The importance of Prior Registration of property interests09-Oct-2019
By John Arnold, Partner and Head of Commercial Litigation
The importance of Prior Registration of property interests
The case of Birchen House Limited
Cullimore Dutton have recently been involved in a number of claims arising from the administration of a company called Birchen House Limited, which has
highlighted the importance of prior registration in property transactions.
Prior registration protects the interests e.g. the deposits of prospective purchasers should any issues arise prior to the completion of the property transaction.
The case of Birchen House
In the case of Birchen House Limited, the company had been set up to redevelop “Birchen House” a former hotel and then tax office in Birkenhead, converting it into commercial units and residential apartments. Funding for the project was initially provided by a loan secured by a Debenture (a long-term security yielding a fixed rate of interest, issued by a company and secured against assets) and Legal Charge (a legal document signed by the borrower which is registered against a property at the Land Registry so as to alert any potential buyer of the existence of the debt).
Subsequently, the project was re-financed with a different lender and further funding was obtained by the selling of apartments “off plan”, a funding option which the company was entitled to use to further finance the project.
Unfortunately, Birchen House Limited ran out of money before the development could be completed and subsequently, the lender appointed an Administrator seeking repayment under its floating charge Debenture.
In April 2018, the Administrator of Birchen House Limited applied to the High Court for liberty to sell the property Birchen House. The Administrator wanted to have various secured interests removed so that he could sell the property free of existing charges and security. In addition, the Administrator also asked the Court to determine the priority of such rights under Section 29 of the Land Registration Act 2002.
The Courts have long recognised the importance of prior registration even if a creditor registers its security with knowledge of a previously created interest. It is crucial that investors who pay deposits for property developments register notices to protect whatever interests they may have (such as an equitable charge, as in this case) as soon as possible.
At the High Court in Manchester, His Honour Judge Hodge QC sat and heard from a Barrister on behalf of the Administrator, whilst I appeared on behalf of around 30 additional prospective purchasers of the apartments.
The Court found that the contracts for sale of the apartments had provided for prospective purchasers to register their interests by way of Unilateral or Agreed Notices (a form of prior Registration) at HM Land Registry. The solicitors acting for three of the purchasers had done this before the substitute lender had registered its charge. This meant that the lender was entitled to be paid monies from the proceeds of the Administrator’s sale of Birchen House, but only once these three prospective purchasers had received repayment of their deposits.
The additional prospective purchasers, who we acted for, had exchanged contracts to buy apartments and were therefore entitled to have had Unilateral or Agreed Notices registered by their solicitors, however those solicitors had failed to register this form of security. This failure to effect their prior registration meant that these prospective purchasers had lost their deposits.
Claims were made on behalf of these prospective purchasers against their various solicitors, all of which have now been successfully concluded with our clients recovering a significant proportion of their deposit, interest and costs.
This case demonstrates the importance of registration as soon as possible of any protection that may be available to a prospective purchaser. Although the three people who had registered Unilateral Notices had only a Notice at the Land Registry to protect an equitable charge, they were nevertheless given priority over a subsequent lender who had the benefit of a full Legal Charge and Debenture. The date of registration and “getting in first” is very much the lesson of this case.
If you have been faced with a similar situation or if you wish to discuss any other contractual disputes, please contact a member of the Commercial Litigation team on 01244 356 789 or email firstname.lastname@example.org
Please note: This is not legal advice; it is intended to provide information of general interest about current legal issues.