• In the case of Mortgage Express v Lambert [2017] Ch. 93, where the sale of a flat had been set aside as an unconscionable bargain, the equitable right belonging to the original seller could be an overriding interest and proprietary right under the Land Registration Act 2002.

Facts of the Case

  • C was unemployed and had borrowed money on the security of her leasehold flat. Her flat was valued at £120,000 and C owed £24,500.
  • C contacted a company online and the owners visited the flat. They told C that the flat was worth £30,000 and offered to buy her lease for that sum.
  • They told C she could continue living there indefinitely, rent free during the first year and at £250 per month onwards. C agreed.
  • The company approached D for a secured loan. C completed a ‘questionnaire’ that disclosed all (none) overriding interests C was aware of.
  • C confirmed her agreement to sell the flat at an undervalue. The exchange of contracts occurred on 4th October 2007. C remained living in the flat.
  • On 9th October 2007, D sent a new mortgage offer to the company. This mortgage was completed on 26th October.
  • At this point, D was considered a bona fide purchaser for value, with no notice of C’s equitable right of Ms Lambert’s to set aside the sale.
  • In July 2008, with D’s consent, the company transferred the lease into one owner’s sole name. He failed to keep up repayments. C also fell into arrears with her rent. D began possession proceedings against her.
  • C’s defence and counterclaim argued that the transaction with the company should be set aside. Alternatively, C claimed a leasehold interest in the flat.
  • The judge held that C’s claim of undue influence and misrepresentation failed, but that the transaction should be set aside as an unconscionable bargain.
  • Despite this, the judge in 2015 declared that C’s entitlement did not bind D, and made a possession order in D’s favour.

Issues

  • Was C entitled to pursue her alternative claim to a leasehold interest in the flat?
  • Could C’s equitable right to set aside an unconscionable bargain override D’s interests?

Held by the Court of Appeal (Civil Division)

  • Finding for D, that C was no longer entitled to pursue the alternative claim.
  • The right to set aside an unconscionable bargain was an equity created at the exchange of contracts. Under the 2002 Act, this was capable of binding successors in title, but it did not automatically do so.
  • C’s equitable interest was overreached by the grant of a mortgage under the 2002 Act. Therefore, D was entitled to possession.

Lewison L.J.

  • C’s alternative claim to a leasehold was founded on C’s bargain with the buyers. Once it was set aside, it was no longer effective.
  • “It is clear enough that a right to set aside a transaction on ground of misrepresentation or undue influence is classified in English law as ‘an equity’ or a ‘mere equity’…There is no reason to suppose that the right to set aside an unconscionable bargain is any different, although we were not shown any authority directly on the point. C argued that the equity arose only on completion of the sale by C to the company on 5th October 2007. I do not agree. In my judgment, as the name of the principle suggests, the right that C had was a right to set aside the bargain that she made with the company, and she had that right on exchange of contracts” [95E].
  • According to the 2002 Act, a mere equity is capable of binding successors in title, but this is not guaranteed.
  • The company were the trustees for the flat. They had all the powers of an absolute owner, including the powers to take out a mortgage on the flat, with the risk of forfeiting it if they failed to repay.
  • Under the 2002 Act section 116, mere equities were assimilated into more traditional equitable interests. The effect of this is that they were treated as any other interest in registered land, subject to the rules of priority.
  • Under the Law of Property Act 1925 s2, since D was a bona fide purchaser without notice of C’s equitable interest, their proprietary interest overreached hers. D was not bound by C’s interest and was entitled to possession of the property.

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