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.
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