The annexe with its own letterbox
Farah has been saving for six years to buy 14 Mill Lane, a registered freehold flat. She exchanged contracts and completed on 1 March, paying £320,000 to Daniel, the sole registered proprietor. On her pre-completion inspection, Farah noticed a woman's coats in the hall and a separate letterbox marked 'Annexe', but Daniel said his cousin stayed there occasionally and Farah did not pursue it. In fact Isla has lived in the flat with Daniel since 2019. She paid £90,000 of the £300,000 purchase price on the oral understanding that she would 'own a share', supported by a bank transfer from her own account. There is nothing in writing. Daniel has disappeared with the sale proceeds. Isla remains in occupation and claims a share of the flat.
1. Does Isla have a beneficial interest, and does it bind Farah?
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Does Isla have an interest? Yes, on these facts. A direct contribution to the purchase price plus an express oral agreement that she would own a share supports a common intention constructive trust, and the payment is her detriment. The absence of writing is not fatal: s.53(1)(b) LPA 1925 requires writing for a declaration of trust, but s.53(2) excepts resulting, implied and constructive trusts. Her share would be quantified broadly by reference to her £90,000 contribution – roughly 30% on the figures, uplifted or discounted for the parties' whole course of dealing.
Does it bind Farah? The interest is unregistered, so it binds only if it overrides under Sch 3, para 2 LRA 2002. Isla must show (a) an interest in land and (b) actual occupation. Living in the flat since 2019 with her possessions is plainly actual occupation; continuity and permanence are satisfied.
The exception applies where her occupation was not obvious on a reasonably careful inspection and Farah had no actual knowledge. Here the coats, the hall, and above all a separate letterbox marked 'Annexe' with an occupier behind it are visible signs that a reasonable inspection would reveal. The burden therefore falls on Farah, and the interest almost certainly overrides.
Answer: Isla's interest binds Farah, who takes the flat subject to it.
2. What could Farah have done to take free of the interest, and what remedy does she now have?
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Overreaching was not available. Payment of capital money to a sole trustee (Daniel was the only registered proprietor and only trustee) does not overreach a beneficial interest – s.2(1)(ii) LPA 1925 requires payment to at least two trustees or a trust corporation. Farah's £320,000 therefore did not clear Isla's share.
Steps that would have protected her:
- Making direct inquiry of the occupier, not just of the seller. The purchaser's duty under Sch 3, para 2 is to inquire of the person in occupation; a purchaser who asks only the seller and accepts a stock answer ('my cousin') takes the risk where the occupation is evident.
- Requiring Daniel to appoint a second trustee and paying the purchase money to both, so as to overreach.
- Obtaining a signed declaration of no interest from Isla, or a deed of postponement.
- Reporting the discrepancy to her solicitor so that it was resolved before completion; a separate letterbox should have prompted a specific inquiry.
Farah's remedies now: she cannot recover the flat from Isla, who is entitled to a share in equity. Her claims lie elsewhere – against Daniel in contract (failure to give vacant possession and breach of the title guarantee) and in deceit, in practice worthless if he has vanished; and against her conveyancing solicitor for negligence in failing to make and act on inquiries. She should notify the firm and consider a claim on the firm's professional indemnity policy, and negotiate with Isla about buying out her share.