On 17th June 2016 the Court of Appeal handed down a judgment in the case of Mortgage Express v Lambert which concerned a dispute between a mortgagee that was seeking possession of a property from an occupier, Ms Lambert who was not the registered owner. Ms Lambert claimed she had an interest in the property which was an “overriding interest” and therefore took priority over the mortgage company’s interest. The mortgage company disagreed and claimed that even if she did have an overriding interest, it had an “overreaching interest” which trumped the interest claimed by Ms Lambert. The court of appeal agreed with Mortgage Express on that point.
In Mortgage Express v Lambert, Ms Lambert had agreed to a sale of her property for £30,000 (it was worth £120,000) and leaseback arrangement that was not disclosed to Mortgage Express. It understood that Ms Lambert was transferring the property with vacant possession (i.e. she was moving out) and Ms Lambert did not disclose her continuing interest in the property despite being given the opportunity to do so. Although Ms Lambert had legal representation at the time she entered into the agreement the judge was critical of the service that was provided to her. The new owners, Ms Lambert’s landlords then fell into mortgage arrears and Mortgage Express sought to re-possess the property.
Ms Lambert defended the claim for possession and argued that the agreement she entered into to sell the property should be set aside for it was an “unconscionable bargain” and therefore she had an equitable interest in the property. The court of appeal agreed with her on that point but found that Mortgage Express’ interest overreached this due to the provisions of section 2 of the Law of Property Act 1925 as the charge in favour of Mortgage Express was given by the 2 owners of the property who held the property on trust.
It is hard to provide an exhaustive list of what overriding interests there might be. There are interests over property which are not registered at the Land Registry but are binding on the owner and any subsequent party which acquires an interest in the property. They crop up most commonly in cases where the actual occupiers of the property are not the registered legal owners. An example would be the wife of a sole owner who contributed to the purchase price and was in occupation at the time her husband mortgaged the property (Williams & Glyn’s Bank Ltd v Boland).
You might think that these situations would be few and far between and relative to the number of properties that are owned they are. In addition, these issues only seem to arise when there is intervention by a third party, i.e. a mortgagee seeking possession. However, with more people struggling to get on to the property ladder and credit/mortgages being less available since the 2008 property crash it is more common for arrangements between family members or friends to be made which are not necessarily registered or ascertainable from the official documentation.
Parties can avoid having to litigate such issues by registering their interests at the Land Registry so any incoming party is on notice of them. It is also important that any incoming party, such as a lender carries out diligent investigations to understand what interests the property is subject to. It is also crucial that any such interests are disclosed when enquiries were made, which was a key factor in why Ms Lambert was unsuccessful in the above case.