescind the contract but only did so after an interim charging order was made in the claimants’ favour in July 2024. Her solicitors noted in October 2019 that she wished to continue with the buyers.
Between mid-November 2019 and mid-October 2022, the Andersons spent £190,000 on works and fittings to the property, clearly treating it as their own. In June 2024, Fisher served notice to terminate the AST and subsequently brought possession proceedings.
A property sale contract gives rise to a vendor/purchaser trust to give effect to the contract. The vendor retains a lien over, and is entitled to possession of, the property until the purchase price is paid.
The court decided that Fisher had affirmed the contract believing that the sale would complete at some point. Fisher could serve a fresh notice to complete and then rescind the contract 10 days later since the property’s current value was £3.4m-£3.5m.
A charge imposed by a charging order is enforceable as an equitable charge created by the debtor under section 3(4) of the Charging Orders Act 1979. Given the terms of the sale contract, the Andersons could not create an equitable charge over their interest in the property. Consequently, a charging order was not possible.
If that was wrong, the contract could no longer be specifically performed by application by the Andersons and so the trust had ceased and Fisher would be unduly prejudiced if a charging order were granted.
Louise Clark is a property law consultant and mediator