A2 Dominion Homes Ltd v Prince Evans Solicitors

Under the Land Registration Act 2002, an agreement for a lease protected by a notice on the register retains priority over a later registered charge where the subsequent leases strictly conform to the agreement. The later legal leases are the product of the earlier equitable interest and should not be treated as wholly distinct interests for priority purposes. A mortgage covenant requiring the mortgagee’s consent to new leases does not defeat leases granted pursuant to an earlier agreement that bound the mortgagor and was protected by notice.

The claimant’s predecessor agreed to acquire 33 long leases and paid a substantial deposit. The agreement was protected by a unilateral notice on the registered freehold title. The owner later granted a charge to HSBC, which was registered before the leases were registered. The leases were subsequently granted pursuant to, and in conformity with, the earlier agreement.

In professional-negligence proceedings against the solicitors who acted for the claimant, the court tried as a preliminary issue whether the bank’s charge had priority over the leases. The central question was whether the notice protecting the agreement also protected the leases subsequently granted under it.

1. The preliminary issue was answered in the negative. The charge did not rank in priority to the 33 leases.
2. Section 27(1) of the Land Registration Act 2002 concerns when a registrable disposition operates at law. The competing-priority question is governed principally by sections 28 and 29.
3. Section 28 preserves the basic priority rule, subject to the exceptions in sections 29 and 30. Under section 29(1), a registrable disposition for valuable consideration postpones an interest whose priority was not protected when the disposition was registered. Section 29(2)(a)(i) protects an interest which is the subject of a notice in the register.
4. The agreement for the leases was an interest protected by a unilateral notice. The later leases strictly conformed to the agreement and were its product. It was therefore artificial to separate the equitable interest under the agreement from the legal interest under the leases for priority purposes.
5. The contrary construction would leave a prospective lessee without effective protection during a substantial period between agreement and completion, despite having paid a substantial deposit. It would also make the unilateral notice practically pointless except against a subsequent purchaser of the legal estate.
6. The reasoning in Williams v Burlington Investments Ltd [1977] 121 Solicitors Journal 424, although concerned with a different statutory regime and unregistered land, provided comparable support. The mortgage conditions requiring consent did not displace the earlier protected agreement. The leases therefore retained priority over the charge.