Lloyd’s Bank Plc v Rosset

For an overriding interest based on actual occupation, the relevant time is when the estate or charge is created, ordinarily on completion, not later registration. Actual occupation is ordinary language applied to the nature and condition of the land. A semi-derelict house may be actually occupied while it is being renovated and before residence begins. Occupation may also be established through an employee or agent whose function requires presence on the property. A constructive trust may arise from a common intention that a claimant should have a beneficial interest and detrimental reliance on that intention. No reciprocal bargain or specified condition is essential. An equitable interest acquired before completion can have priority over a lender’s later interest created on completion.

The husband purchased a semi-derelict farmhouse in his sole name, while the wife assisted with its renovation and intended it to become their family home. The husband granted the bank a legal charge on completion. The transfer and charge were registered later, by which time the wife was plainly living at or using the property.

The wife claimed a beneficial interest under a constructive trust and asserted that it was an overriding interest under the Land Registration Act 1925. Judge Scarlett held that the relevant date was completion, but that the wife was not then in actual occupation. He ordered possession while declaring that the husband held the property on trust for himself and the wife. The wife appealed.

By a majority, Nicholls LJ and Purchas LJ allowed the appeal. Mustill LJ dissented.

1. Relevant date. Section 20(1)(b) of the Land Registration Act 1925 ordinarily addresses interests subsisting when a disposition is registered. For section 70(1)(g), however, actual occupation must be assessed when the estate or interest said to be subject to the occupation right was created. In the case of a purchase and charge, that was completion, not later delivery of the registration application. A later entrant could not thereby obtain an overriding interest against an already completed transaction.
2. Actual occupation. The expression is ordinary language whose application depends on the nature and condition of the property. Residence is normally required for a habitable house, but a semi-derelict house may be actually occupied during substantial renovation. Physical presence by an employee or agent may also count where the function undertaken entails presence on the premises. The wife’s regular presence and the builders’ work on behalf of both spouses amounted to actual occupation on 17 December 1982. The bank was on enquiry and should have investigated the wife’s interest.
3. Beneficial interest. The findings established a common intention that the wife should have a beneficial interest and detrimental reliance on that intention. A reciprocal agreement specifying the act by which the interest would be acquired was unnecessary. Before completion, the wife had an equitable interest carved out of the husband’s equitable interest under the specifically enforceable purchase contract. It became indefeasible when completion occurred.
4. Priority and order. The wife’s prior equitable interest ranked ahead of the bank’s equitable interest arising on completion. [1912] 2 Ch 25 and [1976] AC 503 were distinguished. The successive-steps analysis in [1954] Ch 553 supported the result. The order for possession was set aside and the matter was remitted to determine the extent of the wife’s beneficial interest. The appeal was allowed with costs here and below; leave to appeal was refused.

Mustill LJ considered that actual occupation required continuity and a sufficient physical presence to put a purchaser on enquiry. In his view, the wife was preparing the house for later residence rather than occupying it, so the bank’s interest should prevail.

• Court of Appeal (Civil Division). On 13 May 1988, the majority allowed the wife’s appeal, set aside the possession order and remitted the issue of the extent of her beneficial interest.
• Thanet County Court. Judge Scarlett held that the relevant date was completion, found that the wife was not then in actual occupation, ordered possession for the bank, and declared that the husband held the property on trust for himself and the wife.