Chattey v Farndale [1998] 75 P&CR 298

Purchasers agreed to acquire subunderleases and paid deposits before their interests could be completed. The transaction depended on planning arrangements, with the vendor contractually required to use its best endeavours to obtain satisfactory consent. The company involved became insolvent and Farndale acquired the superior property interests. The purchasers sought security for repayment of their deposits against the property. Their difficulty was that the intended leasehold estates had not yet been created and the conditions for immediate specific performance had not been fulfilled. The Court of Appeal considered whether those features prevented a purchaser's lien arising.

Can a purchaser's lien protect a deposit where the right to acquire the legal estate is conditional or future, rather than immediately specifically enforceable?

The Court of Appeal held that the purchasers could have an equitable lien. Morritt LJ rejected a rule confining the security to contracts which were or had been immediately specifically enforceable. A binding right to call for a legal estate, even in the future or conditionally, could provide the necessary equitable interest. The purchaser could seek protection of that right while the condition remained outstanding. It was also no objection that the promised subunderlease did not yet exist, where the vendor held the superior estate out of which it would be granted. The reasoning concerned a purchaser's security for repayment, not an unrestricted constructive trust arising merely from the later owner's knowledge.

A purchaser's equitable lien is not confined to an immediately specifically enforceable purchase. A binding future or conditional right to obtain the legal estate may support security for the purchase money, including where the promised estate remains to be created.

Chattey is useful when a property transaction fails before completion. It separates the purchaser's security for money paid from the ability to demand an immediate conveyance. However, identifying a lien does not settle its priority against all later interests. Registration, the estate burdened and the circumstances of subsequent acquisitions require separate analysis. The case should not be presented as creating a trust whenever a purchaser has paid a deposit or a developer becomes insolvent.