The Mortgage Business plc v Cook and three similar cases

Sale of land – Equity release scheme – Sales of residential properties with promise by purchaser that appellant vendors to be entitled to remain in their homes under tenancies – No such tenancies mentioned in sale contracts – Purchaser taking out mortgages to fund purchases – Whether respondent mortgagees entitled to possession where purchaser defaulting on mortgages – Whether appellants having equitable rights with priority over mortgage – Appeals dismissed In each of the four joined appeals, the appellants entered into arrangements known as “equity release schemes”, by which they, as the registered owners of residential properties, sold their properties to a company in order to raise funds, while the company promised them the right to remain in their homes; each appellant claimed to have been promised a tenancy, although the relevant sale agreement made no mention of this. To fund the purchases, the company took out mortgage loans with the respondent lenders; in its mortgage applications, it indicated that the properties were being purchased on a “buy-to-let” basis and would be let on assured shorthold tenancies (ASTs) of six months’ duration. Exchange of contracts, completion of the sales and execution of the mortgages all took place on the same day.The company subsequently purported to grant ASTs to the appellants for periods between two and 10 years; however, neither the rights of occupation promised by the company nor the ASTs were permitted by the terms of the respondents’ mortgages. When the company defaulted on the mortgage payments, the respondents applied to the court for possession orders against the appellants. Possession was ordered in the court below. The judge rejected the appellants’ claims to have an equitable interest in the properties, with priority over the respondents’ charges; he held that any equity arising out of the company’s assurances was at best personal and not proprietary in nature.The appellants appealed. They contended that, inter alia: (i) by reason of the company’s assurances, from the moment of exchange of contracts they had equitable rights over the properties they were selling in addition to their registered freehold interests; and (ii) those equitable rights were overriding interests within para 2 of Schedule 3 to the Land Registration Act 2002 and so binding on the respondents by virtue of section 29(2)(a)(ii). Held: The appeals were dismissed. (1) An overriding interest, within para 2 of Schedule 3 to the 2002 Act, had to be a proprietary right adversely affecting the title: see section 132(3)(b). Even assuming, in favour of the appellants, that the facts were capable of giving rise to a proprietary estoppel or constructive trust, or an equity to set aside the transfers for fraud, that equity was not capable of subsisting as a proprietary interest and did not take priority over the respondents’ charges.The transactions between the appellants and the company, on an objective appraisal of their true commercial and legal nature, each in fact involved two separate transactions, one for the sale of the freehold and one for a leaseback to the vendor on completion, rather than an agreement for sale subject to a reservation. Since the sale contracts made no reference to the grant of a lease to the vendors on completion, they gave the clear impression that the vendors were selling without reserving any beneficial interests or other rights in the property and that was how any third party, including a mortgagee lending money to fund the purchase, would be entitled to view the matter: Abigail v Lapin [1934] AC 491 applied. In those circumstances, no equitable interest, whether by estoppel or constructive trust or otherwise, could have arisen in the appellants’ favour prior to completion: Sargaison v Roberts [1969] 3 All ER 1072 and Barclays Bank plc v Estates & Commercial Ltd [1997] 1 WLR 415 (concerning a vendor’s lien) distinguished.Moreover, even if an equity had arisen in favour of the appellants immediately on exchange of contracts, by reason of the assurances made by the company as purchaser, that equity would not have taken priority over the respondents’ mortgages. Where the contract for sale was exchanged, and the transfer and mortgage were executed, all on the same day, there was no moment of time when the freehold acquired by the purchaser was free from the mortgage but subject to the equity: Abbey National Building Society v Cann [1991] AC 56 and National & Provincial Building Society v Ahmed [1995] P&CR 381; [1995] 2 EGLR 127; [1995] 38 EG 138 applied. Where the contract was made and completed at broadly the same time as the mortgage was executed, it was too technical and unrealistic to separate out the contract, on the one  hand, and the transfer and mortgage, on the other, as distinct and separate transactions.(2) The appellants were not otherwise entitled to priority on the basis that the company had, prior to registration of its title, granted valid tenancies to them for terms of less than seven years, not requiring registration by virtue of section 27, and taking priority over the respondents’ charges. Prior to registration of the company’s transfer, its interest existed only in equity; consequently, any lease that it granted could also take effect only in equity since it could not grant a greater interest than it possessed. Moreover, the priority protection period conferred on the respondent mortgagees under section 72 protected them against a tenant under a lease of seven years or less. Jonathan Small QC, James Stark and Daniel Robinson (instructed by Clark Willis, of Darlington, on the first appeal and David Gray LLP, of Newcastle upon Tyne, on the second, third and fourth appeals) appeared for the appellants; Jonathan Seitler QC and Daniel Gatty (instructed by Eversheds LLP on the first appeal and TLT LLP on the second, third and fourth appeals) appeared for the respondents; Nicole Sandells (instructed by Cobbetts LLP) appeared for the interested party, Mortgage Express, in all four appeals. Sally Dobson, barrister