Scott Christian Bevan & Anor (as joint liquidators of Pinnacle Student Developments (Leeds) Limited) v Valeo USL Limited & Anor

Under a specifically enforceable contract for the sale of land, the vendor’s trust is limited to securing the purchaser’s right to conveyance. It does not give the purchaser all the incidents of an ordinary trust. Subject to the contract, the vendor remains entitled to rents and profits until possession is due to be handed over.

An equitable lien arising from pre-completion payments attaches to the interest contracted to be granted, such as a proposed lease. It does not extend to rental income generated by the property. The purchaser’s insolvency-related loss does not create a new equitable entitlement to rents excluded by the contract.

The joint liquidators of Pinnacle Student Developments (Leeds) Limited sought directions concerning £392,938.36 in rent paid into court by Valeo USL Limited. The rent arose from units in a student accommodation development which had been contracted for sale to investors, but whose sales had not completed before Pinnacle entered liquidation.

One investor, Marc Horn, claimed that the exchange of contracts, Pinnacle’s failure to complete, and his pre-completion payments gave the investors proprietary rights to the rental income. The central issues were whether the sale agreements conferred a contractual or equitable entitlement to rent, and whether any equitable lien extended to the funds.

1. Contractual entitlement. Pinnacle had breached its obligation to complete after the practical completion certificate was issued. However, the sale agreements required the units to be sold with vacant possession and provided letting and management options only following completion. They contained no contractual right to rental income before completion. The management services agreement could not reaffirm a right which did not exist.
2. Vendor’s trust. The trust arising from a specifically enforceable contract for the sale of land is a special and limited trust. It exists to protect the purchaser’s contractual right to conveyance. It does not make the vendor a bare trustee or impose all the ordinary incidents of trusteeship. The vendor remains entitled, subject to the contract, to retain rents and profits before possession is handed over. The court applied the reasoning in Berkley v Poulett [1977] 1 EGLR 86 and Englewood Properties Ltd v Patel [2005] EWHC 188 (Ch).
3. Equitable lien. The purchasers’ equitable liens secured repayment of sums paid under the contracts, together with permitted ancillary sums. The liens attached to the proposed 999-year leases of the relevant units, not to the freehold generally and not to rental income received under later tenancies. The court applied Chattey v Farndale Holdings Inc (1998) 75 P & CR 298 and Eason and Sanders v Wong [2017] EWHC 209 (Ch).
4. Amounts received as rent could not be treated as further payments increasing the lien or converting Pinnacle’s interest into a bare trust. Pinnacle’s insolvency and the limited value of a damages claim did not justify creating a new equitable right to rents outside the contractual bargain.
5. The claim to the Funds was rejected. Since Pinnacle remained entitled to receive the rents and profits, it was unnecessary to determine whether the managing agents had authority to collect them.

First-instance decision. The judgment records an earlier hearing at which Mr Horn was added as a respondent, but no appellate decision is stated.