## Facts

- Mr. and Mrs. Flegg were beneficiaries under a trust of land, holding equitable interests in a property.
- The legal owners of the property, their daughter and son-in-law, mortgaged the property to the City of London Building Society without the Fleggs' knowledge or consent.
- The City of London Building Society advanced funds on the security of the property.
- The proceeds from the mortgage were paid to at least two trustees, as required by statute.
- The dispute centred on whether the Fleggs’ equitable interests were extinguished by the mortgage transaction, leaving the building society with the property free of those interests.

## Issues

1. Whether the mortgage, executed by the legal owners, overreached the Fleggs’ beneficial interests under the trust of land.
2. Whether the statutory requirements for overreaching under sections 2 and 27 of the Law of Property Act 1925 were satisfied.
3. What protection is afforded to beneficiaries when legal owners mortgage trust property without their consent.

## Decision

- The House of Lords held that the mortgage did overreach the Fleggs’ beneficial interests.
- The payment of capital money to at least two trustees satisfied the requirements of sections 2 and 27 of the Law of Property Act 1925.
- The City of London Building Society acquired the property free from the Fleggs’ equitable interests, which were transferred to the proceeds of the mortgage.

## Legal Principles

- Overreaching is permitted under the Law of Property Act 1925 if the transaction involves at least two trustees or a trust corporation and capital money is paid to them.
- Equitable interests under a trust of land are susceptible to overreaching where statutory formalities are met, prioritising the protection of lenders.
- The authority of legal owners as trustees allows them to mortgage property without the consent of beneficiaries, provided that overreaching requirements are fulfilled.
- Beneficiaries’ equitable interests do not bind purchasers or lenders who comply with statutory formalities and make payment to the appropriate trustees.

## Conclusion

The decision in City of London BS v Flegg confirmed that equitable interests under a trust of land may be overreached by a mortgage when capital money is paid to two trustees, thereby transferring beneficiaries’ interests into the mortgage proceeds and protecting the lender’s security interest in the property.


City of London BS v Flegg [1988] AC 54