Sale of land – Land registration – Alteration and rectification – Appellant shareholders appealing against decision of First-tier Tribunal dismissing objection to registration of respondent as proprietor of property – Whether purchaser entitled to rely on transfer executed by director during receivership – Whether receivers discharged before execution of transfer – Appeal dismissed
Bolbec Hall was a prominent Grade II listed building in the centre of Newcastle comprising more than 16,000 sq ft on six floors. By 2010 the property had become vacant and was offered for sale. In 2015, BHL purchased it for £850,000 (plus VAT) with the benefit of a loan secured by a first legal charge over the property.
BHL was unable to keep up its loan repayments and in November 2017 the lender appointed fixed charge receivers over the property. The receivers marketed the property for sale through a Newcastle agent, seeking offers over £1.25 million (plus VAT). The sole director and shareholder of the company (C) wished to prevent the property from being sold and agreed with the receivers to reduce the borrowing and arrears, with an investment from the appellants, who became 50% shareholders in the company. The shareholders’ agreement stated that the property would not be sold without the appellants’ consent and that their investment would be prioritised when distributing any eventual sale proceeds.
The relationship between the parties soured and the property was sold to the respondent. The receivers had nothing to do with the sale; their appointment was terminated, BHL executed the transfer and the debt to the lender was redeemed on the same day. When they discovered what had happened, the appellants contacted the Land Registry under section 73 of the Land Registration Act 2002 and lodged an objection to the registration of the respondent as the proprietor. They argued that the transaction was void and of no effect, and ought not to be registered because C did not have authority to sell the property as a result of the appointment of the receivers.
The appellants appealed against a decision of the First-tier Tribunal (FTT) by which it dismissed the appellants’ objection to the registration.
Held: The appeal was dismissed.
(1) Section 27(1) of the 2002 Act provided: “If a disposition of a registered estate or registered charge is required to be completed by registration, it does not operate at law until the relevant registration requirements are met”. A transfer was a disposition required to be completed by registration. The effect of section 27(1) was therefore that a transfer would not operate at law until it was registered. But the reference in section 27(1) to a disposition which was required to be completed by registration did not prevent a disposition from being made on execution of the transfer.
A registrable disposition took place when it was executed and it was at that point that the disposition was made and the rights of the parties were altered. Although the purchaser did not acquire legal title until registration of the disposition took place, the disposition itself was made when the transfer was completed in the manner agreed between the parties, which in this case was by execution and delivery of the original and counterpart of a transfer in the form annexed to the contract. The respondent’s submission that the authority of the director to act on behalf of the company needed be examined only at the point at which an application was made for registration of the transfer was inconsistent with that basic proposition: Scott v Southern Pacific Mortgages Ltd [2014] UKSC 52 considered.
(2) The answer to the appellants’ contention that it was necessary to go behind the transfer and consider whether the director had authority to bind BHL was found in sections 24 and 26 of the 2002 Act. The parties agreed that the appointment of the receivers did not take away the power of the borrower to transfer the property. Section 24 was concerned with the right to exercise “owner’s powers”, a concept explained in section 23. With irrelevant exceptions, owners’ powers in relation to a registered estate consisted of power to make a disposition of any kind permitted by the general law, and power to charge the estate with the payment of money. Section 24 then provided that a person was entitled to exercise owner’s powers in relation to a registered estate or charge if he was the registered proprietor or entitled to be registered as the proprietor. At all material times, BHL had been the registered proprietor of the property and had therefore been entitled to exercise owner’s powers.
(3) The appellants’ case was simply that the receivership took away the director’s authority and prevented his act in executing the transfer from being the act of the company. There was a limitation of which the respondent was aware which affected the validity of the disposition. However, that objection was trumped by section 26 of the 2002 Act, despite knowledge on the part of the respondent that receivers had been appointed.
The foundational principle of the 2002 Act was that the state of the register was the paramount consideration. That principle was reflected in section 26 which provided protection for disponees. The purpose of section 26 was to make it unnecessary for a purchaser to be concerned about potential limitations on the power of the registered proprietor to make a disposition of its property. Section 26(1) prevented the title of a disponee from being questioned by providing that, in the absence of an entry in the register, a person’s right to exercise owner’s powers in relation to a registered estate or charge was to be taken to be free from any limitation affecting the validity of a disposition. If a limitation was reflected by an entry on the register a purchaser would be concerned to ensure that it was discharged; in the absence of an entry the purchaser was protected. In this case there was no entry in the register referring to the appointment of the receivers or to any limitation on the power of the company to make dispositions of the property. It followed that section 26 provided a complete answer to the appeal. The respondent was entitled to proceed on the assumption, whatever the true facts, that BHL’s right to exercise owner’s powers was free of any limitation.
Andrew Shaw (instructed by Square One Law, of Newcastle) appeared for the appellants; Stephanie Tozer QC (instructed by DWF Law LLP, of Newcastle) appeared for the respondent.
Eileen O’Grady, barrister
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