Lawyers respond to ‘brutal consequences’ of Supreme Court equity release ruling

Yesterday’s Supreme Court decision, to reject a woman’s claim that the sale-and-leaseback of her home gave her a priority proprietary right over a lender seeking possession, illustrates the sometimes harsh consequences of the current law, according to lawyers. Matthew Bonye, head of real estate dispute resolution at Herbert Smith Freehills, said: “The system of priority for land interests is admirably clear but can have brutal consequences, as in this case.” But he added that the decision would be greeted by mortgage lenders, after the court ruled that the nominee purchaser of Rosemary Scott’s property for could not confer equitable proprietary rights on her prior to completion of the purchase, and so lender Southern Pacific Mortgages was not bound. Mrs Scott had fought possession proceedings brought by the lender in respect of her home, which she had been told she could stay in for life. She had claimed that this gave her an unregistered interest given priority over lender’s charges by the Land Registration Act 2002. “Lenders can take some comfort that they will not have to extend their due diligence to encompass what may be sketchy facts as to the vendor’s behaviour in the run-up to a sale and grant of charge,” Mr Bonye said. “There has been a question as to how far the principles giving rise to equitable proprietary rights can be stretched.  Lord Denning may, in his day, have conjured up a way to expand the doctrine. But today, the answer is that protection does not extend to someone relying on a promise given by someone who is not yet a proprietor.” Bryan McGuire QC, who acted for Mrs Scott, echoed Lady Hale’s comments in her judgment that the law leads to a “harsh result” in this case. Lady Hale said that she welcomed the Law Commission’s decision to carry out a wide-ranging review of the 2002 Act. And Mr McQuire said: “Lady Hale was absolutely correct to express the concerns set out in so clearly in her judgment. The result is harsh. Should there not come a point when a vendor who has been tricked out of her property can assert her rights even against a subsequent purchaser or mortgagee? “Should there not come a point when the claims of lenders who have failed to heed the obvious warning signs that would have told them that this borrower was not a good risk are trumped by those of vendors who have been made promises that the borrowers cannot keep? “The remaining hope now is that the Law Commission will be able to answer yes to those questions.” Scott v Southern PacificMortgages Ltd and another Supreme Court (Lady Hale, Lord Wilson, Lord Sumption, Lord Reed and Lord Collins) 22 October 2014 Bryan McGuire QC and James Stark (Instructed by Paula Harris, David Gray Solicitors LLP) for the appellant Justin Fenwick QC, Nicole Sandells and Nicholas Broomfield (Instructed by Paul Heeley, TLT LLP) for the first respondent Justin Fenwick QC, Nicole Sandells and Nicholas Broomfield (Instructed by Ian Drew, Walker Morris LLP) for the second respondent Lesley Anderson QCand Daniel Gatty (Instructed by Richard Pitt, Eversheds LLP) for the intervener