The Paddington Building Society v Malcolm Leslie Mendlesohn

Occupation of registered land does not, by itself, enlarge the rights of the person in occupation. An overriding interest under section 70(1)(g) of the Land Registration Act 1925 preserves the occupier’s existing rights, but gives them no greater priority than those rights have under the general law. Where a person acquires a beneficial interest knowing and intending that the property will be mortgaged to finance the acquisition, the interest is subject to the mortgagee’s rights. That remains so even if the interest is an overriding interest and even though the precise time for assessing actual occupation is left undecided.

The Society advanced £17,000 to the son, who acquired and mortgaged a registered leasehold flat. His mother provided £15,500, occupied the flat after completion and claimed a beneficial interest. The Society had no notice of that interest when the transfer and charge were executed, and the charge was registered after the mother entered occupation.

After the son defaulted, the Society claimed possession. The county court held that the mother needed to be in actual occupation when the mortgage was created to obtain protection under section 70(1)(g) of the Land Registration Act 1925. She appealed. The Society also argued that, as a consenting participant in the mortgage arrangement, her rights were subject to the mortgage. The central issue was whether that contention disposed of the appeal without deciding the relevant date for actual occupation.

1. Appeal dismissed unanimously. The court declined to determine whether actual occupation under section 70(1)(g) is assessed when the legal charge is created or when application is made to register it. It assumed that the mother was in actual occupation and that her interest was an overriding interest.
2. Where a person acquires or contributes to the acquisition of property knowing and intending that a mortgage will finance the acquisition, the person’s beneficial interest is inferred to be subject to the mortgagee’s rights. The mother knew and intended that the mortgage would be granted and that the flat could not have been acquired without it. Her interest therefore provided no defence to the Society’s possession claim.
3. Section 70(1)(g) deems registered land to be subject to the rights of a person in actual occupation. It does not transform the inherent quality of those rights or confer priority which they would not have had under the general law. An overriding interest may bind the registered land while remaining subordinate to the mortgage.
4. Williams and Glyn’s Bank v Boland [1981] AC 487 did not require a different result. That case concerned mortgages granted after the equitable interests arose and without the wives’ knowledge or consent. The question whether an interest was intended to be subject to a further mortgage did not arise and was not considered.
5. The possession order was to take effect in three months. There was no order for costs save legal and taxation.

• Court of Appeal (Civil Division): dismissed the mother’s appeal and left the possession order in place, with effect deferred for three months.
• Bristol County Court: His Honour Judge McCarraher rejected the contention that the relevant date for actual occupation was the date of registration of the legal charge.