overreaching

Overreaching in Land Law Overreaching is a mechanism aimed at achieving conveyancing efficiency with minimal regard to protecting interests held in land. Overreaching applies where there exists a trust of land in both registered and unregistered land. Overreaching is the process by which the rights of beneficiaries under a trust of land, become detached from land on conveyance and attach to the proceeds of sale. Thus a person holding only beneficial ownership can be said to have rights in the value of the land rather than the land itself. In most situations those with equitable ownership rights will also hold legal title so overreaching will not be a problem; since a conveyance of the property will require consent. However, difficulties arise where the beneficial owner does not hold legal title as the trustees may convey the property without their knowledge or consent. Overreaching ensures the purchaser of land takes the property free from any beneficial interests and applies irrespective of notice. It thus favours the interest of the purchaser over that of the beneficial owner and is capable of producing unjust results: City of London Building Society v Flegg [1988] AC 54 Case summary Interests capable of being overreached Overreaching stems from S.2(1) Law of Property Act 1925 which provides: "A conveyance to a purchaser of a legal estate in land shall overreach any equitable interest or power affecting that estate, whether or not he has notice thereof" S.2(3) Law of Property Act 1925 excludes certain equitable interests in land, consequently overreaching is generally restricted to operating only where there is equitable ownership behind a trust. Transactions to which overreaching applies Overreaching applies where there is a conveyance to a purchaser of a legal estate. A conveyance is defined in s.205 (1) (ii) Law of Property Act 1925 as including "a mortgage, charge, lease, assent, vesting declaration, vesting instrument, disclaimer, release and every other assurance of property or of an interest therein by any instrument, except a will;" The restriction to purchase of a legal estate includes purchase of the freehold or a legal lease. S.205 1 (xxi) Law of Property Act 1925 extends the definition of purchaser of legal estate to include a charge by way of legal mortgage. Therefore overreaching may operate in favour of a bank advancing a mortgage as seen in City of London Building Society v Flegg [1988] AC 54 Case summary. Purchaser The definition of purchaser applicable to overreaching is " a person who acquires an interest in or charge on property for money or money's worth" (S.205(1)(xxi) Law of Property Act 1925 - Overreaching comes under part I of the Act). There is therefore no requirement that the purchaser acts in good faith, lacks notice nor that they provide valuable consideration in order to take advantage of overreaching. Overreaching will operate even where a mortgage discharged existing indebtedness so that no money was advanced: State Bank of India v Sood [1997] 1 All ER 169 Case summary Payment of capital moneys In order for overreaching to operate, the purchaser must pay any capital moneys arising under the conveyance to at least two trustees or a trust corporation (s.27 Law of Property Act 1925). Overreaching can not operate therefore where there is a single trustee. See for example: HSBC Bank v Dyche [2009] EWHC 2954 Case summary Kingsnorth Finance v Tizard [1986] 1 WLR 783 Case summary This provides some degree of protection to beneficial owners in that it is less likely that two trustees would act in breach of trust as oppose to a single trustee. Where there is a single trustee, the rights of the beneficial owner are determined by the rules on priority. In registered land, the equitable interest may be protected as either a minor or overriding interest. In unregistered land, the doctrine of notice applies. Whilst the requirement under s.27 to pay the capital moneys to two trustees provides some protection, there has been an erosion of this protection where the conveyance does not produce capital moneys. It has been held that s.27 only applies if the conveyance gives rise to capital moneys: State Bank of India v Sood [1997] 1 All ER 169 Case summary