The contracting purchaser of a property agreed, prior to completion, to let the ground floor of the property to two tenants. She subsequently borrowed a sum of money from the plaintiffs to enable her to complete the purchase. On completion, she granted the plaintiffs a mortgage which contained a prohibition on the creation of tenancies. On a claim for possession by the plaintiffs, the tenants argued that a tenancy by estoppel had been created prior to completion
Held: The grant of the tenancies conferred on the prospective tenants an equitable interest.
Harman J said: ‘The question is whether I must assume the scintilla temporis and assume that because of the obligations of the landlord she must be held to have defrauded her mortgagee by creating a tenancy which is good against the society although it was not willing to lend the money except on the footing that she had no such right. I do not see why I need postulate this. The whole transaction was one transaction. The vendor would not sell without receiving his purchase money, and the mortgagee would not provide the purchase money without receiving the term of years. The money, in fact, went straight – as is the universal practice – from the mortgagee to the vendor, and not until it was in the vendor’s hands would a legal state be created wither in favour of the landlord or of the mortgagee. It seems to me that the whole thing is one transaction in substance, and I am not constrained to introduce an artificiality so as to affect the rights of the building society. Consequently, I reject the argument that the doctrine of estoppel must have created in the tenants an estate in priority to that of the building society. The grantor of the so-called tenancy would never have acquired the estate which she did acquire but for that mortgage money, and it would not be right, therefore, to introduce a fiction in the manner suggested.’
Judges:
Harman J
Citations:
[1951] 1 All ER 901
Jurisdiction:
England and Wales
Cited by:
Cited – Cook v The Mortgage Business Plc CA 24-Jan-2012
The land owners sought relief from possession orders made under mortgages given in equity release schemes: ‘If the purchaser raises all or part of the purchase price on mortgage, and then defaults, the issue arises whether the mortgagee’s right to . .
Cited – Cook v The Mortgage Business Plc CA 24-Jan-2012
The land owners sought relief from possession orders made under mortgages given in equity release schemes: ‘If the purchaser raises all or part of the purchase price on mortgage, and then defaults, the issue arises whether the mortgagee’s right to . .
Distinguished – Universal Permanent Building Society v Cooke CA 1951
The mortgagor agreed to buy a shop with living accommodation above. She let the flat to her sister before completion, and by the date of the mortgage, the sister was in possession. After default, the lender sought possession under the mortgage, but . .
Approved – Scott v Southern Pacific Mortgages Ltd and Others SC 22-Oct-2014
The appellant challenged a sale and rent back transaction. He said that the proposed purchaser had misrepresented the transaction to them. The Court was asked s whether the home owners had interests whose priority was protected by virtue of section . .
Lists of cited by and citing cases may be incomplete.
Land
Updated: 03 November 2022; Ref: scu.450472