Residential property – Family estate – Trust for sale – Defendants creating charge in favour of bank – Defendants occupying property – Defendants’ company charging property to bank to secure overdraft – Company failing to make repayments – Company dissolved – Bank’s Law of Property Act receivers claiming right to possession – Defendants claiming right to occupy for residue of 30-year lease – Whether lease being determined by operation of law – Whether lease having priority over charge – Whether actions of solicitor attributable to bank – Application granted
In 1988, the husband and wife defendants formed a company to purchase a portfolio of family properties which had fallen into the residue of a family estate, subject to a trust for sale. One of these, Trelan, was a substantial property with large grounds. It was the most valuable of the properties in the portfolio and had been the home of the second defendant’s grandparents since 1963. The purchase could be effected by the company only with the assistance of a significant bank loan. Although intended as a business venture, the defendants were concerned that the second defendant’s grandparents should continue to live at Trelan for the remainder of their lives. Thus, upon completion, their company executed a 30-year lease in favour of the grandparents.
The bank was aware that the grandparents occupied Trelan with the right to do so for the remainder of their lives. However, it was unaware of the immediate grant of the new 30-year lease, which the company had granted with immediate effect and which included not only the house but also the whole of Trelan’s land. In fact, the bank had instructed the defendants’ solicitor, which was aware of the 30-year lease, to draw up a legal charge in standard form, stating inter alia, that the company should not part with possession of the mortgaged property without the written consent of the bank.
The defendants’ company became more heavily indebted to the bank. The surviving grandparent moved out of Trelan and, by 1994, the bank became aware that the defendants were occupying the property, which had been repaired and renovated at the bank’s expense for the purpose of being sold with vacant possession. By 2002, the defendants’ company was dissolved and the claimants were appointed Law of Property Act receivers. The defendants failed to comply with a written notice to vacate and the bank sought an order for possession.
Held: The application was granted.
The lease had not been surrendered by operation of law when the surviving grandparent vacated the premises since there had been acquiescence on the defendants’ part as landlords: Tarjomani v Panther Securities Ltd (1983) 46 P&CR 32 considered.
However, there was no evidence to suggest that the lease, assuming that it subsisted, had fallen into residue or had been assigned to the second defendant on the death of the surviving grandparent, or that there had been an oral, lifetime gift of the benefit of the lease. The purchase of the portfolio had been possible only because the bank had provided the funds, so that the acquisition of the legal estate and the charge were indissolubly bound together: Church of England Building Society v Piskor [1954] Ch 553 considered.
There could be no “dead heat” in law between two mutually inconsistent and competing interests in a legal estate in land. The entire transaction had been entirely dependent upon the bank’s advance of the purchase moneys and not upon the grant of the lease. The subjective intention of the parties at the time was not relevant.
Furthermore, the bank did nothing to suggest that the solicitor, instructed only to take a legal charge to protect the bank’s interest, had ostensible authority to agree on its behalf to a transaction that involved creating a 30-year lease with priority over the bank’s charge.
Mark Cawson QC (Cobbetts LLP) for the claimants; John Macdonald QC and Philip Coppel (Follett Stock, of Truro) for the second defendant; The first defendant appeared in person.
Eileen O’Grady, barrister
