Complicating events

The recent case of Pick v Chief Land Registrar [2011] EWHC 206(Ch) serves as a further reminder to Trustees in Bankruptcy that it is essential they check that their interests in properties within the Bankruptcy Estate have been properly protected with the required Bankruptcy Restriction(s), as soon as they are appointed.

The background facts are that:

• The seller was made Bankrupt in March 2007;

• The seller was the sole registered proprietor of the property;

• The seller completed the sale of the property to a third party purchaser in November 2007;
 
• The Land Registry entered a Restriction on the title on 14 December 2007, and a Trustee in Bankruptcy was appointed on 17 December 2007.

For solely owned property such as this, the Court has a duty under Insolvency Rule 6.13 to notify the Land Registry of Bankruptcy Petitions, who must enter the Petition as a pending land action under the Land Charges Act 1972 (“the LCA 1972”). The Land Registry did not complete this after the sale, despite the 8 month gap between the Bankruptcy Order and the sale.

Prior to completing the purchase, the buyer’s conveyancer carried out a Land Registry priority search on the property title which did not reveal a Bankruptcy Restriction and allowed a six-week priority period (from the date of the search) for the buyer to effect registration. For the duration of the priority period the purchaser’s interest takes priority over any subsequent application to register an interest by a third party.

The purchaser failed to register her title before the priority period lapsed. The Land Registry then entered a Bankruptcy Restriction against the title. The Bankruptcy Restriction prevents the registration of any disposition of the property until the Trustee in Bankruptcy of the property is registered as proprietor of the registered estate.  However, the Land Registry then registered the purchaser as the registered proprietor of the property and removed the Bankruptcy Restriction.

Land Registration Act 2002

Section 86(5) of the Land Registration Act 2002 (“LRA 2002”) contains express provision for the protection of purchasers from a Bankrupt, by stating that where the proprietor of a registered estate or charge is bankrupt, the title of the Trustee is void as against a person to whom a registerable disposition of the estate is made if: the disposition is made for valuable consideration, the person to whom the disposition is made acts in good faith, and at the time of the disposition no notice or Bankruptcy Restriction is entered in relation to the registered estate, and the person to whom the disposition is made has no notice of the Bankruptcy Petition or the adjudication.

Section 86(6) of the LRA 2002 states that the purchaser only has the protection afforded by Section 86(5) if the purchaser complies with the relevant registration requirements. In this case, the Trustee argued that the purchaser should not be protected by Section 86(5) because the Bankruptcy Restriction was entered on the title before the purchaser registered her title.
Decision

The High Court held that the Land Registry had correctly removed the Bankruptcy Restriction and registered the purchaser as the proprietor because a) the Court viewed that the protection under Section 86(5) applied as early as the disposition to the purchaser, rather than when it was eventually registered and b) the LRA 2002 does not specify a date by which the relevant registration requirement of Section 86(6) has to be met in this context.

Implications

In summary, Trustees in Bankruptcy must check immediately upon their appointment that they have Restrictions in place on any properties (both solely and jointly owned), and be aware of the risk that even this will not provide total protection if a disposition of the property has occurred prior to the Restriction, even if that disposition has been registered late.