Overreaching under sales by trustees of land and giving good title
Overreaching is the process which enables purchasers of property to rely solely on the legal title.
In the case of registered land, this means the entries in the register of title which records the legal estate and is not concerned with equitable interests or interests under trust.
A buyer of a legal estate in property from trustees will not be affected by any of the trusts on which the property is held as long as the purchase price is paid to all of the trustees, of which there must be at least two, or to a trust corporation.
When a third party applies to enter a Form A restriction during the sale of a registered property it could cause the buyer worry and want to drop out of the purchase. In this event, the overreaching mechanism could be used as a relief to allow the transaction to proceed and the buyer to receive good title.
This was the High Court’s view in the case N3 Living Ltd v Burgess Property Investments Ltd 2020 EWHC 1711 (Ch).
Burgess Property contracted to sell a registered property to N3 Living Ltd pursuant to a contract incorporating the Law Society’s Standard Commercial Property Conditions (second edition). Completion of the contract was scheduled to take place but was extended by a further 4 months due a Ms Bennett making an application to HM Land Registry for a Form A restriction to be registered against the property. The application was made two months prior to the original completion date of the contract.
Ms Bennett’s Form A restriction application alleged that her grandmother should have been the owner of the property and if granted, it would have prevented Burgess Property from transferring good title to N3 Living Ltd on completion.
Burgess Property, as the sole proprietor, sought to appoint a second trustee to comply with the restriction, in order to give N3 Living Ltd good title.
N3 Living Ltd refused to complete, accusing Burgess Property of intending to put the proceeds of sale beyond the reach of Ms Bennett. N3 Living Ltd commenced a claim seeking the court’s direction as to the application of the proceeds of sale of the property.
What did the Court decide?
The High Court confirmed that the Burgess Property’s method of appointing a second trustee within the transfer form in order to receive the proceeds of sale, was a correct method of complying with a Form A restriction giving good title in the property to the purchaser free from the interest of the person applying for the restriction and was in line with the general law on overreaching.
The Court held that N3 Living Ltd, as purchaser, was not entitled to be concerned as to the nature of the interest or trusts protected by the restriction nor with the application of the proceeds of sale, where terms of the restriction and the provisions of the Land Registration Act 2002, Trustee Act 1925 and the Land Registration Rules 2003 are complied with, even in circumstances where they had knowledge of the equitable interest. N3 Living Ltd would receive good title and be registered as proprietor free from any interest.
“Consequently, in a sale of land, the purchaser should not refuse to complete the transaction where they are being given good title, even if they feel they have grounds to suspect any trusts or interests of third parties are being bypassed by the vendor. However, this does not prevent a purchaser from withdrawing prior to exchange of contracts.”