Lyus v Prowsa Developments Ltd [1982] 1 WLR 1044

Mr and Mrs Lyus contracted to buy a plot on a housing development and paid a deposit. Before completion, the developer became insolvent. A bank holding an earlier charge sold the estate, with the sale arrangements expressly addressing the purchasers' existing contract. The first buyer later transferred the property to another purchaser. The Lyuses sought to enforce their purchase against the later owner despite not having secured the ordinary registration protection for their contract. The court had to determine whether the acquisition arrangements created a fresh equitable obligation, rather than mere notice of the earlier contract.

Did an undertaking associated with purchasing the development create a constructive trust protecting the earlier purchasers, notwithstanding the lack of ordinary registration protection for their contract?

Dillon J recognised an enforceable constructive trust on the particular acquisition arrangements. The sale by the bank was made on a basis which required the buyer to respect the Lyuses' contract, rather than merely warning that a possible adverse claim existed. That undertaking affected the buyer's conscience and supported relief against the later owner on the facts. The court distinguished simple notice: a purchaser does not become a constructive trustee merely by learning of an unprotected contract. The words subject to must be construed in their context. They can perform a defensive conveyancing function without promising enforcement, whereas the bargain in this case supplied the additional equitable foundation.

Mere notice of an earlier contract does not create a constructive trust. A purchaser's undertaking, as part of acquiring the property, to give effect to that contract may create a distinct equitable obligation. Context determines whether subject-to wording goes beyond notice.

Lyus illustrates the need to identify the additional undertaking before invoking conscience to overcome a priority difficulty. It is not a general exception allowing all unregistered interests to bind buyers with knowledge. Compare Bannister, where property was acquired on a promise to preserve an occupier's benefit. The modern registration framework must be considered separately from the historical statute used in Lyus. A constructive-trust claim should identify a new obligation, rather than simply restate the original unprotected interest.