News

March 2011

The role of a Unilateral Notice in the protection of an equitable right

The recent case of Valais Ltd v Clydesdale Bank plc t/a Yorkshire Bank [2011] All ER (D) 87 confirmed that a unilateral notice is a means of protecting an equitable chargee’s ranking.  However, it will not impede a sale.

The Facts

• Valais Ltd was the first proprietor of a registered charge against four properties and had taken possession of the properties as the mortgagee in possession. 
• Clydesdale Bank plc t/a Yorkshire Bank (‘the Bank’) had entered unilateral notices against the titles to the four properties in order to protect the equitable charges it held over the properties. 
• Valais Ltd proposed to sell the properties at auction but the auctioneers advised that, in the current market, the presence of the unilateral notices would act as a deterrent to a prospective purchaser.
• As a result of this advice, Valais Ltd sought an interim order that the Bank remove the unilateral notices. 

The Issue

The central issue was whether the Bank’s unilateral notices should be removed to facilitate the sale of the properties. 

Valais Ltd submitted that the presence of the unilateral notices could hamper the sale of the properties as mortgagee in possession.  The Bank submitted that the unilateral notices were the only way it could ensure that a potential purchaser is notified of the Bank’s interest and that the perception that the existence of the unilateral notices could cause difficulty in selling the property was misplaced. 

The Decision

The Court held that the sale by Valais Ltd, as the first mortgagee in possession, would overreach the Bank’s interest pursuant to s.114(1) of the Law of Property Act 1925 (‘the 1925 Act’).  Thus Valais Ltd could sell free from the effect of the equitable charge. 

The Bank’s entitlement under section 105 of the 1925 Act is to payment of any surplus only after Valais Ltd had been repaid in full. 

Thus the unilateral notices would not impede the sale to purchasers who would take free of the Bank’s charge. 

Additionally, the Court held that the nature and reason for the unilateral notices would be clear to a potential buyer on the face of the Register.  Therefore there was no reason for the Court to override legal rights on the basis of a flawed market perception in the presence of a unilateral notice. 

Comment

This case was based upon a misconception of the protection afforded by a unilateral notice.  The case provides comfort for a purchaser who can be assured that they will take free of an equitable charge in analogous circumstances. 

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

 

For further information please contact: or

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