Part still awarded possession of the flat

Part A- Case Report


Mortgage Express v Lambert 2016 EWCA Civ 555

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The case of Mortgage Express v Lambert 2016
EWCA Civ 555 concerned the interests of Mortgage Express, a mortgage company,
and Ms Laura Lambert’s interests in a flat. Ms Lambert was struggling to pay
her mortgage and was approached by ‘purchasers’, who offered her the chance to
enter a “sale and rent back” scheme. This would involve the ‘purchasers’ buying
her flat and then Ms Lambert renting it off of them; for free for the first
year, then at a rate of £250 per month. She sold her flat to the purchasers for
£30,000 despite it being worth £120,000. The ‘purchasers’ had a mortgage with
Mortgage Express (ME) on a ‘buy-to-let’ basis. While processing the paperwork
for the mortgage, Ms Lambert failed to mention at any point that she would be
remaining a tenant in the flat, therefore the mortgage was completed with an
explicit clause that the property would be vacant. Eventually, the ‘purchasers’
failed to pay their mortgage, and ME sought possession of the property. Ms
Lambert argued that she had a lease interest in the property for the rest of
her tenancy, and therefore the sale should be set aside. The judge in her
initial case concluded that there had been an unconscionable bargain; she had
essentially been pressured in to selling her home at a lower price due to her
desperate situation. That being said, the judge in the first instance still
awarded possession of the flat to ME.

When the case went to the Court of Appeal, they
had to consider whether MEs charge of the property was subject to Lambert’s
right to have the sale set aside and how the sale could legally be set aside
with regards to the implications of land registry. The case on behalf of the
appellant suggested that Ms Lambert should be restored to her previous position
and receive her flat, free from a mortgage. The judge accepted the fact that
she had an equitable right to have the sale set aside. However, Lewison LJ, the
only judge on the case, had to consider whether her right to have the sale set
aside could be an overriding interest. S.116 of the Land Registry Act 2002 states
that “an equity by estoppel, and b) a mere equity has effect from the time the
equity arises as an interest capable of binding successors in title.”1
This enables her right to be binding on third parties. However, sch.3 para.2 preserves
existing rights, but does not create new ones, particularly rights of a person
“of whom inquiry was made before the disposition and who failed to disclose the
right when he could reasonably have been expected to do so.”2 “It
is not possible for a contracting purchaser, who has no legal estate before
completion, to create proprietary rights of the character needed to qualify as
overriding interests.”3 Lewison
LJ concluded that the charge was not subject to unregistered interests under
s.29 LRA 2002, and overriding interests (or an unconscionable bargain) could be
an exception.

The court held that Ms Lambert’s right could
not be binding on ME for three reasons.

Firstly, the ‘purchasers’ had technically
been trustees under s.34 and s.35 Law of Property Act 1925. They had received
money from the mortgage, therefore having an equitable interest, and held
rights the same as that of absolute owners. Their rights to exercise these “owner’s
are to be taken “free of limitation.”5 This
means that the validity of the agreement could not be questioned, as it was in
accordance with s.2 LPA 1925, and the ‘purchasers’ had a valid equitable
interest. This also means that conveyance from trustees to the purchaser
overreaches any other equitable interests.

Next, Lewison LJ held that any interest that
Ms Lambert had was no longer in the land but in the money acquired from the mortgage.
He rejected that s.2(1) LPA 1925 was not applicable, as it is not only limited
to beneficial interests under trusts. Overreaching is more widely applicable.

Finally, Ms Lambert made no mention of her
continuing tenancy before the mortgage went through. Due to her failure to
disclose, she could not assert her right to occupation.

Land Registry Act 2002, s.116

2 Land
Registry Act 2002, sch.3 para.2

3 Southern
Pacific Mortgages Ltd v Scott 2014 UKSC 52

4 Mortgage Express v Lambert 2016 EWCA Civ 555