Mortgage – Possession – Overriding interest – Section 29 of Land Registration Act 2002 – Claimant holding mortgage over property owned by first defendant – Property transferred to first defendant by second defendant when latter suffering from mental illness – Second defendant resident in institution at time of mortgage – Whether transfer to first defendant voidable – Whether second defendant in actual occupation such that right to set aside transfer having priority over charge – Claim dismissed
The first defendant was the registered proprietor of a house of which the claimant held a mortgage dated February 2008 to secure a loan to her of £107,250. The first defendant defaulted on the loan and the claimant brought proceedings for possession. The second defendant, as the former owner of the property, was joined as a party to the action. She contended that she had a right to set aside the transfer to the first defendant and that she held an overriding interest that entitled her to take back the property free of the claimant’s charge.
She claimed that, at the time of the transfer to the first defendant in 2004, she had been suffering from a severe mental illness. Symptoms included difficulties with attention, orientation and short-term memory and she had, on several occasions, been admitted to hospital under the Mental Health Act 1983. The first defendant’s solicitor had arranged the transfer; the second defendant had not been separately advised nor had she received any of the notional purchase price of £100,000. Owing to her mental condition, she could not recall the transaction. She submitted that the transfer was voidable on the grounds of her incapacity or undue influence, and that her right to set it aside took precedence over the claimant’s charge as an overriding interest held by a person in actual occupation at the time the charge was executed: section 29 of the Land Registration Act 2002.
An issue arose as to whether the second defendant had been in “actual occupation” in February 2008 given that: (i) she was at that time in a residential care institution, to which she was admitted in early 2007 under the 1983 Act and where she continued to live; (ii) she none the less continued to pay the outgoings for the property and kept her furniture there; and (iii) she wanted to return home and had been allowed supervised home visits.
Held: The claim was dismissed.
On the evidence, the first defendant, had not known the precise nature of the second defendant’s condition, but had been aware that she was in poor mental health and was vulnerable. She had relied on that disability being such that the second defendant would not complain about not being paid for the house. Moreover, the circumstances of the transfer, and the second defendant’s responses and demeanour were such that the solicitor dealing with the transaction should have been put on enquiry that she should be strongly advised to seek independent representation. Those findings were sufficient to make the conveyance of the house to the first defendant a voidable transaction, and an equity arose in the second defendant’s favour.
Moreover, the second defendant had been in actual occupation of the house at the time the charge was executed. She continued to occupy the house even though, she resided elsewhere. Whether someone was in “actual occupation” was a question of fact that depended on all the circumstances, including the nature of the property. In the instant case, the relevant circumstances were that the second defendant genuinely wanted to return home, but was prevented from doing so by an order under the 1983 Act; her furniture remained in the house; regular bills, such as community charge, were paid from her funds; she visited the property; and no one had taken a final and irrevocable decision that she would not eventually be able to return there to live. Although she was not physically present on the land, her occupation was manifested and accompanied by a continuing intention to occupy: Thompson v Foy [2009] EWHC 1076 (Ch); [2009] 22 EG 119 (CS) applied. Consequently, her equity had priority over the claimant’s charge and the claim for possession as against her should be dismissed. The claimant should instead be permitted to pursue its money claim against the first defendant.
Antoine Tinnion (instructed by Lightfoots LLP, of Thame) appeared for the claimant; Iris Ferber (instructed by Punch Robson, of Middlesbrough) appeared for the second defendant; the first defendant appeared in person but made no submissions.
Sally Dobson, barrister