Scott v Southern Pacific Mortgages Ltd [2015] AC 385

Facts

  • Mr. and Mrs. Scott participated in a sale-and-rent-back scheme, selling their home to a company with a leaseback arrangement allowing them continued occupation.
  • The purchasing company mortgaged the property to Southern Pacific Mortgages Ltd.
  • The company defaulted on the mortgage, and Southern Pacific sought possession.
  • The Scotts contended that their leaseback arrangement created an equitable interest in the property that took priority over the mortgage.
  • The Supreme Court examined whether the Scotts' equitable interest could bind the mortgagee, particularly in light of the Land Registration Act 2002.

Issues

  1. Whether a purchaser acquires an equitable interest in a property prior to completion of a sale contract.
  2. Whether a pre-completion leaseback arrangement gives rise to an equitable interest enforceable against a subsequent mortgage lender.
  3. Whether such unregistered rights can amount to an overriding interest under the Land Registration Act 2002.

Decision

  • The Supreme Court held that no equitable interest arises in favour of the purchaser until completion of a sale of land.
  • The leaseback arrangement between the Scotts and the purchasing company did not create an equitable interest in the property pre-completion.
  • The court found that, under the Land Registration Act 2002, unregistered interests arising from pre-completion arrangements could not bind the mortgage lender.
  • The argument that the leaseback gave rise to an overriding interest under Schedule 3 of the Act was rejected; the occupation under the uncompleted contract did not suffice.
  • The decision reinforced that mortgage lenders are not bound by equitable interests emerging from incomplete transactions.

Legal Principles

  • The doctrine of "no equitable right pre-completion" provides that a contract for the sale of land does not itself confer an equitable interest; such an interest only arises upon completion.
  • Possession or ancillary arrangements like leasebacks prior to completion do not generate enforceable equitable interests.
  • Under the Land Registration Act 2002, only registered or qualifying overriding interests bind third parties; rights based solely on uncompleted contracts do not qualify.
  • Certainty in property transactions is ensured by requiring completion and registration before equitable interests can affect third parties.

Conclusion

The Supreme Court reaffirmed that purchasers and occupants under pre-completion arrangements cannot claim equitable interests binding on mortgage lenders, emphasizing the need for completed transactions and compliance with land registration requirements to secure such rights.

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