Sale and leaseback agreement – Mortgagee — Priority interest — First defendant purchasing property from second defendant under sale and leaseback agreement – First defendant obtaining mortgage to complete purchase — Claimant mortgagee subsequently seeking possession of property – Whether second defendant having overriding interest by virtue of sale and leaseback scheme – Claim dismissed
The second defendant had been the sole registered owner of a freehold property from 14 August 1990 subject to a charge in favour of the bank.
In 2005, she got into financial difficulties. In April 2006, she contacted the first defendant, who assisted persons facing repossession. They devised a scheme was whereby the first defendant would purchase the property at a price below its market value in exchange for which the second defendant had the right to occupy the property with her family rent-free for 10 years with an option to take a tenancy thereafter at a market rent.
In June 2006, the first defendant sent the second defendant a tenancy agreement for signature with a commencement date of 29 June 2006. The sale to the first defendant did not complete until 30 June 2006. The replies to requisitions on title were dated 29 June 2006 and referred to the tenancy agreement in favour of the second defendant. Those transactions had the effect of creating a tenancy by estoppel on 29 June, which estoppel was fed on completion of the sale on the following day.
In order to purchase the property, the first defendant arranged a loan with the claimant secured by a charge on the property. Although the mortgage deed was dated 30 June 2006, it was probably signed in August 2006. The first defendant signed the transfer at the same time and was registered as the proprietor of the property on 4 October 2006, when the mortgage was also registered. The second defendant was unaware of the mortgage until 2009, at which time the first defendant was in financial difficulties and wanted to sell the property.
The claimant sought possession of the property in May 2009, but the second defendant resisted the claim on the basis that she had an overriding interest in that she was at all material times in actual occupation of the property under the terms of the tenancy agreement, in accordance with para 2 of Schedule 3 to the Land Registration Act 2002.
Held: The claim was dismissed.
The tenancy agreement created a 10-year term and was therefore a disposition that had to be registered pursuant to section 27(2)(b)(i) of the 2002Act. Since it had not been registered, it was an equitable lease.
Although the policy of the 2002 Act was to ensure that all interests, so far as possible, were set out on the register, the wording of para 2 of Schedule 3 was not so restrictive and the reference to “an interest” was not confined to a registered interest. Moreover, para 2(a) and (d) specifically included certain interests that could not be considered overriding interests and an interest under an equitable lease was not one of them.
Furthermore, an interest might be protected as an overriding interest even though it might have been protected by alternative means, such as, in the instant case, by registration under section 116 of the 2002 Act: Ferrishurst Ltd v Wallcite Ltd [1999] 1 EGLR 85; [1999] 05 EG 161 considered.
Accordingly, the second defendant had an overriding interest, namely an equitable tenancy, by reason of her actual occupation at the date of the mortgage deed, which was the relevant disposition in August 2006. Moreover, she had also been in actual occupation at the date of registration of the mortgage on 4 October 2006. Thus, her overriding interest had priority over that of the claimant by virtue of section 29 of the 2002 Act.
Moreover, the second defendant had not expressly or impliedly consented to her interest ranking behind that of the claimant’s mortgage because she had been unaware of it until the spring of 2009; the claimant had not sought a waiver of priority from her nor had it investigated her position.
In any event, the first defendant, as mortgagee, had no more than a title to the property subject to the second defendant’s equitable interest, which took priority over the claimant’s rights under the mortgage: Redstone Mortgages plc v Welch [2009] 3 EGLR 71; [2009] 36 EG 98 considered.
Peter Kirby (instructed by Jeffrey Green Russell) appeared for the claimant; the first defendant did not appear and was not represented; Frances Ratcliffe (instructed by Law for All) appeared for the second defendant.
Eileen O’Grady, barrister
