The Occupier Who Paid £40,000: Overreaching and a Completion Tomorrow

Step 1 - is there a proprietary right? A contribution to the purchase price raises a presumption of a resulting trust in the contributor's favour, in proportion to the contribution. The presumption can be rebutted by evidence that the money was a gift or a loan, and Graham's assertion of a gift is evidence to that effect but is not decisive; the burden and the quality of the evidence matter, and the fact that Priya was not told she was a donee is significant. If the resulting trust analysis fails, an intention-based common intention constructive trust may still arise from the parties' whole course of dealing (her living there, caring for the children, and five years of occupation). Conclusion: there is at least a seriously arguable beneficial interest, and the prudent assumption is that she has one.

Step 2 - can it be overreached? Overreaching under s.2(1)(ii) Law of Property Act 1925 requires capital money to be paid to at least two trustees, or a trust corporation. Graham is a sole trustee. Payment to him alone does not overreach, so the interest survives into the proceeds and attaches to the land. This is the decisive point (City of London Building Society v Flegg is the contrast, where there were two trustees).

Step 3 - is it overriding? Schedule 3 para 2 Land Registration Act 2002: an interest belonging to a person in actual occupation, so far as relating to the land of which they are in actual occupation. Priya is in occupation with her children; occupation is obvious on a reasonably careful inspection. The para 2(c) carve-out (occupation not obvious and the purchaser without actual knowledge) is unavailable: Farah's solicitor now has actual knowledge.

Conclusion. If Farah completes and is registered, she takes subject to Priya's interest, and Northbank's charge takes subject to it too. Northbank's security is impaired and its offer conditions are not satisfied.

Immediate notification. Tell Farah and Northbank in writing today. Northbank's mortgage conditions require disclosure of occupiers and of anything affecting the security; completing without telling the lender would be a breach of its instructions and could amount to mortgage fraud by omission. Do not let the file proceed silently on that point.

Option 1 - resolution with a deed. Obtain from Priya a deed of consent and postponement: (a) an acknowledgement of Farah's title; (b) a postponement of her interest to Farah and to Northbank's charge; (c) an agreement to vacate on completion or on notice; and (d) an acknowledgement that she has had independent legal advice (she should be told in writing to obtain it). A deed is required to release or vary a beneficial interest: s.52 LPA 1925 and s.2 Law of Property (Miscellaneous Provisions) Act 1989 for any contract. This is the only route that saves the transaction on time.

Option 2 - do not complete. Serve notice on Graham's solicitors that completion cannot take place until vacant possession is delivered as contracted. The seller is in breach of an express vacant possession term, and the property information form answer is arguably a misrepresentation (and a fraudulent one if knowingly false). Consider a notice to complete under the Standard Conditions, and interest at the contractual rate.

Option 3 - a contractual accommodation. A retention or an undertaking from Graham's solicitors to pay a specified sum out of the proceeds into a joint account pending resolution; a reduction in the price; or a completion with an agreed sum held back. All require Farah's informed, written instructions and Northbank's consent.

What to refuse. Do not exchange or complete on an oral assurance from Graham; do not accept a personal undertaking from Graham; do not pay any money to Priya without Northbank's consent; and do not send the firm's own undertaking to 'resolve the occupier issue' after completion – that is unperformable and exposes the firm to a claim.

Farah's position on registration. Farah becomes the sole registered proprietor but holds the legal estate subject to Priya's beneficial interest; in equity she is a trustee of the land for herself and Priya in the shares established. Priya can apply under s.14 Trusts of Land and Appointment of Trustees Act 1996 for an order for sale or for occupation, and the court will weigh the purpose of the trust, the welfare of any children, and the interests of the secured creditor. Northbank's charge is valid as against Farah but subordinate to Priya's overriding interest, so its security is worth materially less than £240,000 on a forced sale.

Farah's remedies against Graham. (1) Breach of the express vacant possession term - damages measured by the diminution in value of what she received, plus any cost of removing the occupier. (2) Misrepresentation - the property information form answer was false, and if Graham knew of his daughter's claim it was fraudulent, so the cap on damages under s.2(2) MA 1967 does not apply and rescission is theoretically available (though difficult once registered). (3) Consider whether the sale contract purports to exclude liability for the SPIF answers - usually it does not. (4) Check whether the firm is exposed: was the SPIF relied on without a site inspection or an occupier's questionnaire? That is a separate file-review point and should be escalated to the partner and the insurer.

Overreaching on a future sale. Because Farah is a sole trustee, she cannot overreach on her own. She can appoint an additional trustee under s.36(6) TOLATA 1996 (or under s.19(2) LPA 1925 in some circumstances) so that a conveyance to a purchaser is made by two trustees and the capital money is paid to both, thereby overreaching Priya's interest and giving a clean title. She can also apply to the court for an order for sale under s.14 TOLATA. Both routes should be explained to Farah as the practical exit from the problem the seller has created.