The law regarding the buying and selling of land:
The Law before the 27th September 1989
Section 40 of the Law of Property Act 1925 states that:
- “No action may be brought upon any contract for the sale or other disposition of land or any interest in land, unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged or by some other person thereunto by him lawfully authorised.”
Note that any contract which did not comply with s.40 of the Law of property Act 1925 was not void but was merely unenforceable.
Contracts Made on or After 27th September 1989
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 states that:
- “a contract for the sale of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or where contracts are exchanged in each.”
The terms of the contract may either be incorporated if they are set out in the original contract or by reference to another document that will contain them
The contract incorporating the terms must be signed by or on behalf of each party to the contract.
The effects of a Valid Contract
A contract which complies with s.2 of the 1989 Act has the following effects:
The Vendor (seller of the property) ‘becomes in equity a trustee for the purchaser of the estate sold’
The Purchaser gains an equitable interest
The purchaser may protect his interest in the land by registering his interest. With relation to unregistered Land the interest can be protected by registering a Class C Land charge against the property. With regards to registered land the purchaser can enter a notice on the land registration against the Vendors title to have evidence of his interest legally recognised.
Remedies where a contract fails
Where a contract complies with s.2 and has been exchanged, but the agreement does not proceed to completion, the parties may:
Sue for damages at common law for breach of the contract;
Apply for an order of specific performance of the contract;
Apply for an injunction to restrain a threatened breach of the contract;
Rescind the contract (if it is possible for the parties to be returned to their original position).
How to create a Deed
s.52, LPA 1925 ‘All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.’
A document will be a deed if:
It makes clear on its face that it is intended to be a deed;
It is validly executed as a deed by that person or, as the case may be, one or more of those parties
It is validly executed as a deed by an individual if, and only if, it is signed by him in the presence of a witness who attests the signature or at his direction and in his presence and the presence of two witnesses who each attest the signature, and it is delivered as a deed by him or a person authorised to do so on his behalf.
When is the conveyance effective
In registered land the transfer is completed only when the instrument of disposition (i.e. the transfer document) is lodged at HM Land Registry for amendment of the proprietorship register.
In unregistered land the formal conveyance of a legal estate is effective to vest that estate immediately in the purchaser, but most conveyances must be presented within 2 months at HM Land Registry for first registration of title if the legal estate is to remain vested in the purchaser
Rights that are overreaching
The general principle where land is held subject to a trust is that if the trustees sell the property the purchaser will take subject to the beneficiaries’ equitable interests, if s/he knew or ought to have known of them (the doctrine of notice).
Overreaching is a process whereby the beneficiaries’ equitable interests are lifted from the land and are attached instead to the price paid by the purchaser. The purchaser then takes the land free from the beneficiaries’ equitable interests, whether or not he knew or ought to have known of them, and the beneficiary claims his entitlement from the money made through the selling of the property.
When does overreaching apply?
Overreaching is capable of applying only to those equitable interests listed in s.2 LPA 1925 and are generally those existing behind a trust and having a monetary value. Section 2(1) LPA 1925 provides that:
‘A conveyance to a purchaser of a legal estate in land shall overreach any equitable interest or power affecting that estate [and listed in the section] whether or not he has notice thereof.’
Generally speaking, in order for overreaching to be effective, the purchaser (which by virtue of s.205 LPA 1925 includes a mortgagee i.e. a lender) must pay the purchase money/mortgage loan to all of the trustees being not less than two in number or a trust corporation
Provided the purchase money/mortgage loan is paid to all of the trustees being not less than two in number or a trust corporation a purchaser/mortgagee takes free of any beneficial interests existing behind a trust. The beneficiaries’ equitable interests are automatically translated into equivalent interests in the proceeds of sale and swept from the trust property. They attach instead to the money paid by the purchaser (i.e. to the proceeds of sale).
The beneficiaries’ claim is then against the trustees for a share of the money. Depending on the terms of the trust, the trustees will then either distribute the capital money among the beneficiaries or will invest it so as to provide income for them. The purchaser takes the legal estate free of the beneficiaries’ interests, even if the purchaser has actual notice of those interests.