Overreaching v an overriding interest: when does a claim take priority?

In Mortgage Express v Lambert (2016) the court had to decide whether the seller’s overriding interest arising from an unconscionable bargain could bind a lender or whether it was overreached.

The relationship between overriding interests and overreaching can give rise to tensions. Determining priorities between competing claims can be difficult. Mortgage Express v Lambert (2016) sheds light on when and why an overriding interest will be overreached.

In this instance Ms Lambert (the seller), described as being “desperate, vulnerable, naïve and lacking in any business common sense or acumen” entered into a form of sale and leaseback / equity release scheme for her residential flat with some buyers. The buyers told the seller that the sale price of £30,000 was market value, although the buyers knew it was worth more than that (the flat was actually worth £120,000), however they would permit her to remain in the property indefinitely for £20 a month (the first year being rent free). The buyers completed the purchase with the aid of bridging finance and then re-mortgaged the property. There was then a default on the mortgage and the lender (Mortgage Express) sought to repossess the property.

The sale by the seller to the buyers was an unconscionable bargain. Did the equitable right of the seller to set aside an unconscionable bargain bind the buyer’s lender?

It was confirmed that the right to set aside an unconscionable bargain was a mere equity; it was capable of binding successors in title as an overriding interest in the property. However, despite the seller’s actual occupation, her interest was not capable of overriding the lender’s charge over the property as it was an interest that was capable of being overreached.

The buyers were two in number therefore the mortgage to Mortgage Express had the effect of overreaching the seller’s equity. Her claim was therefore in the mortgage money and did not bind the lender.

Lenders will be pleased by the confirmation that an equitable right of this nature can be overreached. That said, there may be concerns for others about how easy it is for an equitable rights to be overreached and converted to a claim against sale proceeds or mortgage monies.

An additional point addressed in this case was that the fact the seller was in occupation would not have overridden the charge in any event. The seller stated in replies to enquiries that there was no one in occupation of the property or having any rights of any kind amounting to overriding interests. Those replies to enquiries were confirmed in replies to requisitions. Therefore she had failed to disclosed her interest. Those replies were given at the time of the sale, not the mortgage however.

This case provides lenders with confirmation of the circumstances in which a seller’s overriding interest may be overreached. It also remind us that notice was irrelevant to the question of which of the interests of lender and seller should prevail over the other.

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