Various Mortgagors v Various Mortgagees & Ors

In this case the Court is asked to determine three preliminary issues in 9 test cases. In each case the Claimant is a mortgagee seeking possession of mortgaged residential property pursuant to the terms of its security. In each case the mortgagor is or is assumed to be a nominee for North East Property Buyers ("NEPB"). In each case the nominee is a Defendant to the relevant proceedings but has taken no part in them. It is not in dispute that there are substantial arrears under the mortgages and that the mortgagor Defendants have no defence to the claims. The mortgagors are not. however, in possession of the properties. They are in fact occupied by the former registered proprietors (Footnote: ¹) of the property. The occupiers have been joined as Defendants and the dispute between the parties is as to the priority between the rights of the mortgagees and the assumed rights of the occupiers.

In each case the occupiers as registered proprietors have sold their properties to nominees of NEPB. In most (but not all) of the cases the price paid under the contract was or was assessed as the market value but the occupiers have paid back to NEPB a significant part of the completion monies ("the lump sum payment"). In every case the occupiers allege that promises were made to them by NEPB or their agents as to their right to occupy the properties. The precise nature of the promises varies from case to case. In all cases the occupiers contend that they were offered a tenancy of their property. In some cases the tenancies were to be at what was assessed as the market rent; in some cases the rent was to be below the market rent and in one case the occupation was to be rent free. Differing representations were also made as to the length of the tenancies that were to be granted to the occupiers. In many cases it was that the occupiers could stay at their property for as long as they liked provided they complied with the terms of their tenancy.

In many of the cases NEPB offered to repay to the occupiers part of the lump sum payment if they remained in occupation and paid the rent for a period of 10 years. The amount to be repaid was less if the occupiers were paying less than the market rent for the property. In one case (Wood) where no rent was to be payable for the life of the occupier, the price paid was significantly less than the market value, and there was to be no money paid back by NEPB.

In each case the nominee purchaser (Footnote: ²) applied for a loan from the mortgagees. The application form disclosed that the property was being purchased on a "buy to let" basis and that the tenancies granted would be Assured Shorthold Tenancies (AST) of 6 months duration. The applications were successful and secured loans were made to the nominees of NEPB. It is the mortgagees' case that the conveyancing transactions were unexceptional

In each case exchange of contracts between the occupiers and the nominee of NEPB and completion of the contracts by the execution of the Transfers of the properties and the execution of the Mortgage by the purchaser all took place on the same day

Subsequent to completion NEPB did purport to grant ASTs to the occupiers. The period for which the AST was granted varies from case to case from 6 months in one case to 10 years in two cases. There are a number of 2 year leases. In one case the AST purports to be for the life of the occupier. There are arguments as to the validity of these documents but those arguments are not the subject of the preliminary issues.

The cases before me are, as I have indicated, test cases. I am told that there are something like 100 cases in all where mortgagees have commenced possession proceedings against occupiers who have sold their homes to NEPB under a sale and lease back scheme. In addition there are a substantial number of other cases where mortgagees are awaiting the outcome of these proceedings.

By Order dated 2^nd June 2010 I ordered a determination of the following preliminary issues:

Those issues were agreed by Counsel at the Case Management Conference on that day in the hope that the resolution would significantly shorten the time necessary to determine all of the 100 or so cases that have been issued.

At the hearing before me the majority of the argument was devoted to the first issue. Mr Small QC sought to argue that the occupiers' interests were overriding interests with priority over the interests of the mortgagees. He made his submissions on two fronts. First he submitted that the interests arose at the time of the contracts which necessarily must have been exchanged before completion. He drew an analogy with an unpaid vendor's lien. Consequently the interests existed immediately before completion. As the occupiers were in actual occupation the interests were overriding interests which thus had priority over the interests of the mortgagees.

Second he sought to apply the decision in Cann in the manner suggested by Judge Worster in Redstone v Welch & Jackson [2009] EG 98. He submitted that following Cann and the later decision of the Court of Appeal in Whale v Viasystems [2002] EWCA Civ 480 ("Whale") the Court should look at the reality of the situation. The reality of this situation is that there was here a sale and leaseback to the occupiers. The leaseback was created as a result of the promises of NEPB. In those circumstances NEPB's nominee never had more than a title to the property subject to the occupiers' equitable rights and that is all that was charged to the mortgagees. He accepted that Judge Worster was sitting in the Birmingham County Court and that the decision in Redstone is not binding on me. It was however a carefully considered decision after full argument by experienced Counsel and he invited me to follow it. He pointed out that it had been approved by Judge Purle QC in Delanev v Chen [2010] EWHC 6 (Ch) ("Chen").

All four Counsel representing the mortgagees made detailed written submissions on the first issue. The main oral submissions were presented by Miss Sandells on behalf of MEX. However Mr Payton on behalf of RML, Mr Shirley on behalf of SPML and Mr Gatty on behalf of TMB all made oral submissions on various aspects of the issue.

Counsel for the mortgagees submitted that Mr Small QC's submissions that the interests arose at the time of the contract could be answered in a number of ways. First it was not accepted that NEPB had any interest in the land sufficient to create a proprietary estoppel prior to completion. The analogy with an unpaid vendor's lien is a false one. Such a lien is sui generis and not comparable to the rights suggested by the occupiers in this case. Second they do not accept that there is the necessary time interval between contract and completion. The reality is that contract and completion were all part and parcel of the same transaction. They rely on the judgment of Aldous LJ in Nationwide v Ahmed [1995] 70 P & C R 381 ("Ahmed"). Third, they rely on section 63 of the Law of Property Act 1925 the "implied all estates clause". They contend that by virtue of this section the whole of the estate passed on Transfer notwithstanding the equitable interests alleged. Finally in cases where there is more than one vendor they rely on the overreaching provisions of section 2 of the Law of Property Act 1925.

They contend that Judge Worster's decision in Redstone is, with respect, both unorthodox and wrong. It goes beyond the decisions in both Cann and Whale and is inconsistent with principle. It is also inconsistent with the decision in Cann itself, the decision of the Court of Appeal in Ahmed and the decision of John Randall QC in Hardy v Fowle [2007] EWHC 2423 (Ch) ("Fowle"). Whilst it is true that Judge Purle QC expressed approval of Redstone in Chen, Chen was not a case where priorities were in issue at all. In all the circumstances they invite me to reject Judge Worster's decision and to hold that the mortgagees have priority.

Far less time was devoted to the second of the preliminary issues. It is in any event of far less significance than the first issue. It only comes into play where NEPB has granted to the occupiers a lease of less than 7 years prior to the date when the charge of the mortgagees is registered. Mr Small QC contended that in such a case the effect of section 29(4) when read with section 23 and section 24 of the 2002 Act is that the interest of the lessee has priority over that of the mortgagee. He also submits, albeit very tentatively and without much enthusiasm, that the position is no different even if the mortgagees have carried out a priority search prior to completion and make the application for registration within the priority period allowed by the search. This is because the protection afforded by section 72 of the 2002 does not, as a matter of construction apply to a deemed registration under section 29(4).

Mr Gatty sought to answer these submissions by pointing out that the effect of Mr Small QC's submissions would be to create an anomaly which cannot have been intended by Parliament. He submitted that the solution to the problem lay in the construction of section 23 of the 2002 Act. In effect he submitted that whilst a person entitled to be registered had the power to exercise the owner's powers pending registration, the exercise of such powers would only give rise to an equitable interest pending registration. Prior to registration he was only an owner in equity and thus could not create a legal interest He also submitted that section 72 should in any event be construed to afford protection to a mortgagee acting within the priority period of an Official search.

Almost no time at all was spent on the third issue. In his skeleton argument and in his oral submissions Mr Small QC accepted that in registered conveyancing priorities are governed by the provisions of the 2002 Act and that, save as provided by the Act, the question of knowledge is irrelevant. Priority may be obtained by a notice on the register (which does not apply in these cases) or by the establishment of an overriding interest in accordance with the Act. Mr Shirley endorsed these submissions by reference to a passage from Lord Wilberforce's opinion in Williams & Glyn's Bank v Boland [1981] AC 487, 584 A-D.

Before dealing with these submissions it is right that I should acknowledge with thanks the very considerable assistance I have received from all Counsel in this matter. The issues in these cases are by no means straightforward. The cases are important because the occupiers are potentially liable to lose their homes. All of the skeleton arguments were of the highest quality and the oral submissions were concise and clear so that it was possible to complete the oral argument in two days.

In the introduction I have summarised the facts in a generic fashion and avoided making reference to the facts of the individual cases. This was because the parties were anxious that I should, so far as possible, deal with the preliminary issues as points of princ iple. Accordingly for the purpose of the preliminary issues they were prepared to assume that the promises alleged by the occupiers were made and gave rise to some form of equitable interest and to assume that the ASTs produced took effect as between NEPB and the occupiers as valid leases. They have reserved their position in respect of any future hearings.

In order to add some flesh to the generic statements in the introduction I have, in Appendix 2 of this judgment set out some of the salient facts in the nine cases before the Court. These demonstrate the purchase price, the loan, the lump sum payment, the amount to be paid back, the representations allegedly made and the documents executed.

In the course of his submissions Mr Payton invited me to look in a little more detail at the Coates case (Ch 75/09) so that he could demonstrate that these were normal mortgage transactions. Thus he took me through a standard mortgage application from a Mr David Old. The application indicated that the purchase was "buy to let" and that the property would be let on 6 month AST. On 5^th January 2007 there was a mortgage offer of £95,750 from RML based on a purchase price of £115,000. The Mortgage offer contained a term that the property must be let on an AST with a 6 month break clause. On 10 the January 2007 requisitions on title were answered on behalf of the vendor. Those answers implied that vacant possession would be given by the vendors on completion (Footnote: ³). On 10^th January 2007 solicitors acting for RML signed a clear certificate of title.

On 19 January 2007 RML transferred £95,750 to its solicitors. On the same day its solicitors transferred the purchase price of £115,000 to the solicitors for the vendor. The completion statement of the vendor's solicitors shows that out of those moneys all but £41,029 was used to discharge prior mortgages. Out of the £41,029 £38,000 was paid to NEPB and £3,029 paid to the vendors.

The whole transaction was completed on 19^th January 2007. On that day contracts were exchanged, the vendor executed a transfer in favour of Mr Old and Mr Old executed the mortgage deed in favour of RML. The Agreement for Sale is in standard form. It provides for completion on the same day. It provides for a Full Title Guarantee. There is nothing in the contract that suggests that there will be any lease in favour of the vendors or that vacant possession will not be given on completion. There is nothing in the TR1 executed by the vendor which in any way limits the interest that is transferred to Mr Old.

Both the occupiers and the mortgagees assert that they are the victims of a mortgage fraud. The mortgagees assert that representations in the mortgage application form were untrue; the occupiers assert that the whole scheme was a fraud on a vulnerable section of society.

In his skeleton argument Mr Small QC made a number of points about the NEPB scheme

The starting point is the statutory provisions within the Land Registration Act 2002 regarding priorities, which, so far as material, are as follows:

Basic rule

Effect of registered dispositions: estates

Preliminary Comments

Before considering the authorities to which I was referred during the course of the hearing it is worth making a number of uncontroversial points:

The authorities

As will be apparent from the summary of the submissions in section 2 above I was referred to a number of authorities during the course of the hearing.

The first defendant (Footnote: ⁴) in the action, Mr Cann, purchased a house with the aid of a mortgage from a building society. He had applied for the mortgage advance on the footing that the house was for his own occupation, whereas in truth it was to be occupied by his mother and her husband-to-be (whom she subsequently married). Subsequently, Mr Cann defaulted on the mortgage repayments and the building society brought proceedings for possession against Mr Cann, his mother and her husband. Mr Cann took no part in the proceedings, but his mother resisted the claim for possession on the basis that (a) she had an equitable interest in the house arising by reason of proprietary estoppel, and (b) that since, by chance, she was in actual occupation of the house at the time when completion took place, she had an overriding interest under section 70(1 )(g) of the Land Registration Act 1925, with the result that her equitable interest took priority over the interest of the building society as chargee. This defence was founded on the proposition that since the charge to the building society was executed after the transfer of the title to the house to Mr Cann, there was a moment in time between the execution of the two deeds during which the legal title to the house vested in Mr Cann free from any charge. The consequence of that, so the argument ran, was that the estoppel was "fed" when the transfer of the (at that point unencumbered) title to Mr Cann was executed, so that by the time the charge came to be executed the mother had an equitable interest in the house which, by virtue of the fact that she was in actual occupation of the house, constituted an overriding interest which took priority over the building society's charge.

As explained in paragraph 29 of Jonathan Parker LJ's judgment in Whale, the House of Lords rejected the "moment in time" argument. It held that where a purchaser relied on a bank or building society loan for the completion of his purchase, the transactions of acquiring the legal estate and granting the charge were one indivisible transaction, at least where (as in Cann) there had been a prior agreement to charge the legal estate when obtained; that in substance Mr Cann had never acquired anything more than a equity of redemption in the house, subject to the charge; and that there was no moment in time at which it could be said that the legal estate was vested in Mr Cann free from the charge so that the estoppel relied on by the mother was "fed" so as to become binding on the chargee and take priority over its interest.

I was referred to passages in the judgment of Lord Oliver at 92F. Lord Oliver [who had to choose between inconsistent decisions in the Court of Appeal] said:

I was also referred to a passage in the judgment of Lord Jauncey (at 1 OIF— 102C) which is also cited by Jonathan Parker LJ in Whale and at 102G - 103 A where he said:

The First Defendant agreed to purchase a business from the Second Defendant for £160,000. £80,000 was raised by way of a secured loan from the Claimant and was paid to the Second Defendant. The balance of £80,000 was left outstanding and secured by way of a second charge against the property. The arrangements for the sale and purchase of the business and the property were embodied in an agreement dated June 1, 1990. The agreement expressly contemplated that the Plaintiffs' legal charge would rank in priority over the Second Defendant's charge on the property. Clause 6 of the agreement provided that the Second Defendant was to retain the use of the property until the whole of the principal money and. interest due under the agreement had been paid. The transfer of the property and the mortgage deed were also dated June 1, 1990. The First Defendant failed to pay the Second Defendant the sums due under the agreement, and also fell into arrears on the mortgage repayments. In proceedings for possession the Second Defendant sought to defend on the grounds that the Plaintiffs were not entitled to possession of the property, on the basis of the Second Defendant's overriding interest in the property taking priority over the first legal charge. It was argued that the Second Defendant had an unpaid vendor's lien which had priority over the first charge.

The submission failed for a number of reasons. It was held that there was in fact no vendor's lien because the Second Defendant had: received all he bargained for when he received the second charge. It was also held that the rights under clause 6 were a contractual licence which could not give rise to an overriding interest. Only proprietary interests can be overriding. Aldous LJ went on to hold that the submission also failed because of the decision iⁿCann. He said this

Thus it can be seen that the decision in Cann applies so as to exclude contractual proprietary rights where the contract, conveyance and charge took place on the same day. It also applies to a vendor who reserved himself what was assumed to be a proprietary right of occupation in the contract for sale.

The facts in Whale were complex. For present purposes it is sufficient to summarise them. In 1998 the Company entered into an option agreement for the company to take a (head) lease of an area of development land in Tyneside. In 2000 (before the option was exercised) the Company entered into a facility letter for the provision of finance. It also executed a debenture in favour of D which secured "all present and future leasehold property wherever situated". In March 2001 a number of relevant dealings took place. These included the exercise of the option and an agreement by the Company to grant an underlease to a third party, G for the full term less 3 days. G borrowed funds from a lender, L, to pay the premium on the underlease. Those funds were also used to fund the acquisition of the head lease

On completion all of the head lease, the underlease and the charge in favour of G were executed. In the proceedings the issue to be determined was whether the rights of underlessees, G, were or were not subject to the rights of the debenture holders, D, It was held by both Mr Michael Briggs QC (as he then was) and the Court of Appeal that G had priority. The crucial part of the judgment is paragraphs 71 to 73 of the judgment of Jonathan Parker LJ:

it is to be noted that in paragraph 72 of the judgment Jonathan Parker LJ expressly holds that the Cann approach is not limited to cases involving the purchase of property coupled with the grant of a mortgage but falls to be applied more generally whenever an issue arises as to priority between equitable interests. Those words were relied on by both Judge Worster in Redstone and by Mr Small QC in this case.

The facts in Fowle were complicated. It was a possession action by mortgagees of residential property. The Defendants sought to defend on the ground that they were entitled to occupy pursuant to a 30 year lease which had priority over the charge. Thus there was an issue over priorities.

The property, Trelan, had been owned by Mrs Fowle's father and was occupied by her grandparents. On the death of her father Mrs Fowle sought to purchase Trelan together with other properties from the residuary estate with the assistance of borrowing from the Bank. The arrangement was structured through a company - Bramridge Developments Ltd. Contracts were exchanged on 13 ^th May 1988. It was a term of the contract that on completion a lease would be granted to Mrs Fowle's grandparents for a term of 30 years determinable on death at no rent. Completion took place on 9^th June 1988. Three Deeds were executed - the Conveyance, the Charge in favour of the Bank, and the Lease in favour of the grandparents. The Defendants sought to rely on the lease to defeat the possession action. Mrs Fowle's defence failed on a number of grounds one of which relied on the decision in Cann. The Cann argument is contained in paragraphs 99 - 104 of the judgment of Mr Randall QC. In paragraphs 99 - 101 he sets out the submissions of Mr Cawson QC (for the Bank). Those submissions are similar to the submissions of the mortgagees in this case:

Mr Randall QC then cited the passage from Lord Oliver's opinion in Cann to which I have referred. In paragraph 102 he set out and rejected the argument of Mr Macdonald QC on behalf of Mrs Fowle:

The importance of this decision is that there was an express contractual term for the lease to be granted in favour of the grandparents yet the Cann principle applied so as to give the Bank priority over the lease. If Mr Small QC's submissions are correct it means that a vendor with an equitable right to a leaseback from the purchaser is in a different position to a third party to whom the purchaser is contractually bound to grant a lease or a third party to whom the purchaser is equitably bound to grant some right.

Although there are some differences between the facts in Redstone and the facts in the nine cases with which I am concerned they are sufficiently similar to be indistinguishable. Redstone was an action by a mortgagee for possession against occupiers who had been registered proprietors of the property. Being in financial difficulty they had entered into a sale and lease arrangement with a third party who charged the property to the lender.

Judge Worster found that the vendor occupiers were entitled as against the third party to :

As in the cases before me, he was faced with an argument that as the vendors were in actual occupation the first two of these rights took effect as overriding interests with priority over the charge. The lender sought to rely on the decision in Cann. As already noted Judge Worster rejected the argument. In paragraphs 55 and 56 of the judgment he cited passages from the speeches of Lord Oliver and Lord Jauncey in Cann. In paragraph 57 to 59 he summarised the facts in Whale and then set out paragraphs 72 and 73 from the judgment of Jonathan Parker LJ. In paragraph 64 he set out the submissions of Counsel for the lenders. He expressed his conclusions in paragraphs 65 to 68

Not surprisingly Mr Small QC relies on this passage in its entirety and submits it has direct application to the test cases. He submits that NEPB never had more than a title to the property subject to the occupiers' equitable rights. Those rights have priority over the mortgagees' rights under their respective mortgages. [Mr Small QC accepts that the use of the phrase "prior to registration" in the third sentence of paragraph 68 of the judgment is wrong because the critical time is completion of the charge. However he attributes this to a slip of the pen].

Counsel for the mortgagees accept that if this decision is correct they will fail on the first issue. However for a variety of reasons they submit that the decision is wrong. Mr Shirley, for example, submits that it is inconsistent with the decision in Cann. In his submission Cann is binding authority for the proposition that that the mortgagees' interestbites simultaneously with NEPB's acquisition and therefore necessarily before prior to any other interests created by NEPB. He also makes the point that in one case (Scott) the vendors and the occupiers were not identical. This is a further reason why the sale and leaseback cannot be regarded as one indissoluble whole. Miss Sandells submits that Judge Worster placed too heavy reliance on the question of whether it was an indissoluble transaction. She submits he applied the case back to front. She submits that he was wrong to look at the transaction from the vendor's point of view. To do so is to confuse the vendor's rights as seller with the entirely separate rights as a person claiming an interest from the purchaser. In addition she submits that Redstone is inconsistent with Ahmed and Whale. It undermines the decision in Cann in a significant number of cases. In so far as Judge Worster thought that the facts of his case were ''peculiar", it is apparent from these proceedings that there are a large number of such cases. Mr Payton and Mr Gatty's submission were to much the same effect. Mr Gatty specifically drew my attention to the error in paragraph 68 of the judgment

Chen was an application under section 423 of the Insolvency Act 1986 in respect of a sale and leaseback transaction. The sellers had sold to the Buyer their house on terms that they would be granted a lease for a term of 21 years. The sale was not a sale with vacant possession. The price that was paid by the buyer was less that the open market value of the property and at first instance the District Judge had held that the sale was indeed at an undervalue within the meaning of section 423. The appeal was allowed by Judge Purle QC who upheld the submission that the sale was not a sale of the unencumbered freehold but of a freehold subject to the tenancy. He was not satisfied on that basis that the transaction was at an undervalue.

In paragraphs 10 and 11 of the judgment Judge Purle QC referred to both Carm and Redstone. In paragraph 10 he refers to the decision in Cann making the point that the transfer and the tenancy were indissolubly bound up. In paragraph 11 he referred to Judge Worster's decision in Redstone. He said that he found the reasoning compelling on the point and he agreed with it.

Mr Small QC suggested that it was a decision of co-ordinate jurisdiction and I should only disagree with it if I was convinced it was wrong. Counsel for the mortgagees made the point that the question at issue was whether the arrangement was an undervalue within the meaning of section 423 and that the question of priorities was not in issue.

It is convenient to deal with the completion argument first. I have already set out the rival submissions on this issue and shall not repeat them. I have considerable sympathy for the occupiers in each of these cases and take into account all that Mr Small QC has said about the vulnerable nature of many of them and the exploitation of equity release schemes. I have, however, come to the conclusion that the arguments of the mortgagees are to be preferred and that the mortgagees' rights under their charges have priority over any equitable rights that the occupiers may have acquired as against NEPB as a result of the representations that may have been made by NEPB. It follows that I disagree with the views of Judge Worster and would decline to follow the decision in Redstone. It is not wholly clear from the report in Chen whether Judge Purle's approval of Redstone relates to the decision on priorities rather than to the nature of the transaction itself. If it does I respectfully disagree with it.

My reasons, which have largely been foreshadowed in the discussion on the authorities, may be summarised:

Mr Small QC recognised that his argument based on contract was a novel argument and was not one that had been raised in the decided cases. In my view it fails for at least three of the reasons argued by Counsel for the mortgagees. In each of the cases before me contracts were exchanged on the same day as completion. In my view the decision in Ahmed is authority for the proposition that in such a case there is no "moment in time" between contract and completion to enable an interest to arise. Mr Small QC sought to distinguish Ahmed on its facts. He made the point that there was in that case a second charge. However the observations of Aldous LJ were being specifically directed to the Cann argument in relation to the claim by the vendor under clause 6 of the contract assumed (for that purpose) to give rise to a proprietary right. In my view the decision in Ahmed is authority binding on me on the point.

I also consider that Miss Sandells was correct to submit that prior to completion the occupiers' equitable rights were at best personal and not proprietary. At that stage (prior to completion) the vendors were in possession and entitled to remain in possession by virtue of their ownership of their properties. NEPB had no right to possession prior to completion and could not therefore grant a proprietary right to possession. As the rights were personal rights they could not give rise to overriding interests. They became proprietary rights as against NEPB on completion. I do not find the supposed analogy with the unpaid vendor's lien compelling.

Similarly I agree with the submission that under section 63 of the Law of Property Act 1925 the Transfers (TR1) executed by the vendors would have transferred any interest that they might have had in their property. Section 63 provides:

As Mr Payton pointed out there is nothing in the contracts or the TRls to limit the estates transferred. Both refer simply to transferring with full title guarantee.

Mr Small QC seeks to avoid section 63 by arguing that NEPB would be using the statute as an instrument of fraud and referred me to some observations of Russell LJ in Hodgson v Marks [1971] Ch 892, 933G. I cannot accept that submission. As Mr Gatty pointed out a fresh proprietary estoppel would arise on completion so that there would be no question of NEPB avoiding the equitable interests. The effect of section 63 is simply that the occupiers cannot rely on any pre-completion equitable interest.

Mr Small QC also submitted that the words "in the conveyance" in subsection (2) should be construed widely so as to include any oral terms that have been agreed between the parties. I cannot accept that submission either. In my view the words "expressed in the conveyance" mean what they say. They refer to the actual words written in the conveyance.

I prefer to express no view on the question of whether the interests of the vendors are overreached under section 2 of the Law of Property Act 1925. It is plain from the cases referred to by Mr Small QC that there is considerable debate in the authorities as to whether equitable interests such as those claimed here are or are not overreached. It is not necessary for me to express a view on it and I prefer to leave it to a case where it is decisive.

This issue is of limited application in any of the cases that are before me. In so far as there are non-registrable leases they are of relatively short duration and the mortgagees could now gain possession without undue difficulty. Furthermore in almost all the cases the registration of the mortgagees' charge was made within the period of a priority period. In those circumstances I propose to deal with the matter relatively briefly.

The occupiers' argument depends on the combined effect of sections 23, 24, 27 and 29(4) of the 2002 Act. Under section 27(2)(b)(i) leases for not more than 7 years are not registrable dispositions. Under sections 23 and 24 persons entitled to be registered as owners are entitled to deal with the property as if they are the registered owner. As such they are entitled to grant leases. Thus it is argued that under section 29(4) the grant of such a lease has effect as if the disposition were registered at the time of the grant. If that is a date before the date of the registration of the mortgage it thereby gains priority over the mortgage.

In Redstone Judge Worster accepted that argument although he described it as curious. Counsel, for the mortgagees submit that he was wrong to do so. They point out that it gives rise to wholly unintended consequences and that there is no reason to construe the Act in the way accepted by Judge Worster. They point out that prior to registration the purchaser only has an equitable estate. Thus any lease granted prior to registration can only take effect in equity. There is only the grant of a legal lease when the purchaser acquires a legal estate on registration. Thus it is at that date when section 29 has effect in respect of leases granted by the purchaser. An alternative argument (which amounts to much the same) is that section 29(4) applies to the grant of a leasehold interest out of a registered estate. Prior to the registration of the purchaser the grant of the leasehold interest is not made out of a registered estate and thus is not within section 29(4). I agree with both these submissions. In my view the unintended consequences which would result from the contrary interpretation do not arise. I accordingly respectfully disagree with Judge Worster on this issue as well.

In the light of my view of section 29(4) the question of priority searches does not arise. If contrary to my view section 29(4) has the effect suggested by Judge Worster I would have held that section 72 of the 2002 Act should be construed so as to give priority to any mortgagee who made an application for registration within the priority period granted by an official search. Any other construction would lead to results which can only be regarded as bizarre and wholly unintended by Parliament.

In the light of the concession made by Mr Small QC in the course of his submissions I do not need to say anything more about the third issue. Suffice it to say I agree with Mr Shirley and would follow the observations of Lord Wilberforce in Boland

Save that it is now necessary to substitute the 2002 Act for the references to the 1925 Act those observations apply with as much force under the 2002 Act as they did under the 1925 Act

In the result I would answer the preliminary issues as follows:

Preliminary issues 1 and 2 are both plainly arguable. My views are different from the considered views of Judge Worster. In those circumstances I would be provisionally minded to grant permission to appeal on either or both.