When innocence is relative
In Scott v Southern Pacific Mortgages Ltd  UKSC 52 the Supreme Court had to decide which of 2 innocent parties should bear the consequences of its decision.
Under a ‘sale and rent back’ agreement, the appellant vendor (V) was persuaded to sell her home at a significant under-value to a nominee purchaser (P) who, prior to completion of the sale, promised V a right to remain in the property as a tenant post-sale. P bought the property with a buy-to-let mortgage from the respondent mortgagee (M) which did not know of P’s promise and whose standard terms did not permit such an arrangement. When P defaulted on mortgage instalments, M obtained an order for possession against P and V.
V’s difficulty was the need to establish that she had a proprietary interest which existed before completion of the mortgage and which would bind M. Standing in her way was Abbey National BS v Cann  1 AC 56 which held that there was no moment between the transfer of a property and the execution of a mortgage within which unregistered rights could crystallise so as to bind a lender.
The issues on appeal were (i) did P gain sufficient interest on exchange of contracts to carve out property rights and could she give them to V; and (ii) does the logic of Cann extend to contracts for sale as well as transfers and mortgages.
The SC unanimously dismissed V’s appeal. It held that she acquired merely a personal right when she agreed to sell on the basis of P’s promise. P could not confer equitable proprietary rights on V at any time before the completion of the purchase because, per ss.23, 24 and 132 Land Registration Act 2002, only a registered proprietor (or someone entitled to be registered as proprietor) could grant a lease. Secondly, Cann confirmed that any estoppel rights had to be “fed” by P’s acquisition of the legal estate. However, there was no notional point of time when the estate vested in P was free from M’s charge.
V was tricked out of her house. M lent money to an unsuitable borrower. Which of the two had a better chance of protecting themselves?
Derek Kerr / 1st Nov 2014
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