New case: Overriding interests

The question the court considered was whether the second defendant had an equity in relation to the property and, if so, whether the claimant’s charge took subject to that equity.

The court held that when the second defendant transferred her property to the first defendant, she was suffering from a disability due to her psychiatric condition. A contract made by a person who lacks capacity makes it voidable, but not void. Even though she was suffering from a disability, the onus was on her to establish that the other party knew of the incapacity at the time, or knew of such facts and circumstances that he must taken to have known of the incapacity.

Although the second defendant was unable to recollect the facts surrounding the property transaction, the court found that her incapacity should have been apparent and therefore the conveyance of the second defendant’s property was a voidable transaction giving rise to an equity in her favour.

The next major issue was whether the second defendant was in actual occupation of the property when the legal charge was registered. If she was, then the claimant’s charge would take subject to her equity in accordance with the Land Registration Act 2002. Even though she was living in a care home because she was suffering from mental health issues and was prevented from living in her home by the Mental Health Act, her furniture remained there, arrangements had been made by those responsible for her finances to pay the regular bills, she intended to return there and she still considered it her home. The court decided that she still occupied the house even though she was resident elsewhere, for the time being. As such, her equity had priority over the claimant’s charge.

Accordingly, where a party sells a property under a disability, that agreement will be voidable, giving rise to an equity. That equity will be binding on a bank if that party is held to have been in actual occupation when the charge is registered, even if that party is not in residence as long as they intend to return to their home and continue to be responsible for bills, etc, relating to the property.

Link Lending Limited v Noreen Hussein and Susan Bustard by her litigation friend 24 September 2009