Once upon a time, buyers could avoid, or defer, paying stamp duty by “resting on contract”. In other words, buyers would pay the full purchase price for a property but relied on their rights under the contract for sale, rather than accepting a transfer and registering it at the Land Registry.
Ezair v Conn [2020] EWCA Civ 687 concerned six investment properties in Manchester. The landowner had contracted to sell them to a company (NEL), which he managed and controlled. The agreement provided that completion would take place when one of the parties served a notice to complete. But although the purchase price had been paid, the legal titles were still vested in the original landowner four years later, when NEL contracted to sub-sell them to Charlotte Street Properties Ltd (CSP). CSP was also managed and controlled by the original landowner and, once again, the parties chose to rest in contract, rather than complete the transaction.
NEL went into liquidation in 2015 and when CSP went into administration in 2017, the administrators called on the original landowner to execute transfers of the properties to CSP. He declined to do so, claiming the beneficial ownership had reverted to him. He argued there was no privity of contract between himself and CSP, that NEL had not assigned its contractual rights to CSP, and that NEL and CSP had not served notices to complete either contract.
Was the High Court right to order the original landowner to deliver executed transfers of the legal titles to the administrators on the ground that CSP had an equitable right to call for the legal title? The Court of Appeal has overturned the decision.
Lord Justice Patten, who spoke for the court, explained that, before acquiring the legal estate, a contractual purchaser – that is to say, NEL – cannot create proprietary rights that take priority over other interests in the land: Southern Pacific Mortgages Ltd v Scott [2015] EGLR 3. The parties enjoyed a purely contractual relationship, in the form of a contract for sale and a contract for sub-sale, and the buyer did not have an equitable interest that he could transfer to a sub-purchaser in order to bind the seller. So there were no grounds for applying equitable principles to the relationship using the vehicle of a constructive trust.
An uncompleted contract for the sale of land does not have the same effect as a declaration of trust: Jerome v Kelly [2004] 1 WLR 1409. The seller had not become a trustee for the sub-purchaser and the fiduciary duties that a contract places upon the seller prior to completion do not override what the parties have agreed. So completion depended on the service of the requisite notices.
The administrators had now obtained a written assignment of the benefit of the original agreement for sale, and had served a notice calling for completion. So the court suggested they should commence new proceedings based on the assignment and notice, which the original landowner would be entitled to defend as he saw fit. But Lord Justice Patten warned the administrators – who had been relying on section 234 of the Insolvency Act 1986 – that, although it was designed to help office holders obtain control of property and records to which a company appeared to be entitled, it was a summary procedure that was not designed to resolve complex arguments about title or as a substitute for a claim for specific performance.
Allyson Colby is a property law consultant
