Overreaching effect on an unregistered leaseholder

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gus120
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#1
Report Thread starter 8 years ago
#1
Hi,

A little confused about overreaching.

1)If A and B lease their property to C, on an oral less than 3 year lease (meaning that it does not need to be registered, I think), and then subsequently mortgages their property to D. A and B then default on their payments, will C be overreached, if D receives possession, and thus is out of home?

2) If A and B lease their property to C, on a under 5 year lease with deed but no registration, and then subsequently mortgages their property to D. A and B then default on their payments, will C be overreached, if D receives possession, and thus is out of home?

Cheers

Gus
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#2
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#3
Report 8 years ago
#3
You seem really confused, I suggest you go and make sure you understand the difference between (a) an equitable interest (usually one behind a trust) being overreached; and (b) an interest not binding a third party because the relevant formalities have not been complied with.

Overreaching can only ever apply to equitable interests rather than legal interests - s 2(1) LPA 1925, but cannot in any event apply to equitable leases because they are excluded from the scope of s 2(1) LPA 1925 by s 2(3)(iv) LPA 1925 -an equitable lease being a contract to grant a lease. Pretty much the only things that can be overreached are beneficial interests behind a trust and, occasionally, equities of estoppel (maybe a few other minor interests that won't come up on an exam). This question therefore has nothing to do with overreaching, and everything to do with the formalities needed to acquire legal estates in land and the priority rules.

1) Assuming the lease takes effect in possession, and is at the best rent obtainable without taking a fine, then s 54(2) LPA 1925 applies and there is no need to use a deed to create a legal lease 'which does not exceed three years'. There is no requirement for a three year lease to be registered to be legal - s 27(2)(b)(i) LRA 2002 applies only to 'leases for a term of more than seven years from the date of the grant'. Therefore C has a legal lease. C's lease comes before D's mortgage and by s 28 LRA 2002 the general rule is that the first interest in time prevails. The exception to this is s 29 LRA 2002 - if C's interest is unregistered then it will be postponed behind D's interest (provided that D's interest has been registered, as it must to create a legal mortgage), unless C's interest is protected, i.e. it is one of the things in s 29(2) LRA 2002. Fortunately for C, s 29(2)(a)(ii) applies here - his lease falls within one of the paragraphs of Sch 3. Specifically, Sch 3, para 1 which covers legal leases for less than seven years. C's interest is therefore overriding and takes precedence over D's mortgage because it was first in time. D cannot force C to leave.

2) s 54(2) LPA 1925 only applies to leases for a duration not exceeding three years so a deed must be used to create a legal five year lease. No problem, they've done this. s 27(2)(b)(i) LRA 2002 applies only to leases for more than seven years, so again there is no requirement to register. And again the lease is an overriding interest within Sch 3, para 1, so D has no defence to C's prior interest.

Let me give you another question to try, in the same vein, since it's vital you know this stuff for the exam (assuming your uni is anything like mine).

3) A and B give C an eight-year lease without using a deed or registration. C moves in to the property and A and B want to grant a mortgage to D. D sends his minions round to look at the property who see C living there, but nonetheless D takes the mortgage. A and B default and D wants to evict C. What is the result?
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