Problem question

This essay will analyse the situation of each of the third parties that might be affected by
Williams decision to apply for a mortgage, particularly how can they claim their rights before
a court and in which of the situations, if any, is the lender, in this case the Loamshire Building
Society (from now on referred to as LBS), bound upon by the interests of the parties. Before
continuing with the answer it is necessary to bear in mind the fact that rights can only arise if
they are registered in conformity with the Land Registration Act or if, even when they are
unregistered, they override the interests of the possible purchasers and mortgagees.
Julia
Julias situation is a pretty classic one but before it can be seen whether LBS is bound upon by
any of her interests, it is imperious to establish what Julias rights are concerning the property
mentioned. The relationship which she has with William and the fact that she contributed with
an amount of money to the purchase of Abbey Farm gives rise to a resulting trust. A resulting
trust arises from an intention to acquire an interest in the property as manifested by the
contribution to the acquisition of the property through part-provision of the purchase price. 1
Given that Julia contributed with 10% from the buying price, it would be unfair to say that the
gist of all rights goes to the legally registered owner. Moreover, not only would it be unfair to
presume that all the rights are Williams rights but it would be inequitable and the Hiscock
test helps clarify that.2 The first question that needs to be asked is if there is any beneficial
interest and the answer in Julias case is yes, there is a beneficial interest which arouse at the
moment of depositing the money. The second question is then if there is a beneficial interest,
how much should it be? While it is yet unimportant how much should it be, it goes clearly to
1 Martin Dixon, Modern land law (9th edition, Routledge, 2014), p. 175
2 Oxley v Hiscock [2004] EWCA Civ 546

show that Julia has some equitable rights in the property. The next issue that needs to be
addressed is whether the mortgagee has any obligation towards Julia. The generally applicable
rule is the one found in the Flegg3 case where the interests of the beneficiaries were
overreached by the conveyance of the title to the creditor. In Julias situation, her equitable
rights will be overreached by the conveyance to LBS. It is immaterial whether the lender has
made all the proper inquiries to find out about the beneficiary as long as the conveyance is
done for money 4 and the equitable interests are overreachable. A conveyance to a purchaser
of a legal estate in land shall overreach any equitable interest or power affecting that estate,
whether or not he has notice thereof, if the conveyance is made by a mortgagee or personal
representative in the exercise of his paramount powers, and the equitable interest or power is
capable of being overreached by such conveyance, and any capital money arising from the
transaction is paid to the mortgagee or personal representative [].5 It becomes natural to
conclude that Julias equitable interests will no longer count, making LBS free of any
commitment towards her. However, Julias claim could be a totally different one which would
be based on her actual occupation of the farm in order to show that she has an unregistered
interest which overrides any registered disposition. 6 Often occupation will follow from the
right itself as with beneficial interests under trusts of land [..].7 It has already been
established that she has a beneficial interest and the fact that she lived there for 10 years and

3 City of London Building Society v Flegg [1987] UKHL 6

4 See no. 1, p. 196
5 LPA 1925, s. 2 (1)(iii)
6 LRA 2002, Schedule 3, para 2
7 Martin Dixon, Modern land law (9th edition, Routledge, 2014), p. 54, fn. 102

that when she left she did not take all of her belongings, showing that she did not intend to
leave the farm for good, makes her claim stronger, obliging LBS to respect her legal rights.
Henry
The next person who might be affected by the mortgage is Henry. His possible claim arises
from the fact that he was granted a six year tenancy of the outbuilding. As mentioned in the
introduction, there are only a few rights in the land of another which can arise according to
the Land Registration Act 2002. There are the rights which are registered, the rights which are
protectable by registration and those rights which override any registered disposition even
though no registration is made. Schedule 3 from LRA 2002 deals with all the unregistered
overriding interests among which a lease not exceeding a term of seven years is to be
found.8 Henry is granted a lease of 6 years starting from April 2011 and he qualifies therefore
as having overriding interests to any notified dispositions. The fact that William did not
mention the existence of any tenants or third parties should not affect Henrys claim as a
purchaser or mortgagee is bound by the things which are discoverable and the tenancy of
someone on a land is one of the discoverable ones.9 This means that even though LBS did not
know of Henrys existence as a tenant from William, they ought to have known through their
investigation over the property leading to the conclusion that, while completing its charge
over Abbey Farm, LBS has the obligation to maintain Henry as a tenant until the end of his
tenancy.
Lynne
Lynnes case is of distinct nature from those which have been presented so far in the sense
that her written agreement is a licence which does not give rise to any proprietary rights, only
8 LRA 2002, Schedule 3, para 1
9 Martin Dixon, Modern land law (9th edition, Routledge, 2014), p. 50

to personal ones. A licence properly passeth no interest, nor alters or transfers properly in
anything, but only makes an action lawful, which without it had been unlawful 10. It follows
that the licence reveals itself like a right over land concluded between the parties and which
cannot bind a potential purchaser.11 As a consequence of being personal, the right conferred
by a licence can be enforced only against the person who created it. It does not run with land
and, unlike easements and freehold covenants, cannot be enforced against a purchaser or
transferee of the land over which it exists.12 The licence, even under a written form, will not
constitute more than a personal right. Lynne enters a written agreement in which she accepts
to pay a certain amount of money in the exchange of using the meadow for grazing sheep.
This turns the licence into a contractual one which binds no more and no less than the parties
involved. A licence operates merely personally between the parties and creates no interest in
land that might be enforceable against a third person. 13 The lender of the money has nothing
to do with the promises and contracts made by William and therefore LBS will not have any
obligation in what concerns Lynne.
Timothy
Although it might look like Timothys claim is the weakest of all, precedent has shown that
even oral agreements can lead to the creation of right which are in turn difficult to rebut. To
begin with it is necessary to understand what sort of interest in land Timothy has given the
fact that it is born from an oral agreement. Usually, it is either a licence that can be created
orally or a proprietary estoppel. The concept of proprietary estoppel bases its foundations on
10 Thomas v Sorell (1673)
11 See no. 7, p. 373
12 See no. 7, p. 374
13 Confirmed in King v David Allen and Sons, Billposting (1916)

either refraining from using a land right in the favour of a claimant or on assuring a potential
claimant that with regard to enjoyment of some right over a land which is not his. 14 In
Timothys case the proprietary estoppel is that William grants him an oral tenancy. While
proprietary estoppel is just like a licence in the sense that it does not override other registered
dispositions if unregistered, it can sometimes give rise to an equitable lease which is an
unregistered interest that overrides other registered dispositions. All that Timothy has to do is
firstly succeed in his claim for estoppel and secondly show that the estoppel gave rise to an
equitable lease meaning that the landlord granted him (irrespective if orally or written) a right
over the land.15 To satisfy the criteria for estoppel he has to show that there was an assurance
on behalf of the landlord (in his case the orally granted lease), that he relied on that assurance
(which he did taking into account that he paid an initial sum of money) and that relying on
that assurance was to his detriment (which can also be satisfied considering that he respected
his part of the deal and he does not know right now whether he can use the barn any longer).
Proprietary estoppel being established and knowing that lease has been granted, it is safe to
conclude that the lease, albeit equitable, arose from the proprietary estoppel, emerging into a
right which overrides other registered dispositions.16 It appears that not registering the right to
the title was not in the detriment of many, LBS having to respect all the overriding interests
even though they are unregistered. Timothy can have a claim against the LBS in the case that
they will not respect the agreement made between Timothy and William, making LBS bound
by an agreement they did not even undertake.
Simon

14 Martin Dixon, Modern land law (9th edition, Routledge, 2014), p. 389
15 See no. 14, p. 236
16 LRA 2002, Schedule 3, para 1

As it was already mentioned, rights that can be taken into account when investigating a
property are either those overriding registered dispositions or the ones already registered on
the title of the land. The ones which are not registered from failure to do so, omission or any
other reason may still have some value in equity; however their priority fades before a
properly registered disposition. In the case of Simon, although all papers were properly
drafted, his brothers omission or negligence to register the legal charge over the property
gives rise to the birth of a new form of mortgage: informal mortgage of legal interest. This
amounts to an equitable mortgage17 which loses its priority in front of a registered legal charge
from LBS. Unfortunately for Simon, the money he lent on the account of securing the loan
with his brothers land might not be recoverable and his rights overreached by the proper
registration of the legal charge coming now from the LBS. This is to say that LBS has no
obligation whatsoever in what concerns Simon.

17 Cheltenham&Glouchester plc v Appleyard 2004; LRA 2002, s. 27