• In the case of City of London B S v Flegg 1988 AC 54, it was held, the interest of a beneficiary under a trust for sale of land in occupation of the land was not an overriding interest and was overreached where capital moneys were advanced to both trustees pursuant to a mortgage entered into by the trustees holding the land on trust for sale.

Facts of the Case

  • In October of 1977, Bleak House was purchased for £34,000.
  • Mr and Mrs Flegg contributed £18,000 towards the purchase price with the remainder payed by their son in law and daughter, Mr, and Mrs Maxwell-Brown of who it was necessary to mortgage the house to their Hastings and Thanet Building Society to raise the contribution.
  • As a result of the contribution, the house was transferred to Mr and Mrs Maxwell-Brown upon trust for sale as joint tenants.
  • In January 1982, Mr. and Mrs. M-B executed a charge of the house in favour of the City of London Building Society to secure a loan of £37,500.
  • Mr. and Mrs. M-B used the money to discharge the existing mortgage and several other charges.
  • Mr. and Mrs. M-B defaulted and the Building Society sought an order for possession of the house which was granted at first instance.
  • On Mr. and Mrs. F’s appeal, the Court of Appeal held that Mr. and Mrs. F had an overriding interest in the house so that the Building Society’s charge was subject to their interest.

Issues in City of London B S v Flegg 1988 AC 54

  • Could the contribution purchase price amount to an overriding interest?

Held by House of Lords (Scotland)

  • Appeal allowed, Mr and Mrs Flegg’s interest was that of a beneficiary under a trust for sale.

Lord Oliver of Aylmerton

  • The advancement of money by the Building Society to Mr and Mrs Maxwell-Brown, being an advancement to two trustees overreached Mr and Mrs Flegg’s interest.
  • Their interest transferred to the money in the hands of Mr and Mrs Maxwell-Brown and the equity of redemption.
  • The enjoyment of occupation of the property did not give rise to any separate or servable right from those enjoyed under the trust of sale.
  • “if the trustees sell in accordance with the statutory provisions and so overreach the beneficial interests in reference to the land, nothing remains to which a right of occupation can attach and the same result must, in my judgment, follow vis-ii-vis a chargee by way of legal mortgage so long as  the transaction is carried out in the manner prescribed by the Law of Property Act 1925, overreaching the beneficial interests by subordinating them to the estate of the chargee which is no longer “affected” by them so as to become subject to them on registration pursuant to section 20(1) of the Land Registration Act 1925. In the instant case, therefore, I would, for my part, hold that the charge created in favour of the appellants overreached the beneficial interests of the respondents and D  that there is nothing in section 70(l)(g) of the Land Registration Act 1925 or in Boland’s case which has the effect of preserving against the appellants any rights of the respondents to occupy the land by virtue of their beneficial interests in the equity of redemption which remains vested in the trustees.

There is a further point which was argued before your Lordships. E  As already mentioned, the appellants’ charge, although executed within the protected period provided by the official search, was not in fact lodged for registration until 26 January 1982, by which time the respondents’ caution had been entered on the register. As a result, the appellants have still not been registered as the proprietors of the legal charge in the charges register. It is submitted on behalf of the respondents that since, under section 20(1) of the Land Registration Act 1925, the legal estate is conferred on a purchaser only when registered, the present position is that there is a contest between two competing equities in which the respondents, as the first in time, are entitled to prevail. I am not persuaded by this argument. The fact is that, whether or not the respondents had an overriding interest, the appellants were and are entitled to be registered. The trustees’ power to mortgage the  land was exercised when the charge was executed and the money was advanced and it was, under section 28 of the Law of Property Act 1925, at this point that the interests of the appellants was overreached. …”Pg 91