Two charges created over freehold land — Both charges registered on same day — Obligation to make further advances under defendant’s mortgage — Failure to note obligation on charges register — Plaintiffs seeking declaration that defendant’s further advances did not have priority over plaintiffs’ charge — High Court holding defendant’s advances took effect in priority to plaintiffs’ legal charge — Judgment for the defendant
The plaintiffs sold freehold property at 93-95 Portsmouth Road and 3A Le Marchant Road, Camberley, Surrey, to Hodson Homes plc for development. Hodson financed the venture with the aid of an advance from the defendant. The defendant agreed to advance Hodson up to £1,608,000 and it took a charge over the property as security. An initial advance of £705,500 was made by the defendant on the date of completion. Hodson was unable to pay the plaintiffs all the purchase price of £863,000 on completion. Rather £750,000 was then paid, and the balance of £127,812 was secured by a legal charge over the property.
The plaintiffs’ charge and the defendant’s charge were registered on the same day. The plaintiffs’ charge was expressed to be subject to the defendant’s charge. There was a failure to note on the charges register the fact that the defendant was under an obligation to make further advances up to £1,608,000 to Hodson. Hodson failed and the defendant and others appointed receivers who completed the development and sold off the properties. There were insufficient funds to satisfy the plaintiffs and the defendant. The defendant applied all the money received from the sale to discharge Hodson’s indebtedness to it. As the defendant made further advances to Hodson, that indebtedness was greater than the initial advance. The plaintiffs said that as the obligation to make further advances was not properly noted on the register, the defendant’s charge only had priority in respect of the initial advance. Therefore sums realised in excess of £705,500 should not be applied to discharge Hodson’s indebtedness. The plaintiffs sought a declaration that their mortgage had priority over the defendant’s. Under section 30(1) of the Land Registration Act 1925: “When a registered charge was made for securing further advances, the registrar shall, before making any entry on the register which would prejudicially affect the priority of any further advance thereunder, give to the proprietor of the charge at his registered address, notice by registered post of the intended entry, and the proprietor of the charge shall not, in respect of any further advance, be affected by such entry, unless the advance is made after the date when the notice ought to have been received in due course of post”.
Held Judgment for the defendant.
1. The advances took effect in priority to the plaintiffs’ legal charge by virtue of section 30(1) of the 1925 Act.
2. In this case the notice under section 30(1) in respect of the plaintiffs’ charge was sent by the land registry to the defendant on July 30 1991. The further advances made pursuant to the defendant’s obligation under its legal mortgage were all made prior to July 30 1991. No advances were in fact made after that date.
3. Accordingly, the defendant was not affected by the plaintiffs’ charge in respect of the further advances. That was the case regardless of whether the obligation to make further advances was noted on the register: see Emmet on Title, 19th ed, para 25.109.
Edward Denehan (instructed by Neale Turk, of Fleet, Hants) appeared for the plaintiffs; Anthony Radevsky (instructed by Shoosmiths & Harrison, of Rugby) appeared for the defendant.
