Once there is a valid contract the seller is constructive trustee of the property

Once there is a valid contract, the seller is constructive trustee for the buyer. Risk passes on the contract. The nature of the trusteeship is qualified by the seller’s right to protect his interest. The seller must not damage the property and must take reasonable care of it. The seller is entitled to keep rents until legal title has passed.

Lysaght v Edwards ((1875 – 76) L.R. 2 Ch.D. 499) concerned a contract for the sale of land. The seller died before completion. Given the terms of the seller’s will, there was a doubt as to who could give title to the buyer. In the course of dealing with this question, Jessel MR laid down a number of important propositions about the rights and duties of the seller and buyer once a valid contract has been entered into:

1. the seller becomes a constructive trustee for the buyer;

2. beneficial ownership passes to the buyer;

3. the seller has a charge or lien over the property until the purchase price has been paid;

4. the seller can retain possession until completion;

5. the seller must not wilfully damage or injure the property;

6. the seller has to take reasonable care of the property;

7. risk passes to the buyer at the time of the contract;

8. the seller can keep the rents (if any) until completion.

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