Constructive trusts and third party interests

Constructive trust arising because a purchaser of land has expressly agreed to take subject to the interest of a third party

One of the central objectives of land law is to determine whether a transferee of land is bound by third party interests in the land which were valid against the transferor. Where title to the land is registered, the equitable doctrine of notice has been replaced by a scheme of registration. Lesser interests must be protected by means of an entry on the register of the title to which they relate. If an interest is unprotected, a transferee for valuable consideration of the legal title will acquire the land free from it, unless it is an ‘overriding interest’ in which case it will bind the transferee irrespective.

However, it has been held that if a transferee of the land expressly agrees that he will honour the rights of a third party, he will be bound by those rights under a constructive trust even though it had not been properly protected on the register. This constructive trust prevents the purchaser taking advantage of his strict rights under the statute. Such a constructive trust was held to have arisen in Lyus v Prowsa Developments [1982] 1 WLR 1044.

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