The equitable doctrine of notice

The doctrine of notice is used to sort out the priority of equitable interests where land is unregistered and not governed by the Land Charges Act 1925.

For a potential purchaser or mortgagee to take ownership of land free from any other equitable interest in that property, they must prove that they are a bona fide purchaser of a legal estate for value without notice.

The purchaser must be bona fide

This means that the purchaser must show that they acted in good faith in entering the transaction. This part of the rule seems to be duplicated by the requirement that the purchaser should not have notice of the right (see below), but in Midland Bank Trust Co Ltd v Green (1981), Lord Wilberforce stated that:

‘It would be a mistake to suppose that the requirement of good faith extended only to the matter of notice… good faith is a… separate test which may have to be passed even though absence of notice is proved.’

The purchaser must give value

It is necessary for the person who acquires the estate to give value if they are to rely on the notice rule. They need not have paid the full market rate for the property (Midland Bank v Green (1981)), but the amount paid cannot merely be nominal and would not include a gift. ‘Value’ not only includes money and money’s worth, but also takes into account some other forms of consideration, such as marriage.

The purchaser must acquire a legal estate

The purchaser must buy a legal estate (ie, the freehold, a legal lease or charge by way of legal mortgage), rather than an equitable interest in the land. If the purchaser is to be safe, they must have acquired the legal estate before they (or any agents acting on their behalf) discover the equitable interest.

The purchaser must not have notice of the equitable interest

This means the purchaser must not have known about the pre-existing equitable interests before the transaction was complete. Where they are aware or should have been aware of the equitable interest beforehand, they are then bound by the interest. There are three types of notice: actual notice; constructive notice; and imputed notice.

1. Actual notice: this applies where the purchaser has actual knowledge of the existence of the equitable interest. It is not necessary for the purchaser to obtain this information from any particular source and they may even discover the truth from a complete outsider (Lloyd v Banks (1868)).

2. Constructive notice: when the notice rule was first created by the courts of equity, clever purchasers soon realised that they could obtain an advantage if they declined to make any investigations which might lead to the discovery of equitable interests. Equity was quick to extend the rule to prevent purchasers deliberately ‘turning a blind eye’ in this way, as such behaviour was evidence of a lack of good faith on the part of the purchaser. Purchasers are therefore deemed to know of interests that they would have discovered if they had asked the usual questions about the property, and are bound by them. Reasonable inquiries including visiting the property and asking any occupants if they have an interest in the property (Hunt v Luck (1902)). Failure to inspect the property at all also means that constructive notice will apply (Lloyds Bank v Carrick (1996)). The rule on constructive notice is set out in the Law of Property Act 1925 (LPA 1925), s 1999(1)(ii).

3. Imputed notice: a purchaser is deemed to have notice of an equitable interest if his agent has either actual or constructive notice of it. This rule is essential, since most purchasers do not conduct their own conveyance. Thus if a conveyancer obtains actual notice of an equitable interest, their purchaser/client is also regarded as having notice of it (Jared v Clements [1903] 1 Ch 428).