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Case and Comment
MORTGAGE Express v Lambert [2016] EWCA Civ 555 concerned a sale and leaseback. In desperate circumstances, the naïve and vulnerable A (Ms Lambert) entered into a sale and leaseback arrangement in respect of her flat. She was paid a small proportion of the value of the flat, which was then registered in the joint names of B (the buyers). B mortgaged it without disclosing to C (the mortgagee) the leaseback arrangement to A. The mortgage was registered, but no lease was. Ultimately, B defaulted on the mortgage and C sought to sell the property. The litigation concerned whether A had a right that could bind C. The Court of Appeal held that A did not and allowed the sale to proceed.
Explaining this result, Lewison L.J., with the agreement of Gloster L.J. and Cobb J., ruled that A had an equity to set aside the sale as an unconscionable transaction. This equity was held to be a proprietary right in the land, exactly as if the sale had been procured by misrepresentation or undue influence. The judgment then focused on two questions. First, did A's equity have priority over C's mortgage under the general law? Secondly, if so, was A's off-register equity an overriding interest which bound C's registered legal mortgage?
On the question of priority under the general law, Lewison L.J. ruled that A's equity to set aside the transaction was overreached when B mortgaged the flat. In particular, Lewison L.J. reasoned that B, as both registered joint proprietors and trustees for themselves (by operation of law as co-owners), had the power to grant a mortgage of the property free of A's equity, under s. 6(1) of the Trusts of Land and Appointment of Trustees Act 1996 and s. 26 of the Land Registration Act 2002. Accordingly, C had priority over A under the general law.
This reasoning is problematic. Overreaching is an incident of what is usually a trustee's authority in equity to exercise their powers over trust property. The rights of trust beneficiaries are always subject to the trust's terms, and so beneficiary interests are overreached where trustees exercise their powers conferred by the trust deed. Section 6(1) of TOLATA...