A recent case has highlighted the importance of ensuring that any third party interests in land are entered into the Land Register.
The case of Ghai, Ghai and Somal v Maymask (228) Ltd  UKUT 293 (LC) found that even if receivers have been appointed, the sale of a property to a third party could be registered, despite the fact that the purchaser knew that receivers had been appointed or that the receivers had not given their consent to the sale.
The facts of the case
A company, Bolbec Hall Ltd (BHL) purchased a property with the aid of a mortgage. The lender subsequently appointed receivers and three investors, Dr Ghai, Dr Ghai and Dr Somal, provided funding to reduce the mortgage debt and became 50% shareholders in BHL.
The company director subsequently agreed upon a sale to Maymask Ltd, who were aware that receivers had been appointed.
On completion of the sale to Maymask, the mortgage was repaid and the BHL’s director appeared to take the net sale proceeds.
The three new shareholders objected to the registration of Maymask as the new owner, saying that the director had no power to execute a transfer while receivers were in place and without the authority of the receivers.
The provisions of the Land Registration Act 2002
S.26 of the Land Registration Act provides that any limitation on an owner’s powers to deal with their land does not affect the validity of a disposition unless an entry has been made on the Land Register noting the limitation or there is a limitation under the Land Registration Act.
This protects those who purchase land by allowing them to rely on the Land Register, which is held to have overriding authority.
The court’s decision
On appeal, the Upper Tribunal (Lands Chamber) held that receivership did not remove the director’s authority to dispose of the property. Where no entry was made on the Land Register, the buyer could rely on this and assume that the owner had the right to dispose of the property.
In order to protect third party rights, an appropriate entry must be made on the Land Register.
In some instances, a lender will require a restriction to be entered on the Land Register at the time their charge is registered requiring their consent to any disposition. This will indirectly protect receivers by requiring a director or other owner of company property to obtain the lender’s consent before selling or otherwise transferring property.
At the time of asking for the lender’s consent, the receivers should be put on notice of the likelihood of a sale.
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