Benos, R. v

An absolute disposition of land will ordinarily pass the beneficial interest subject to an existing mortgage. A requirement that the recipient discharge the mortgage is not necessarily a condition precedent to transfer. Its effect depends on the true construction of the instrument.

A deed of variation outside the conditions in section 142 of the Inheritance Tax Act 1984 may fail to obtain the statutory inheritance-tax treatment, but that does not prevent executors and beneficiaries from redirecting the beneficiaries’ interests while the estate remains unadministered. For confiscation purposes, an equitable interest and a right to call for transfer are assets available under the Proceeds of Crime Act 2002.

The appellant pleaded guilty to two counts of producing cannabis after cannabis farms were found at his home and at a second property, St Vincent Street. At confiscation, his benefit was agreed at £43,344.01. Apart from funds in his bank account, the issue was whether he had an equitable interest in St Vincent Street.

Deeds executed by the executors and beneficiaries of the relevant estates stated that the property should be given to him absolutely on condition that he discharged the existing Halifax mortgage. The Crown Court held that he was the beneficial owner and included the net value of the property in his available assets. He appealed, contending that the mortgage requirement was an unfulfilled condition precedent and that the deeds were ineffective.

1. Appeal dismissed. The Crown Court was right to include the appellant’s equitable interest in St Vincent Street in the available amount for confiscation purposes, although the Court of Appeal reached that conclusion on somewhat different reasoning.

2. The question was one of the true construction of the deeds. They expressly gave the property to the appellant absolutely. The requirement that he discharge the outstanding mortgage did not create a continuing condition precedent, under which a missed payment could cause forfeiture at some later time. Properly construed, the deeds transferred the beneficial interest subject to the existing mortgage charge. They also protected the donors to the extent that they might suffer loss if pursued in respect of the mortgage.

3. The court applied the established approach illustrated by Re Neeld Deceased (1962) Ch 643, Re Kirk Deceased (1882) 21 Ch D 431, and Re Cowley (1885) 53 LT 494. Language describing an obligation as a condition does not conclusively make it a condition precedent. It may instead identify a charge or burden attached to the transferred property.

4. Section 142 of the Inheritance Tax Act 1984 concerns the inheritance-tax consequences of qualifying variations made within two years of death. It does not exclusively prescribe how beneficiaries may redirect their interests. Although the deeds did not meet that section’s requirements, the estates had not been administered and closed. The deeds therefore redirected the beneficiaries’ rights in the estates relating to the property. The appellant consequently had a beneficial interest and a right to call for transfer of the legal estate.

5. Under the Proceeds of Crime Act 2002, that equitable interest was properly valued at the date of the confiscation order and included in the available amount. A later inability to realise the assessed value could found an application based on a change of circumstances. An estate or beneficiary could also pursue any available third-party claim, including under section 10A; the court expressed no view on the merits of any such claim.

• Court of Appeal (Criminal Division): Dismissed the appeal and upheld the inclusion of the appellant’s equitable interest in the available amount: [2019] EWCA Crim 1093.
• Crown Court at Newcastle-upon-Tyne: At a confiscation hearing on 26 June 2017, held that the appellant was the beneficial owner of St Vincent Street and made a confiscation order for the agreed benefit of £43,344.01.