Option agreement — Order for sale of land by mortgagee — Whether claimant’s option constituting equitable interest binding on purchaser — Effect of failure to register title by grantor of option — Whether claimant entitled to rectification — Claim allowed
The fifth defendant purchased land from the second defendant. He subsequently entered into an agreement with the claimant to convey or make available to it such parts of the land as it required for certain works. The land was previously unregistered, and the fifth defendant’s purchase attracted compulsory registration. Although he applied for registration, his application was later cancelled for failure to respond to certain requisitions.
The third defendant subsequently obtained a charging order over the fifth defendant’s interest in respect of a judgment against him. It obtained an order for sale, and sold the site to the first defendant. On the same day, the land was charged to the fourth defendant.
Meanwhile, the claimant sought to protect its interests under the agreement by applying to enter a caution against first registration. It maintained that the effect of the agreement was to create an obligation on the fifth defendant that was potentially enforceable against third parties as an option. The Land Registry invited the claimant to justify its claim that the option bound the first defendant, and when the claimant failed to respond within a given time limit, it registered the first defendant as owner free from the claimant’s interest.
The claimant brought a claim for, inter alia, rectification of the register either to: (i) delete the title, on the basis that the fifth defendant’s non-registration had caused the legal estate to revert to the second defendant, thereby leaving the first defendant with an equitable interest subject to the option; or (ii) ensure that that title was subject to the option. The first defendant argued that it was not bound by the option because it did not create any equitable interest and had not been protected by registration under the Land Charges Act 1972.
Held: The claim was allowed.
1. The right to call for land to be provided for the works was, on the true construction of the option provisions, capable of binding the whole or any part of the land, and gave rise to an equitable interest. Although the covenant in the agreement did not specify a time within which the transfer was to take place, that was not of the essence of an option. The option existed in such parts of the site as were capable of being affected by the claimant’s right to call for the land; the right was not prevented from being an option by the fact that the part of the land to be subject to it could not be identified at the date of the grant: London & South Western Railway Co Ltd v Gomm (1882) LR 20 ChD 562 applied; London & Blenheim Estates v Ladbroke Retail Parks Ltd [1994] 1 WLR 31 and Pearce v Watts (1875) LR 20 Eq 492 distinguished. Although the agreement was not confined to a right to call for legal or equitable interests, and the claimant could, for example, call for a licence, that did not mean that the option was incapable of creating an equitable interest in respect of those parts of the land that were to be transferred permanently.
2. Under r 317(1) of the Land Registration Rules 1925, the effect of the cancellation of the fifth defendant’s registration application was that that application was to be treated as never having been made. It followed that the fifth defendant retained only an equitable interest; the legal estate he had initially acquired reverted to the second defendant, which held it on trust for him by virtue of section 123(A) of the Land Registration Act 1925. Since the third defendant’s charging order charged only such interest as the fifth defendant had in the property, it took effect as an equitable charge affecting the equitable interest alone. An order for sale under section 90 of the Law of Property Act 1925 could operate only on the mortgaged property, namely the equitable interest, and could not achieve a sale of the legal estate. It followed that the first defendant acquired only an equitable interest, which could not defeat the claimant’s prior equity under the option. The first defendant was bound by the claimant’s rights and, in all the circumstances, it would be unjust not to grant rectification so as to reflect the claimant’s interest in the land: Horrill v Cooper (1998) 78 P&CR 336 and James Hay Pension Trustees Ltd v Cooper Estates Ltd [2005] EWHC 36 (Ch) applied.
Romie Tager QC and Mark Warwick (instructed by Addleshaw Goddard, of Manchester) appeared for the claimant; Jonathan Gaunt QC and John de Waal (instructed by Thursfields, of Kidderminster) appeared for the first defendant; James Aldridge (instructed by Herbert Smith) appeared for the third defendant; the other defendants did not appear and were not represented.
Sally Dobson, barrister
