Developments: Are you Overreaching?

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22 June, 2021

The recent findings in the case of Knight v Fernley and another [2021] EWHC 1343 (Ch) (19 March 2020) are a stark reminder of the importance of registering plot transfers on a development prior to any common areas being transferred to a management company or other third party.

In this case, a three-plot site was being was being developed by two individual developers, registered under one title. There was also a small piece of land that was unsuitable to be developed. Each of the three plots were sold using a transfer of part (TP1). Two of the TP1s were registered at Land Registry and allocated new title numbers. Rita Knight bought the final plot (plot 1) for £309,000, however her solicitor failed to register this TP1.

The developers believing that only the extra piece of land remained within the site title, they sold this land via a transfer of whole (TR1) to Michael and Lesley Fernley for £2,500, who lived near the development. The land was to be used to extend the rear of their property. This TR1 was registered at Land Registry and when registered included not only the intended piece of land but also plot 1 as this was not removed from the development title as the TP1 for this plot was not registered.

Rita Knight sought to correct the issue, but the Land Registry refused to do so unilaterally, and Michael and Lesley Fernley declined to consent to any change in the proprietorship register to reflect Rita Knight's interest.

In order for the legal title to pass, a transfer document needs to be registered, otherwise the purchaser will only have an equitable interest, and in this case, Rita Knight had an equitable interest protected by occupation. However, under the doctrine of overreaching an equitable interest can be overreached by two trustees. Overreaching is the process by which the rights of a beneficiary under a trust of land become detached from the land sold and attached to the proceeds of sale. Given the two developers (two trustees) signed the TR1 to the Fernleys they overreached the equitable interest of Rita Knight and her equitable interest transferred to the £2,500 proceeds.

Rita Knight applied for alteration of the title register (and not rectification) and argued that there was a manifest inadequacy of the consideration paid by the Fernleys. The High Court confirmed that whilst that payment of £2,500 was manifestly inadequate given plot 1's value, there was no authority that indicated that this could prevent overreaching. It was also unarguable that only the small piece of land was transferred to Michael and Lesley Fernley, as the TR1 specifically transferred all the land remaining in the site title. The transfer to Michael and Lesley Fernley was not voided for mistake, as there was no mistake between the developers and the Fernleys as they both sought to transfer the legal estate in the site title, and this is what happened. It did not matter that both parties wrongly believed that the site title comprised only of the piece of land.

Rita Knight's appeal was dismissed and her request for alteration of the register failed. The High Court did however invite her to amend her claim to plead rectification of the register instead of alteration, which could be considered at a further hearing.

This case is a harsh reminder of the consequences of failing to register a transfer and highlights that even an equitable interest protected by occupation can be overreached.

For more information contact Lyndsay Baxter in our Housing & Regeneration department via email or phone on 0333 207 1130. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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