Nemo dat quod non habet?

Nemo dat quod non habet?

Posted by Alan_Riley on Wed, 25/01/2012 - 15:54

Can you give if you haven't got? Can you create legal title when you do not have legal title? In Cook v The Mortgage Business Plc [2012] EWCA Civ 17 (24 January 2012) Etherton LJ says, at [59], in relation to the creation of a short-term lease (not exceeding 7 years) by a transferee of a registered title in the "registration gap" between transfer and registration:

"Prior to the registration of the purchaser as the proprietor, the purchaser’s interest in the property can subsist only in equity. As a matter of basic land law, an equitable owner of land cannot grant a legal interest. A person cannot grant a greater interest than he or she possesses. No doubt, for good policy reasons, the legislature could provide in sufficiently clear and precise language for a different position. I do not regard section 29 or indeed any other provision in the LRA as providing for so remarkable a position in clear and precise terms, and I cannot see any good policy reason for Parliament to do so."

However, this statement slightly overlooks section 24(b) LRA 2002 which accords "owners' powers" to any person who has the right to apply for registration. A transferee, pending registration, can exercise owners’ powers. The exercise of those powers may create something that is itself subject to registration requirements, and which can therefore only exist in equity until those requirements are met. But if not, the exercise may create a legal interest or estate, such as a lease for a term not exceeding 7 years. It is a separate matter whether that estate then has priority under section 29(4) over later registered dispositions. (The CA decision on the facts of this case determines that it would not).

The case itself is a sad tale of homeowners losing their homes through a defective, possibly fraudulent, sale and leaseback "equity release" scheme. The scheme involved a sale to an entity called North East Property Buyers at a price that would clear mortgage debt, with a promise that the owners could stay in occupation by virtue of tenancies created by the buyer. (Strangely, it seems that the "sale and leaseback" contracts were contracts for sale with vacant possession - for some reason, making no mention of the obligation of the buyer to grant tenancies back to the now former owners). Unfortunately, the buyer's acquisitions were funded by contemporaneous mortgages, and the Court of Appeal has held that any interest of the owners arising at completion (and not before, since exchange and completion was simultaneous) arose after the creation of the mortgage, and not in a scintilla of time between the buyer's purchases and the creation of the charges. For a full consideration, see this month's CPI Update.