The Land Registry recently updated Practice Guide 19 (Notices, restrictions and protection of third-party interests) to clarify its practice on how an unpaid vendor’s lien might be protected after the disposition to which the lien relates has been registered.
According to Halsburys Laws: “A vendor of land has an equitable lien on the land sold for the whole or part of the purchase-money until actual payment, even where the purchase-money is expressed to have been paid and received in the conveyance, when, in fact, it remains wholly or partly unpaid.” Wherever a contract is completed on payment of only part of the contract consideration, the seller automatically enjoys the benefit of a lien (an equitable charge) in respect of the unpaid amount. The lien arises on exchange of contracts by operation of law and is extinguished to the extent that the purchase price is paid at completion.
LRPG 19 states that, as the lien affects the relevant estate before a transfer of it is made, its priority must be protected before the transfer is registered. If it is not, the transferee will take free from it. Protection would be by way of an agreed notice or unilateral notice. In practice, the lien should be protected by notice before a person (e.g. a mortgagee) obtains a valid priority search. Registration pursuant to a priority search will afford the applicant priority over interests not protected at the date of the search. LRPG 19 goes on to state that the lien cannot normally be noted after the disposition to the transferee has been registered, unless the seller can claim that the lien has overriding status “for example, because the vendor was in actual occupation, within Schedule 3, paragraph 2 of the Land Registration Act 2002”. However, at the point of completion, the seller will normally have vacated.
It is rare to see use made of the unpaid vendor’s lien. Where a lien could potentially arise and affect property post-completion (e.g. where it is known that there will be unpaid sums), the buyer may seek to exclude the lien by express drafting of the contract, while the seller might look for a more formalised mode of protection by way of a legal charge.