The Undisclosed Encumbrance in a Plot Sale
A notary is asked to authenticate a sale of a 600-square-metre plot in a new development. The seller, a small company, presents a title deed, a CPR card for its authorised signatory, a board resolution, and a commercial registration extract. The buyer has paid a 10% deposit and the balance is due at signing. The notary checks the land registry extract provided by the seller and sees the plot is registered in the seller's name, but the extract was issued 14 months ago. The notary's own preliminary search reveals a registered mortgage in favour of a local bank, dated eight months ago, plus a caution registered by a judgment creditor. The seller's representative says the mortgage will be 'settled from the sale proceeds' and asks the notary to complete now.
1. Should the notary proceed to authenticate the sale? Set out the legal and practical analysis, including the effect of the mortgage and the caution.
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Conclusion: The notary should not authenticate a completed sale and transfer on these facts. The act must be deferred until the encumbrances are cleared or the transaction is restructured with the encumbrancers' written consent.
Analysis:
- Stale extract. A 14-month-old extract is not reliable evidence of the current register. The notary's own current search is the authoritative source, and it contradicts the seller's document. The discrepancy itself is a red flag requiring explanation.
- Registered mortgage. A registered mortgage is a real right securing the bank. A sale does not extinguish it; the buyer would take subject to it unless it is discharged or the bank consents. Promising to pay from proceeds is not a discharge. The notary cannot certify a transfer that would leave the buyer exposed to a right the buyer has not accepted.
- Caution. A caution registered by a judgment creditor signals a pending claim. A caution typically restricts dealings until removed or the claimant consents. Registering a transfer in the face of an unresolved caution risks a defective registration and a claim against the notary.
- Consent and capacity. The board resolution must be checked for the signatory's authority and any limits on disposing of company assets.
Recommended structure:
- Defer signing.
- Require a current registry extract, a bank release or no-objection letter, and removal of the caution or the creditor's written consent.
- If the parties wish to proceed simultaneously, use an escrow or a simultaneous settlement in which the bank's discharge is registered at or before the transfer.
- Document the deferral, the reasons, and the advice given to both parties.
Refusal to act is not refusal to serve: the notary protects both parties and the integrity of the register.
2. The buyer insists the deposit is at risk and asks the notary to sign a 'provisional sale' recording the price and the parties' obligations but expressly stating the encumbrances. Is that acceptable, and what must the instrument contain?
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Acceptability: A notary may authenticate an instrument that accurately records the parties' agreement, including a conditional or provisional arrangement, provided it is truthful, does not mislead third parties, and does not purport to effect a transfer that cannot lawfully be registered. The notary must not present it as a clean sale.
The instrument must:
- Identify the plot by registry description and title number, and record the current registered rights: the mortgage and the caution, with dates and holders.
- State expressly that the buyer accepts the position, or that completion is conditional on discharge/removal within a stated period.
- Set out the price, deposit, and the mechanism for payment, including how the bank will be discharged.
- Specify the consequences of failure to clear the encumbrances, including refund of the deposit.
- Record that the parties were advised of the registry position and that the notary's search was disclosed.
- Avoid any wording suggesting the transfer is effective or registrable before the encumbrances are cleared.
Caution: A 'provisional sale' must not be used to circumvent the caution or to defeat the creditor's claim. If the caution prohibits dealings, the notary must not register a disposition in breach of it. The notary should verify with the registry what the caution actually restricts before authenticating anything that purports to transfer or bind the plot.