Sparks of Time, South Pacific, and a Harsh Result

In 2005, Mrs Rosemary Scott, from Longbenton near Newcastle-upon-Tyne, had money problems. She and her husband had separated and she was finding it difficult to manage. She owned her home, having bought it with her husband from North Tyneside Borough Council in 1999, and she had tried to sell it to raise money, but the only offer she had received was well below the asking price of £156,000.

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Things must have looked pretty hopeless until someone put Mrs Scott in touch with a company called North East Property Buyers. NEPB offered to buy Mrs Scott’s property from her at a price of £135,000, but to allow her to continue to live at the property as a tenant at the discounted rent of £250 per calendar month. She would also receive a lump sum of £15,000 if she stayed as a tenant for ten years. She was to receive £24,000 from the net proceeds of sale. She told the NEPB representative that she wanted to live in the property indefinitely, and he assured her that she could stay as long as she liked and that if she died, the tenancy would be automatically transferred to her son and he would receive the £15,000 lump sum.

It was the answer to her prayers: but perhaps Mrs Scott would have been wise to heed St Teresa’s observation that more tears are shed over answered prayers than unanswered ones. NEPB agreed to pay her legal fees provided she used solicitors nominated by them, which she agreed to do. In the event she sold not to NEPB itself but to a nominee purchaser named Wilkinson. Ms Wilkinson financed the purchase by means of a buy to let loan from Southern Pacific Mortgages Ltd, and her solicitors also acted for Southern Pacific. During conveyancing, Ms Wilkinson’s solicitors asked about vacant possession and Mrs Scott’s solicitors replied that arrangements could be made directly with her “as to both handover of the keys and the time that vacant possession will be given”. On the Standard Conditions of Sale, neither seller nor buyer specified whether the property was being sold with vacant possession or subject to a tenancy. The sale contract, the execution of the legal charge and the completion of the TR1 all took place on the same day, namely August 12, 2005; the transfer and the charge were registered on 16 September.

Those of my readers who are wondering how a company called South Pacific Mortgages came to lend on a property which is considerably closer to the Bank of Dogger than to Bali H’ai may be interested to know that SPML was originally one of three English secured lending entities of Lehman Brothers, although it has been operated by another company since 2008.

On 16 August 2005 a company called “UK Property Buyers” acting as agents for Ms Wilkinson granted Mrs Scott a two-year assured shorthold tenancy at the reduced rent. After the term expired, the tenancy would become a monthly periodic tenancy terminable on not less than two months’ notice in writing. On the same day, Mrs Scott received a document promising that she could remain in the property as the tenant and that she would get the £15,000 loyalty payment after 10 years.

This was of course not what Mrs Scott had been promised before she sold her house, though she did not realise that at the time. The tenancy she had been granted was one with very limited security of tenure, and certainly did not come anywhere near a tenancy which would entitle her to remain in the property for as long as she wanted; it was also not capable of being inherited by succession. She was also not to know that the tenancy for life which she had initially been promised was not permitted by the terms of the SPML mortgage, and that SPML were unaware of that promise. Nor was she alone. By 2008 the Office of Fair Trading estimated that there were about 50,000 people in these “sale and leaseback” arrangements, many of whom were extremely vulnerable to eviction.

But by August 2008 Mrs Scott had her own problems. She received a letter from “North East Property Lettings” suggested that because of issues surrounding an office move, some tenants might have received letters from mortgage companies saying that their accounts were in arrears, but that this was incorrect. This seems to have been the first time that Mrs Scott was made aware that there might be a mortgage on the property. Then in about March or April 2009 she accidentally opened a letter addressed to Ms Wilkinson which had come to the house, and discovered that a possession order had been made on 17 March 2009. This was swiftly followed by a warrant of possession due to be executed on 20 May 2009. That warrant was then suspended so that Mrs Scott could be joined as a defendant in the possession proceedings. The main plank of her case was that she had an overriding interest as a person in actual occupation under the Land Registration Act 2002 which was binding on Southern Pacific. If she could not succeed on that point, then she would be evicted.

By this time there were quite a number of people in the same position as Mrs Scott: when the matter was heard by HHJ Behrens in Newcastle in 2010, she was one of nine sellers to NEPB who were facing eviction in the greater Newcastle area, and there were others farther afield. By the time the matter reached the Supreme Court in August of this year, Collins LJ noted that there were now 90 or so cases in the Newcastle area involving 20 different lenders, and many more in other parts of the country. They all revolved around the same issue, namely whether sellers such as Mrs Scott had an overriding interest under LRA 2002 which was binding on the mortgagee. Mrs Scott’s case was selected as a specimen case and it was therefore the history of her predicament which the Supreme Court looked at it in detail.
Before looking at the law, I bring to your attention the prefatory words of Collins LJ in the Supreme Court judgment on Mrs Scott’s case and the associated cases:

“It is impossible not to feel great sympathy with Mrs Scott and the former home owners in her position, who may have been not only the victims of a fraud which tricked them out of their homes, but also of unprofessional and dishonest behaviour by the solicitors appointed to act for them …. “ [paragraph 24, p. 6].

He further noted, at paragraph 88, that

“it is also important to emphasise that the scheme in the present case could not have worked if the solicitors for the vendors and the solicitors for the purchasers/lenders had complied with their professional obligations and proper and normal conveyancing practice … “ .

But none of this could lessen the impact of the harsh truth, which was and is that Mrs Scott and her fellow sellers do not have an overriding interest which is binding on Southern Pacific, and which therefore prevents Southern Pacific from obtaining possession against them. The result is therefore that she and her fellow-litigants will be evicted from their homes unless Collins LJ’s recommendations to mercy (“I express the hope that the lenders will, before finally enforcing their security, consider whether they are able to mitigate any hardship caused to the vendors”) [para 94] bear some fruit. Hale LJ also made some extremely interesting observations about this result, which I’ll come back to in due course. For now, let’s look at the law. Continue reading

Form JO — A Potentially Important Development

You may remember that at the time of the House of Lords judgment in Stack v Dowden, Hale LJ dropped a very heavy hint to the Land Registry that it would be useful if it was to review its practice of not requiring joint owners to set out their interests in the equity, or their expectations of such interest, at the time of the conveyance. The mills of the Registry run slow, it appears, but there is finally some movement. Last Thursday, 1 November 2012, the Registry introduced a new form “JO” which is intended to make a significant difference to conveyancing of titles where there is more than one beneficial owner. This development is of particular interest to those advising cohabitees and others entering into a joint purchase of property.

Form “JO” is a voluntary form – it does not have to be completed, and joint owners can still rely on the relevant tickbox sections of TR1, FR1 and other forms. Where all relevant names appear on the title, purchasers will probably still take that course. However, the really important development in Form JO is that it directs the purchasers’ intentions to what is to happen if one of the joint purchasers is not on the title, as, for example, where the house is bought in the name of one partner but it is agreed that the other partner will have a half-share.

It was always possible to record an agreement like this by executing a separate deed of trust and referring to it at Box 10 of the TR1, but it was hardly ever done. Now, the conveyancer has an opportunity — indeed, it is more or less an obligation, since the careful conveyancer must direct the attention of the parties to the existence of this form — at the time of the transfer to point out to both parties that there is a very easy way to record this agreement for posterity. Parties should have their attention directed to Form JO and their instructions as to what to do about it should be carefully recorded. It is likely that in due course, the question of whether or not a Form JO was completed at the time of purchase will assume quite a lot of importance.

Form JO is an important opportunity for those who do not intend equity to follow the law, or who have unusual arrangements about the equity — it is to be shared with someone not on the title, for example, or the beneficial tenancy in common is to be held either in unequal shares or by a formula which is agreed now but will be calculated later — to put that in writing at the very earliest opportunity. It is also, incidentally, a good opportunity to look at whether the completion of Form JO should be part of making a cohabitation agreement.

Women with children who are living with their partners but who are not on the title should in my view be strongly advised to put any agreement about their eventual share of the equity into Form JO at the time of transfer.

Conveyancers will no doubt already be aware of this development. They may be underwhelmed and tell you that what can be done by Form JO was already possible under, for example, box 10 of the TR1. That is true, but the important thing about Form JO is that it is a specific stage in the conveyancing process which should be considered by the conveyancer and the parties should be advised about it. Whatever they decide to do (as I have said, completion of the form is voluntary), a careful record of the advice and instructions should be kept on the file.

There is a link to the relevant page on the Land Registry website here.

Crashing the Ritz

Baroness Hale, carrying off a very silly hat magnificently.

In the course of her Henry Hodge Memorial Lecture at the Law Society in June of last year, Baroness Hale recalled Lord Justice Mathew’s aphorism that “in England, justice is open to all — like the Ritz”. I don’t know about the Ritz — I don’t get there that often, entirely through pressure of work, you understand — but sadly, for the past few years, justice has enforced an ever-stricter door policy; almost literally, now that we are getting accustomed to talking about “gateways”.

There has been some interesting research on the adequacy of the proposed domestic violence gateways which has appeared today, and which I want to comment on in more detail later, but looking back again at Lady Hale’s lecture (which you can find here) has prompted me to give you a bit of a flavour of it, because it remains an important comment on the changing situation, and because to my disappointment it wasn’t terribly well reported at the time. It was covered by most of the legal press, but almost entirely for the eye-catching claim that the public funding cuts would affect the poor disproportionately. In fact, her lecture made it clear that even one of the highest judges in the land now has serious concerns not only about how restrictive the access has become, but what the effects of that restriction will be.

The lecture was entitled “Equal Access to Justice in the Big Society”, and as I’ve already noted it predictably caught most headlines for the statement that the Legal Aid reforms will “have a disproportionate effect on the poorest and most vulnerable in society”. Rightly so; this was bold, plain speaking.  It was bold, also, to place the issue of access to justice (which, as she pointed out, is not quite the same thing as access to lawyers) in the context of the “Big Society”, that politically radioactive concept which continues to divide the populace. In fact, the only time she referred to the Big Society  by name is in the title of the lecture, but she had a number of interesting reservations about the current plans for the Legal Aid system which make it clear that she believes that they cut across and impede the stated “Big Society” objectives. If the Big Society is about anything, it is surely intended to be about social inclusion, but she made the point  a number of times throughout her speech that the Legal Aid reforms will probably have the practical effect of barring access to justice for many people, and that result is, in effect, social exclusion. Just after she has noted in the speech that the effect on the poorest and most vulnerable will be disproportionate, she quotes (without comment) Legal Action‘s concern that “this would lead to an underclass of people disenfranchised from justice and indifferent to the rule of law”, and notes herself that

“the idea, recently floated, that some claims recognised by the law should become non-justiciable in our courts is truly alarming. This would turn debts and other legal duties into voluntary obligations, binding in honour only. And we know what risks of truly alternative enforcement mechanisms those can bring.”

Strains of the theme from The Godfather: but of course her point is a valid one. If you leave, say, debt collection and the general law of obligations to be dealt with by means of self-help, guided by ideas of honour and loyalty which may be fairly rough and ready, bad things tend to happen. As she also remarks, this idea runs counter to the “no right without remedy” principle set out in Ashby v White over 300 years ago (in 1702, in fact). This new idea is therefore, in its proper context, (but this is my gloss on what Lady Hale is saying) a truly revolutionary one. There is something rather sinister about this concept of a legal system which admits that it cannot afford, for reasons of lack of money, time or other resources, to provide an adequate remedy in response to a legal right. Note that it is not the resources of the parties which are being questioned, but the resources of the process. It is an admission of a systemic failure which is, in its own way, a quiet catastrophe.

She considered the various alternative routes to justice, other than lawyering up, but overall her conclusions were gloomy. Tribunals have not worked out to be as simple or as cheap as was first hoped, in part because the system has had to be restructured to reinforce the concepts of independence from the state and impartiality. Mediation is, she thinks, suitable and indeed preferable for family disputes (“no family judge who has had to decide who will pick the children up from school thinks that this is a sensible way to do things”), but possibly not such a great idea for other disputes, particularly where it is forced on the parties. What about their Article 6 rights to access a court?

She is also concerned that compulsory mediation can reinforce the power imbalances between the parties unless it is “very professionally conducted … and professional mediation costs money”. If  you have been involved in a David and Goliath mediation of this kind, you will probably recognise the profound truth of that sentiment.  It is the unfortunate habit of Goliaths in mediation simply to flex their muscles and indulge in je m’en fichisme until everyone gives up and goes home. The cost of the mediation may be a drop in the ocean to Goliath, but a small fortune to David, meaning that David has much more of a stake in the success of the process. Mediation is not the answer to all ills.

In the light of the current arguments about the new public funding gateways, this speech remains as pertinent as it was six months ago, and I urge you to read it if you haven’t already done so.