City of London Building Society v Flegg [1988] AC 54, HL

Overreaching and overriding interests.

Facts

Here, the Maxwell Browns purchased a property, attaining half of the cost form Mrs Maxell Brown’s parents, the Fleggs. The property was placed solely under the Maxwell Brown’s name with both the Browns and the Fleggs in actual occupancy. Later, in breach of the trust created from the Fleggs’ lending of money, the Maxwell Browns sought a mortgage for the property from the claimant which they ultimately defaulted on repayments for, and so the claimant sought to repossess the house. The Fleggs attempted to halt this, claiming an overriding interest per the 1925 Land Registration Act s.70(1)(g), reasoning that they held a beneficial interest in the property arising from their contribution to the purchase price and were in actual occupation. In response, the claimants submitted this right had been overreached as the purchase contribution had been given to the Maxwell Browns as trustees.

Issue

Whether contribution to purchase price and actual occupation can amount to an overriding interest, or whether such rights can be overreached.

Held

Whilst at first instance the Court found for the claimant, the Court of Appeal found for the Fleggs. Upon final appeal, the House of Lords found for the claimant, viewing that the Fleggs’ rights in the property per se had been overreached, and thus their rights attached to the property’s sale value. In the leading judgment, Lord Oliver emphasised the risks to financial institutions of ‘unsuspected hazards’ should they be bound by unregistered rights.