Unless a mortgage deed provides otherwise, a mortgagee may not, in the exercise of its power of sale, sell to itself or to a trustee or agent for itself, or pursue any scheme to get the property into its own hands (see Emmet & Farrand on Title, 25.109).
The court has considered this issue, among others, in Barnard v Brandon and others [2023] EWHC 3043 (Ch), a complex property dispute. The case centred on a farmhouse and other adjoining properties – properties 1 and 2. C and D4 were former partners. D1 and D3 were current partners. D1, D2 and D5 were siblings.
In November 2014, C and D4 sold the Farmhouse to “D123” (ie D1, D2 and D3) for £275,000. D1 and D3 intended to run a bed and breakfast business there. However, in 2016 D123 brought a successful claim against C and D4 seeking rescission of the contract and damages for fraudulent misrepresentation.
The judge decided that if C and D4 had not made false statements that there were no disputes affecting the farmhouse and as to the number of properties sharing the farmhouse septic tank, D123 would not have purchased the farmhouse.
The trial order provided that the contract for sale was rescinded and C and D4 were ordered to repay the purchase price, plus damages, costs and interest. Until the judgment sum was paid in full, D123 were to hold the farmhouse on trust for C and D4: on payment it would re-vest in C and D4.
At that time, properties 1 and 2 were owned by C and/or D4 and subject to charges which secured a loan. D123 subsequently acquired the charges and, in early 2019, they transferred the properties to D5 for an express consideration of £350,000, which D5 did not pay. D123 credited the balance of the purchase price – after settling the loan – against amounts due from C and D4.
In interpreting a trial order, the sole question for the court is what it means. The judge concluded that the farmhouse was held by D123 on trust for C and D4, who had no right of occupation. D123 had no interest in possession but could remain in occupation of the farmhouse and would need to account for their occupation.
The 2019 transfer was an impermissible sale to self by D123 and so void. There was a common understanding between D123 and D5 that the properties would be transferred back to D123 at some point and D5 provided no consideration for the transfer.
Louise Clark is a property law consultant and mediator
