N3 Living Limited V Burgess Property Investments Limited  EWHC 1711 (Ch)
Maurice Rifat, acting on behalf of the vendor, was successful on the hearing of this vendor/purchaser summons pursuant to section 49 of the Law of Property Act 1925, in which Mr Justice Morgan confirmed the correct method by which good title in registered property can be transferred by a sole proprietor despite being encumbered by a Form A restriction i.e. “No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court”. The Court also reminded purchasers that where there was compliance with the terms of the restriction and the provisions of the Land Registration Act 2002 that they should not be concerned with the nature of the prevailing trusts nor with the application of the proceeds of sale.
Burgess Property had contracted to sell property to N3 Living pursuant to a contract dated 29th July 2019 which incorporated the Law Society’s Standard Commercial Property Conditions (2nd Edition). Completion of the Contract was scheduled to take place on 27th January 2020 but was extended to 18th May 2020 due to a Ms. Bennett having made an application to HM Land Registry for a Form A restriction on 22nd November 2019 to be registered against the property.
Ms. Bennett’s Form A restriction application was made by her as the personal representative of her deceased grandmother, alleging that her grandmother should have been the owner of the property following her husband’s death in 2002. Ms. Bennett’s application had the practical effect, if granted, of becoming a Form A Restriction registered on 22nd November 2019, which would have prevented Burgess Property from transferring good title to N3 Living on completion.
Burgess Property, as sole proprietor, sought to appoint a second trustee to comply with the restriction, in order to give N3 Living good title to be registered as owners. N3 Living refused to complete, accusing Burgess Property of proposing a “scheme” with the intention of putting the proceeds of sale beyond the reach of Ms. Bennett. N3 Living commenced a claim pursuant to section 49 of the Law of Property Act 1925 seeking the Court’s direction as to the application of the proceeds of sale of the property.
Mr Justice Morgan held that appointing a second trustee under section 36(6) of the Trustee Act 1925 within the transfer TR1 form to receive the proceeds of sale, was a correct and conventional method of complying with the Form A restriction. The method is set out in the HM Land Registry’s Practice Guide 21 and is in line with the general law on overreaching. Mr Justice Morgan confirmed that so long as the terms of the restriction and the provisions of the Land Registration Act 2002 and Land Registration Rules are complied with, by ss. 2 & 27 of the Law of Property Act 1925 and section 17 of the Trustee Act 1925, a purchaser of land will receive good title and will be registered as proprietor free from any interest. Consequently, in a sale of land the purchaser should not refuse to complete the transaction where they are being given good title, even if they feel they have grounds to suspect that the prevailing trusts or interests of third parties are being bypassed by the Vendor.
This was a salutary lesson for the purchaser and its legal advisors who refused to complete a land sale where the vendor had appointed a second trustee to receive the purchase price in order to comply with terms of a Form A restriction that had been applied for by a third-party who alleged the endor had wrongly acquired the property in 2002.
The purchaser and/or its legal advisers had wrongly taken the position that it would be acting in ‘bad faith’, having knowledge of the third-party’s interest, and thereby not being a ‘purchaser’ as defined in s.205 of the LPA 1925, and even to the extent of accusing the vendor of intending to put the sale proceeds beyond the reach of the third-party.
Mr Justice Morgan, finding that their legal advisors had misunderstood the vendor’s proposed method of completing the sale, and where they had made unfounded allegations that the vendor intended to put the proceeds beyond the reach of the third-party, ordered costs of the proceedings against the purchaser.
Read the full Judgment here: