Does an equitable owner of a legal charge have a power of sale?

8th February 2016

Section 101 of the Law of Property Act 1925 (LPA 1925) implies a statutory power of sale into all mortgages and charges over land that are made by deed. Section 106 of the LPA adds that a power of sale may be exercised “by any person for the time being entitled to receive and give a discharge for the mortgage money”. In addition, under section 23(2)(a) of the Land Registration Act 2002 (LRA 2002), an owner’s powers in relation to a registered charge comprise a power to make a “disposition of any kind permitted by the general law…”. Under section 24 of the LRA 2002, a person is entitled to exercise these “owner’s powers” if they are the registered proprietor of the charge or they are a person “entitled to be registered as the proprietor” of the charge.

In Skelwith (Leisure) Ltd and another v Armstrong and others [1], a partnership agreed to sell a property (a golf club) to the claimant company. The agreement provided that part of the purchase price would be deferred with the deferred element secured by a charge in favour of the partnership. The transfer completed and the claimant was registered as the proprietor. The first defendant was registered as the proprietor of the charge (as security agent for the partnership). The security agent and the partnership assigned their interests to another company, called Polar. A transfer of the charge to Polar was executed but was not registered at the Land Registry. The claimant defaulted on the repayment and Polar sought to sell the club. It relied on its power to so under section 101 of the LPA 1925 and its remedies under the charge.

The claimant applied for an injunction to stop the sale going ahead. It argued that as Polar was not the registered proprietor of the charge it did not have the statutory power to sell.

The High Court disagreed. It held that the words “owner’s powers in relation to a registered estate or charge” in sections 23 and 24 extended to a power of sale of charged land by an equitable assignee, which is what Polar was, of the charge. An equitable assignee had the right to sue for the assigned debt and to receive and give a valid discharge for monies received and, as such, was able to exercise the power of sale under section 101.

This did not mean, however, that the equitable assignee’s powers were automatically the same as those of a registered proprietor. Somebody lacking legal ownership can only exercise the powers conferred on a registered owner if the statute or instrument conferring it expressly permit it. That meant, in the instant case, that the assignee, as equitable owner of the charge, would only have a power of sale if that power was granted by section 106 of the LPA 1925 and/or by the powers conferred by the charge instrument.

As such, the case is a reminder of the need to register the transfer of a charge promptly at the Land Registry as the rights of the holder of an equitable interest in a legal charge are not necessarily as extensive as those of a legal owner of the charge.

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[1] [2015] EWHC 2830 (Ch)