Enforcing Purchase Options Legal Analysis

This essay discusses the legal position of Dr. Charles, Simon, and Josh with respect to their interest in Broomfield Cottage. With respect to Dr Charles, the issue which arises is whether he can enforce the option to purchase against Kuldip. An option to purchase is considered to be an equitable right in rem. If the landowner gives an option to purchase to another person, then such an option creates an equitable interest in favour of that person. The equitable interest does not relate to a duty to buy the property but creates a legal right to buy the property in future and it can be enforced by the other party through specific performance in the future. The law related to this is contained in the Law of Property Act, Section 53 (1). Under Section 53(1), an equitable right in rem can be created through a signed written document. If the option to purchase is given to one person but the property is purchased by another person, then the question of priority of interest will arise.

With regard to this, the Land Registration Act 2002, Section 29 (2) is applicable. Section 29 (2) provides that priority of an interest in a right in rem is protected if it has been registered charge or is subject of a notice in the register, or if it falls within Section 3. Under the Land Charges Act 1972, Section 2 (C) (iv), an option to purchase is registerable as an estate contract. In Midland Bank Trust Co v Green, it was held that the option to purchase can be enforced against the owner only if it has been secured through registration of charge and not otherwise. In Spiro v Glencrown Properties Ltd, it was held that if the agreement by which the option was granted was made as per the Act, then it was binding. Applying this to the current case scenario, the option to purchase was given to Dr Charlie for £1000, and it could be exercised at any time during the next ten years. Dr Charlie has given a notice to Kuldip to exercise the option. As the property is already transferred to Simon and registered as such, the priority of an interest in a right in rem of Dr Charlie is protected only if the contract has been made in writing and signed and has been registered; in which case it will bind Simon as the purchaser of the property.

The issue that arises with respect to Simon is whether he had notice of Josh’s beneficial interest in the property. The law applicable in this case is the Land Registration Act 2002, Schedule 3, para 2. This protects the beneficial interest of a person in actual possession. The purchaser will be bound by the equitable interest under a trust of land if the owner of that equitable interest is in actual possession. Josh is an owner of an equitable interest and he is in actual possession. Also applicable is the Trusts of Land and Appointment of Trustees Act 1996, Section 1, which creates trust when two people who own land concurrently. Under this, the rights of ownership are divided between the legal owner (trustee) and the beneficial owner. Thus, Josh has beneficial interest even though not registered as c-owner of the property because he contributed equally towards the purchase of the house. When buying registered land, the purchaser has to be aware of the registered claims against the property. Constructive notice can be used for information that the purchaser that was reasonably discoverable by them. Thus, the question is whether Simon could have reasonably discovered whether Josh was in actual possession. It has been held that actual possession relates to a degree of permanence and continuity of possession. The presence of furniture or clothes can lead the purchaser to discover such possession. Applying the above principles to Simon’s case, it can be seen that there were only a few pieces of furniture and some clothes in most of the rooms. However, he did encounter Josh and when he asked Josh if he lived in the cottage, he did not get a clear negative. Instead what Josh said was: “what’s it got to do with you. My brain is diseased and I do not care to answer stupid questions!” This should have prompted Simon to ask more questions of Kuldeep to discover whether Josh lived on the property and the nature of the latter’s interest in the property. Therefore, it can be argued that Simon had constructive notice.

The issue with relevance to Josh is whether he has interest in the property after purchase by Simon and if he can enforce the interest. Josh is a beneficial interest in the property as he contributed equally to the purchase of the property as per the decision in Malayan Credit Ltd v Jack Chia-MPH Ltd. As per the provisions of Section 1 of TOLATA 1996, Josh and Kuldip own land concurrently and have trust of land, thereby dividing the ownership into legal (Kuldip as registered owner) and beneficial (Josh as contributor to purchase price). The sale of the property by Kuldip can have the effect of severance of the joint tenancy by unilateral act under LPA 1925, Section 36(2). In such a situation, the purchaser does not get the interest of Josh, which is severed as a result of severance of joint tenancy. Josh can therefore enforce his interest in the property as against the purchaser, that is Simon.

To conclude, Dr Simon can enforce the equitable interest against Simon if the option to purchase was in writing and registered. Simon is bound by Josh’s interest under the doctrine of constructive trust. Josh has beneficial interest in the property which will bind Simon as the new purchaser.

Bibliography

Cases

Abbey National v Cann [1991] 1 AC 56.

Chockar v Chockar [1984] Fam Law 269.

Choudhary v Yavuz [2011] EWCA Civ 1314.

First National Bank v Achampong [2003] EWCA 487.

Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] AC 549

Midland Bank Trust Co v Green [1981] AC 513.

Spiro v Glencrown Properties Ltd [ 1991] Ch. 537.

Books

Davys M, Land Law (London: Palgrave Macmillon 2015).

Dixon M, Modern Land Law (Psychology Press 2005).