Overreaching on payment to two trustees and a beneficiary in actual occupation (LPA 1925 ss.2 and 27; City of London BS v Flegg)
Hamid and Rania are the registered proprietors of a freehold house in Reading. Rania's mother, Margaret, contributed a third of the purchase price on the understanding that she would have a share in the house, and she has lived there with them ever since. There is no entry on the register referring to Margaret's interest. Without telling Margaret, Hamid and Rania grant a legal charge of the house to Northgate Bank plc, which pays the loan to both of them jointly. The bank makes no enquiry of Margaret. Hamid and Rania have defaulted, and the bank seeks possession. Margaret argues that her beneficial interest binds the bank.
Which of the following best describes Margaret's position against the bank?
Choose one answer to see the reasoning.
Worked answer
Correct answer D: The bank takes free of her interest, because the loan money was paid to two trustees, so her interest was overreached and her occupation cannot preserve it.
THE RULE TO REMEMBER
Where capital money is paid to at least two trustees, a beneficiary's interest is overreached and shifts to the proceeds and equity of redemption, even if the beneficiary is in actual occupation.
Overreaching on payment to two trustees and a beneficiary in actual occupation (LPA 1925 ss.2 and 27; City of London BS v Flegg)
Under s.2(1)(ii) of the Law of Property Act 1925, a conveyance to a purchaser of a legal estate by trustees of land overreaches equitable interests capable of being overreached, whether or not the purchaser has notice, if the requirements of s.27 about payment of capital money are complied with. Section 27(2) requires capital money to be paid to or applied by the direction of at least two trustees (unless the trustee is a trust corporation). In City of London Building Society v Flegg [1988] AC 54, on materially similar facts, the House of Lords held that a legal charge granted by two trustees, with the money paid to both, overreached the interests of beneficiaries in actual occupation. A chargee by way of legal mortgage is a purchaser for these purposes. Lord Templeman said the interests 'cannot at one and the same time be overreached and ... be overriding interests', and Lord Oliver explained that, once overreached, the occupier's rights subsist only against the equity of redemption, not against the chargee. Williams & Glyn's Bank v Boland was distinguished because the money there was paid to a sole trustee. Margaret's interest is therefore overreached and the bank takes free of it.
Why A is wrong: Actual occupation (now Land Registration Act 2002, Sch 3, para 2; under the 1925 Act, s.70(1)(g), the provision considered in Flegg) protects only an interest that subsists at the time of the disposition, and Margaret's interest was overreached by the charge.
Why B is wrong: Flegg rejected the argument that a purchaser from trustees must ensure that a beneficiary in actual occupation consents.
Why C is wrong: S.2(1) overreaches qualifying interests 'whether or not he has notice thereof', so notice is irrelevant where capital money is paid to two trustees.
Why E is wrong: Margaret's contribution gave her a beneficial interest under a trust, as in Flegg; the point is that this interest was overreached, not that it never existed.
That's today's practice done. Another featured question tomorrow.
Related questions
Form A restriction and a sale by a surviving co-owner (registered title)
What should Callum's solicitor require in order to obtain good title and register the transfer?
Actual occupation: occupier who fails to disclose her interest on inquiry (LRA 2002 Sch 3 para 2(b))
Which of the following best describes Rosa's position against Imran?
Severance by written notice, then survivorship (LPA 1925 ss.36(2), 196(3))
Which of the following best describes who now holds the legal title and the beneficial interests in the house?
A GOOD HABIT, DELIVERED
Tomorrow's question.
In your inbox.
One free question a day, with the answer and reasoning.
No course pitches. Just your daily practice.