Whether a right to set aside a transaction bound third party mortgagee (England)

In Mortgage Express v Lambert ([2016] EWCA Civ 555, CA (Eng)) L agreed to sell her property to S and C. She had a right to set this transaction set aside on the grounds that it was an unconscionable bargain. S and C relied on bridging finance to complete the purchase but quickly re-mortgaged to Mortgage Express. The question was whether the charge in favour of Mortgage Express was subject to L’s right to have the sale to S and C set aside. The English Court of Appeal (Lewison LJ giving the only full judgment) looked at the question within the framework of the Land Registration Act 2002 and the Law of Property Act 1925. The right to have a transaction set aside is a mere equity ([16]). Section 116 of the Land Registration Act 2002 (‘LRA’) confirms that such rights are capable of binding third parties. While Mortgage Express’ charge was, in principle, not subject to unregistered interests (section 29 of the LRA), there was an exception for overriding interests and a mere equity could be such an interest (LRA, Schedule 3, para. 2). L’s claim failed principally because section 26 of the LRA defeats rights which would call into question the validity of a disponee’s title. Allowing the mere equity to be asserted against Mortgage Express would have this effect.  In addition, section 2 of the Law of Property Act 1925 provides that a conveyance by trustees to a purchaser of a legal estate overreaches any equitable interests. The mere equity was overreached by virtue of this provision.

Michael Lower

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