Property law reports

Registered land: Overriding interestProprietary estoppel - overriding interest - constructive trust - vendor of land bringing proceedings for possession against defendants - defendants counterclaiming interest in land by proprietary estoppel - land sold subject to claim - whether defendants in actual occupation - whether defendants having overriding interest - whether constructive trust - section 70(1)(g) of Law of Property Act 1925 - appeal allowedLloyd and others v Dugdale and another: Court of Appeal (Lords Justice Kennedy, Mummery, Sir Christopher Slade): 21 November 2001The claimants were the successors in title to J, who had held a long leasehold interest in office/warehouse premises.

J orally agreed with the first defendant, D, to sell the premises to him for use by the second defendant flooring company, JAD Ltd, of which D was the major shareholder and managing director.

J subsequently permitted JAD Ltd to store its stock on the premises, and gave a key to D.

JAD Ltd then paid for extensive building work to be carried out to the premises, after which it moved its business there.

By the following year, a draft agreement, in the form of a long sublease in favour of D, had been agreed.

However, that lease was never executed and J decided not to proceed with the transaction.

Shortly afterwards, J wrote purporting to terminate the defendants' licence to occupy the premises.J brought proceedings against the defendants to recover possession of the premises.

The defendants counterclaimed for a declaration that J was bound in equity to grant the lease in the terms of the draft on the grounds of proprietary estoppel.

After J's death, his executors purchased the freehold title to the premises and sold it to the claimants expressly subject to the proceedings.

The claimants brought fresh proceedings, in which D counterclaimed as before.He contended that any rights that he had acquired against J by proprietary estoppel were binding upon the claimants: by notice, as a constructive trust; or as an overriding interest, by virtue of section 70(1)(g) of the Law of Property Act 1925, because the defendants had been in actual occupation and the claimants had made no inquiry as to their rights.

The judge dismissed the claim for possession and allowed the counterclaim.

The claimants appealed.Held: The appeal was allowed.There was no doubt that JAD Ltd had acted to its detriment by incurring substantial expenditure on the premises in reliance upon J's representations that he would sell to D.

However, JAD Ltd did not, itself, claim any interest in those premises.

In order for D to obtain an interest based upon estoppel, he needed to show detrimental reliance by himself personally.

Such detriment lay in his having failed to purchase alternative premises, as he would, on the evidence, have done had he not been assured of acquiring J's premises.

He would have been able to offer such a property as security to obtain finance for the company, and would also have had the personal security of owning a property.

As it was, he was left with the purchase money and an interest in JAD Ltd's old premises, and was now effectively 'locked in'.

It followed that a claim based upon estoppel would have succeeded prior to the claimants' registration as proprietors of J's premises.

However, the effect of registration was, by virtue of section 20(1) of the Law of Property Act 1925, that the claimants acquired the premises free from D's rights unless: D was a person in actual occupation of the land, so that his rights constituted an overriding interest under section 70(1)(g) of the 1925 Act; or the draft lease agreement had given rise to a constructive trust in D's favour.It had been JAD Ltd, rather than D, that was in actual occupation.

Although JAD Ltd had been in occupation as a licensee of D, D's capacity as licensor did not, in itself, entitle him to claim to be in actual occupation - Strand Securities Ltd v Caswell [1965] Ch 958 applied.

That situation was unaffected by the fact that D was the major shareholder in JAD Ltd, and D could not claim on the basis that he occupied the premises for the purposes of a business to be carried on by him, within the meaning of section 30(1)(g) of the Landlord and Tenant Act 1954.

Although the business was carried on by a company that was largely owned and controlled by D, it was, nonetheless, a separate entity in legal terms - Tunstall v Steigman (1962) 18 EG 59 applied.

D's regular presence on the premises did not assist his case, since he had attended simply as the managing director of the company and not on his own account.Although the sale of the premises to the claimants had been expressly subject to D's claim, a constructive trust would not be imposed because the claimants' conscience had not been affected - Ashburn Anstalt v Arnold [1987] 2 EGLR 71 applied.

There was no evidence that the purchase price had been reduced by reason of D's claim, or that the claimants had agreed to be substituted as claimants in J's action - a course that would have involved them taking on the burden of D's counterclaim as well as the benefit of the action against him.

The clear intention had, on the contrary, been to relieve the claimants from liability under the counterclaim.Anthony Elleray QC and Ian Foster (instructed by Latimer Lee of Prestwich) appeared for the claimants; Mark Cawson QC (instructed by Temperley Taylor Chadwick of Middleton) appeared for the defendants.