A purchaser of land does not have sufficient interest in property to confer an equitable proprietary right before completion of sale
Facts
Background
In a what is known as a ‘sale and lease back’ transaction, Mrs Scott (D) agreed to sell her house below market value to N, with the promise that she could stay indefinitely at discounted rent
N borrowed the purchase money from Souther Pacific Mortgages (C) and agreed to grant C a mortgage over the house
The completion of sale occurred right before the execution of the mortgage on the same day
Dispute
Subsequently, N defaulted on payment of its loan with C
C sought an order of possession of the house
D sought to argue that she had an an overriding interest in the property
She had equitable lease in the property arising from from proprietary estoppel due to N’s promise
Her equitable interest was overriding due her being in actual occupation on the date of execution of the mortgage
Held (House of Lords)
D did not have an overriding interest protected by actual occupation
Prior to completion of sale, D only had a personal right under proprietary estoppel
There was no scintillia temporis between the completion of sale and the execution of mortgage during which D could have obtained a proprietary equitable interest that could be protected by actual occupation
Lord Collins
Pre-completion of sale
Prior to the acquisition of the legal estate a purchaser of property could not grant equitable rights of a proprietary character but only of a personal character
A personal right only coverts to a proprietary right when it is ‘fed’ by the purchaser’s acquisition of the legal estate
Thus, D had acquired only personal equitable rights against N based on N’s promise prior to completion
Post-completion of sale
The transfer of legal estate and the grant of the mortgage were one indivisible transaction (pursuant to Cann)
Hence, D could not assert priority over C’s mortgage
Baroness Hale
Pre-completion of sale
The interest of the purchaser between contract and completion does not allow him to grant a proprietary interest prior to completion
Furthermore, the purchaser before completion has no legal estate and thus cannot create an interest that is capable of being protected under s29(1) LRA 2002, which only relates to interests affecting legal estates
Post-completion of sale
Completion and mortgage are one indivisible transaction and there is no scintilla temporis between them in the standard case where:
Completion and mortgage take place virtually simultaneously and
The mortgage is granted to secure borrowings without which the purchase would not have taken place
In the current case, there was no scintillia temporis between the completion and the execution of the mortgage so that the estoppel was fed before the mortgage was executed
Commentary
This case creates an exception to the ordinary rule that the beneficiary under a trust can create a sub-trust of his beneficial interest
Based on the ordinary rule, N would have had a equitable title to the property under a constructive trust arising from the contract of sale, which he could hold on a sub-trust for D should one have arisen by proprietary estoppel
However, there is good reason for the exception as well as the scintillia temporis rule: without them, borrowers can defeat a mortgage granted to their lenders by entering into possession of the relevant property right before the completion of sale and in doing so obtaining a overriding interest protected by actual occupation
