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Defence/Priority Question - Detailed
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Lecture 5: Priority or the Defences Question [2]:Personal v Property Rights:
Personal rights created by contract only bind parties to contract and so if we have
provisions or a license that will not bind a 3rd party, only parties to the license
Property right = capable of binding 3rd parties, what are the rules to determine whether
a prior property right will be enforceable against a subsequent purchaser or another 3rd
party.
If A [owner of property] may create all sorts of interest of their land [A may grant a
lease/easement/covenant/mortgage/sell his property/or create a trust with B]
o Ability to create more than one interest in a piece of land
o A’s freehold could be subject to all those above to another part [step 1]
What happens when A mortgages to C = [step 2]
o Is C bound by the lease that A granted in favour of B? or the Easement? Etc.
Is C bound by these pre-existing property rights?
If these rights are being granted in the future, A had granted a
lease to B then mortgages to C, is C bound by the pre-existing
mortgage?
Look at rules the provide us with that answer
Rules found = LRA 2002 [changed common law rules
Key issues:
1) Timing of creation of competing interests:
2) How can property interests can be protected under LRA?
3) Personal rights and 3rd parties:
Timing of creation of competing interests:
The essential LRA 2002 Rules:
s.28 LRA 2002: “the priority of an interest affecting a registered estate…is not affected by a
disposition of the estate...” = first time SO we need to know when an interest is created.
Pre-existing property right [lease/mortgage] that will bind a purchaser when a further
interest is created.
When is the interest created? = look at the date
Timing = The Scintilla Temporis Issue:
The issue:
o If there are 2 dependant transactions [e.g., if a purchaser needs a mortgage to
raise money to buy property their purchase is dependent on mortgage
transaction
The answer:
o They are effectively one transaction Abbey National BS v Cann, Scott v South
Pacific
The acquisition mortgage:
o A transfers ownership to be → B mortgages to C → B uses the loan to pay A
B needs the loan to pay A, so B only obtains A’s ownership subject to
C’s mortgage i.e., no time gap between [1] & [2]
Completion of A to B is dependent upon the loan/mortgage that B
obtains from C [hence why we call them ‘dependents]
Is there a time gap between transfer of ownership from A to B
and B’s mortgage ownership from B to C?
, The sale and leaseback:
o A transfers ownership to B → B mortgages to C to pay the price → B leases
the property back to A
o Issue: Whether there is a time gap between mortgages and leaseback? [sale
and leaseback transaction]
Abbey National Building Society v Cann – acquisition mortgage:
Mrs C owned a property which she sold, so she could use the sale proceeds to buy a
more expensive house in the son’s name as he could raise additional funds to meet
purchaser’s price by mortgaging property.
Property = being bought for Mrs C to live in, the fact Mrs C put sale proceeds towards
this new property gave Mrs C a property right, a trust interest.
Argument = son held leal ownership of house subject to Mrs C equitable interest. For
son to pay for new house, he needed the contribution but also a mortgage from Abbey
Building Society. When failed to make repayments of mortgage and Abbey wanted to
take possession the issue; did Mrs C’s property interest arise before Abbey’s
mortgage?
Held: no, because her son could only buy the new house with the help of Abbey’s
mortgage [dependent transactions]. He only acquired ownership of the house, when
paying purchase money including contribution and the mortgage subject to Abbey’s
mortgage.
No split second between transfer of ownership to her son and the mortgage when Mrs
C’s property interest could arise.
Compare William & Glynn’s Bank v Boland
o Mr B [legal owner of the home] to which Mrs B had contributed
o Mr B held the home on trust for himself and wife, subsequently needed money
for his money, he raised a mortgage on his house [without notifying his wife]
and that was later; clear timing gap between acquisition of Mrs C interest and
mortgage between William & Glynn’s bank.
o Interests = were independent
Scott v Southern Pacific – Sale and leaseback:
Facts: Mrs. Scott entered a ‘mortgage rescue’ scheme because she could not afford
her mortgage. She sold her house at a discount to NEPB and they leased it back to her
via an AST telling her that she could stay as a tenant for the rest of her life – this
promise gave Mrs. Scott a potential property right against NEPB by virtue of
proprietary estoppel.
Mrs. Scott relied to her detriment which gives her a claim to potential property
right to NEPB.
NEPB funded the purchase using a buy to let mortgage from Southern Pacific but they
did not repay the mortgage and Southern Pacific claimed possession from Mrs. Scott.
Issue: Did Mrs. Scott’s potential property right arise before Southern Pacific’s
mortgage?
Held: No NEPB acquired ownership subject to Southern Pacific’s mortgage. There
was no split second before the mortgage when Mrs. Scott’s property right based off
proprietary right could arise.
o Only way in each NEPB could acquire ownership of Mrs. S house by raising
the loan and subjecting the mortgage from southern pacific.
The Essential LRA 2002 Rules:
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