• In the case of Lyus v Prowsa Development Ltd 1982 1 WLR 2004, it is established that a mere notice of a contractual licence is not enough to impose a constructive trust.

Facts of the Case

  • A building company contracted with the claimant, Lyus (C), for the purchase of a plot of land which was part of an estate under the development of the defendant, Prowsa Development Ltd (D).
  • Lyus paid a deposit for the plot but before the completion of the building, the developers became insolvent.
  • The bank holding the charge over the property sold the land on but noted the unique nature of the claimants, Lyus’s, plot within the agreement.
  • The land was sold once more 3 months later, on the same basis but this time the claimant was not recognised in the agreement.

Issues in Lyus v Prowsa Development Ltd 1982 1 WLR 2004

  • Could the claimant rely on their contract under the Law of Property 1925?

Held by The High Court

  • Both buyers after the after the insolvency were to be subject to the contract under constructive trusts
  • The claimant was entitled to have specific performance against the final buyer.

Justice Dillon

A ‘subject to’ clause is not enough to impose a constructive trust

  • There are many cases in which land is conveyed subject to incumbrances without the intention of conferring fresh rights on third parties, the land may be expressed to be sold subject to incumbrances to satisfy the vendor’s duty to disclose all possible incumbrances and to protect the vendor against any potential claim by the purchaser.
  • The words “subject to” will, of course, impose notice, but notice is not enough to impose an obligation to give effect to a contract into which he did not enter.

How a constructive trust arises in the current case.

  • The bank could not have been under any obligation to C, thus the ‘subject to’ clause was part of the bargain between the bank and the first buyer after the insolvency.
  • The defendants could not rely on the Land Registration Act 1925 to overreach the constructive trust, or it would alter its use to an instrument of fraud.

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