Sale of land – Contract – Rescission – Defendant contracting to sell registered freehold land to claimant on full title basis under general condition 4.3(a) – Special condition requiring claimant to accept that leasehold interest shown in schedule to freehold title previously determined by surrender – Notice and restriction in respect of bankruptcy of lessee shown on leasehold title and bankruptcy petition and order registered in land charges register – Section 86 of Land Registration Act 2002 – Whether surrender void by reason of bankruptcy – Whether defendant having notice of bankruptcy – Whether claimant entitled to rescind on ground that freehold title encumbered by lease – Claim allowed
In January 2008, the claimant bought at auction registered freehold land from the defendant for £400,000; he paid a deposit of £40,000. The contract of sale was subject to the general conditions of sale, including the full title guarantee contained in condition 4.3(a). It also contained special conditions, among which were: (i) a provision that vacant possession would be given on completion; (ii) a statement that a certain leasehold interest in the property had determined by operation of law in August 2006: and (iii) that the buyer accepted that position and was not entitled to require further proof or raise any objection or requisition with regard to it.
That leasehold interest continued to be shown in a schedule to the freehold title, notwithstanding that the lessee had purported to surrender the lease, which surrender the defendant had purported to accept at the end of August 2006. The leasehold title showed entries relating to the bankruptcy of the lessee; they comprised a notice of pending bankruptcy proceedings, entered under section 86(2) of the Land Registration Act 2002 prior to the purported surrender, and a later restriction, entered under section 86(4), in respect of a subsequent bankruptcy order. The bankruptcy petition and order were also registered on the land charges register.
The sale did not proceed. The claimant did not comply with a notice to complete served by the defendant in March 2008, but instead purported to rescind the contract on the ground that the title was encumbered by the lease. He argued that the surrender was ineffective by reason of section 284 of the Insolvency Act 1986, as a void disposition of property made by a bankrupt. The claimant sued for the return of the deposit, plus interest, and applied for summary judgment on that claim. Meanwhile, in May 2008, the defendant obtained a disclaimer of the lease from the lessee’s trustee.
The claimant contended that, under section 198 of the Law of Property Act 1925, the defendant was deemed to have had actual notice of the bankruptcy petition at the time of the purported surrender as a result of the registration of the bankruptcy petition in the land charges register. The defendant argued that section 198 was not relevant since section 86 of the 2002 Act provided a comprehensive code for dealing with the registration of bankruptcies in respect of registered land and, by section 86(7), a person to whom a registrable disposition was made was not required to make any search under the Land Charges Act 1972.
Held: The claim was allowed.
(1) On an application of section 86(5)(c)(i) of the 2002 Act, the leasehold title of the lessee’s trustee in bankruptcy would have become void as against the defendant from the date of the purported surrender provided that, at that date, no notice or restriction had been entered under section 86 in respect of the bankruptcy proceedings and the defendant had had no notice of the bankruptcy petition or adjudication. Since a notice had been entered with the Land Registry under section 86, the title of the trustee in bankruptcy was not void against the defendant and the purported surrender was ineffective. That position was reached without requiring the defendant to make a search under the 1972 Act. Section 86(7) did not “trump” subsection 86(5)(c)(i). It was concerned solely with whether a search had to be made under the 1972 Act and, thus, whether a person was affected by entries on the land charges register. Section 86(5)(c)(i), on the other hand, was concerned with the land register, and specifically with entries that had been made in it, pursuant to section 86(2) and (4), after the registration of the bankruptcy petition and order under the 1972 Act. In the instant case, the entries in the Land Register were sufficient to determine the question of notice against the defendant.
(2) Although the land register and the land charges register both revealed the existence of the leasehold interest and the bankruptcy petition and did not mention any determination of the lease, the claimant was contractually bound by special condition 7 to accept that the lease had been determined even though that was not so. Such a determination had not occurred and the lease subsisted both in law and in fact. However, special condition 7 had not been intended as an exception to the full title guarantee basis of the sale under general condition 4.3(a). At the date set for completion, the defendant had not been in a position to convey the unencumbered title that it had contracted to convey and the claimant was accordingly entitled to rescind and to claim the return of his deposit with interest. The defect in title was not merely technical because there was a subsisting leasehold interest, which would continue unless there were either a successful application to the court for ratification of the surrender or a successful request to the lessee’s trustee in bankruptcy to disclaim. The outcome of neither had been a foregone conclusion at the relevant time and the defendant had had no right to insist on ratification or disclaimer. The defendant could not show that, at the date for completion, there was no risk of the trustee in bankruptcy asserting successfully that the lease subsisted: MEPC Ltd v Christian-Edwards [1981] AC 205 applied.
Jane Evans-Gordon (instructed by Tarbox Robinson & Partners) appeared for the claimant; Mark Loveday (instructed by Romain Coleman) appeared for the defendant.
Sally Dobson, barrister
