Various Mortgagors v Various Mortgagees & Ors

In sale-and-leaseback transactions, equitable rights asserted by former proprietors cannot ordinarily obtain priority over a mortgage charge funding the acquisition. The transfer, mortgage and related transactions must be assessed as a whole. Where contract and completion occur together, there is no intervening moment in which an equitable interest can arise and bind the mortgagee. The Abbey National Building Society v Cann principle applies beyond its precise facts, but it does not justify treating the vendor’s rights as occupying a special position. A lease granted before the purchaser’s registration cannot obtain priority under section 29(4) of the Land Registration Act 2002 if it was not granted out of a registered estate. In registered conveyancing, notice is irrelevant except where the Act provides otherwise.

The court determined three preliminary issues arising in nine test cases within the North East Property Buyers litigation. Mortgagees sought possession of residential properties acquired by nominees of North East Property Buyers under sale-and-leaseback arrangements. The former registered proprietors remained in occupation and alleged promises of tenancies or other equitable rights.

The issues concerned whether those rights were overriding interests under section 29 and Schedule 3 of the Land Registration Act 2002; whether short leases could obtain priority under section 29(4), including where a priority search had been made; and whether the mortgagees’ priority could be affected by notice of promises or transaction circumstances known to their agents.

1. Priority of the mortgage charges. The court held that the mortgagees’ charges had priority over any equitable rights acquired by the occupiers against North East Property Buyers. The sale, transfer and mortgage were part of an indivisible transaction funding the acquisition. There was no legal “moment in time” in which the purchaser held an unencumbered estate capable of being bound by the occupiers’ rights. The approach in Abbey National Building Society v Cann applied. The broader reasoning in Whale v Viasystems did not assist the occupiers.
2. The court declined to follow Redstone v Welch & Jackson. That decision placed excessive weight on whether the sale and leaseback were indissolubly connected and confused the vendors’ rights as vendors with rights claimed from the purchaser. It was inconsistent with Cann, Nationwide v Ahmed and Hardy v Fowle.
3. Before completion, the occupiers’ rights were at most personal rights. They became proprietary, as against the purchaser, only on completion and could not then take priority over the charge. Section 63 of the Law of Property Act 1925 also operated because the transfers contained no words limiting the estates transferred. The court rejected the argument that this used the statute as an instrument of fraud, noting that a fresh proprietary estoppel could arise on completion.
4. A lease granted before registration of the purchaser’s title could take effect only in equity. Section 29(4) did not give it priority because the lease was not granted out of a registered estate. The priority-search question therefore did not arise. Alternatively, if the contrary construction applied, section 72 should protect a mortgagee registering within the priority period.
5. On the third issue, the parties accepted that priority in registered conveyancing was governed by the Land Registration Act 2002, so notice was irrelevant except where the Act provided otherwise. The three preliminary issues were answered “No”. Permission to appeal was provisionally contemplated.