The First Defendant agreed to purchase a business from the Second Defendant for andpound;160,000. andpound;80,000 was raised by way of a secured loan from the plaintiff and was paid to the Second Defendant. The balance of andpound;80,000 was left outstanding and secured by way of a second charge against the property. The arrangements for the sale and purchase of the business and the property were embodied in a contract. The agreement said that the Plaintiffs’ charge would rank before the Second Defendant’s. A Clause provided that the Second Defendant was to retain the use of the property until the whole of the principal money and. interest due under the agreement had been paid. The transfer and mortgage deed were co-dated with the contract. The First Defendant failed to pay both the Second Defendant, and also the mortgage. In possession proceedings the Second Defendant defended on the grounds that the Plaintiffs were not entitled to possession of the property, the Second Defendant’s overriding interest in the property taking priority over the first legal charge. It was argued that the Second Defendant had an unpaid vendor’s lien which had priority over the first charge.
Held: The submission failed. There was no vendor’s lien because the Second Defendant had received all he bargained for when he received the second charge, and the rights under the clause were a contractual licence which could not give rise to an overriding interest. Only proprietary interests can be overriding.
The submission also failed because of the decision in Cann.
Aldous LJ continued: ‘The submission also fails because the charges, the agreement and the transfer were all signed on the same day namely June 1. Thus, his right to occupation under clause 6 did not accrue prior to the creation of the respondent’s charge. In Abbey National Buildins Society v. Cann the House of Lords decided that the relevant date for determining the existence of an overriding interest was the date of registration of the estate affected. In this case that date was August 3, 1990. They went on to hold that to acquire an overriding interest against a chargee by virtue of occupation, the person claiming the interest had to have been in actual occupation at the time of the creation of the legal estate. In this case that was June 1, 1990. They concluded that when a purchaser relied on a building society, such as the respondent, to enable completion, the transactions involved were one indivisible transaction and, therefore, there was no scintilla temporis during which the right to occupation vested free of charge.
The same reasoning is applicable to the facts of this case. On June 1, the contract, the transfer and the legal charges were completed. They formed an indivisible transaction and there was no scintilla temporis during which any right to occupation under clause 6 of the agreement vested in the appellant which was free of the respondent’s charge. Thus, the right given by clause 6 did not provide an overriding interest under section 70(1)(g) of the 1925 Act even if the right was a proprietary right.
Mr Collins submitted that that conclusion ignored the reality of the position and that at all times the appellant was in occupation. However that submission ignores the reality of the legal position. The appellant gave up his right to occupy as an unpaid vendor by signing the agreement and thereby obtained permission to occupy, which permission did not take effect prior to the respondent’s charge.’
Aldous LJ
(1995) 70 P and CR 381
England and Wales
Cited by:
Cited – Cook v The Mortgage Business Plc CA 24-Jan-2012
cook_mbpCA2012
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 – 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 . .
These lists may be incomplete.
Updated: 02 June 2021; Ref: scu.450470