Abbey National Building Society v Cann [1991] 1 AC 56

The decision in Abbey National Building Society v Cann [1991] 1 AC 56 is a landmark judgement in UK land law that provided essential clarification on the concepts of actual occupation and overriding interests under the Land Registration Act 1925, section 70(1)(g). This case examined whether a contribution to the purchase price, combined with the timing of physical occupation, could create an overriding interest that would bind a first mortgagee.

The House of Lords’ decision reinforced the principle that when property is purchased using mortgage funds, the transaction involving both the purchase and the creation of the mortgage is indivisible. As a result, any claim of actual occupation must predate this indivisible transaction for the interest to override the lender’s legal charge. This article explores the facts, legal issues, judgement, reasoning, and implications of Abbey National BS v Cann.

The Legal Context: Overriding Interests and Actual Occupation

Under the Land Registration Act 1925, certain interests in land can override registered dispositions. Section 70(1)(g) specifically provides that an equitable or proprietary interest coupled with actual occupation of the land may constitute an overriding interest. Such interests take priority over registered charges or dispositions, even if the latter were unaware of the occupier’s interest.

In Abbey National BS v Cann, the central question was the timing and nature of actual occupation:

  • Could a temporary act, such as moving in furniture minutes before the legal completion of a mortgage-backed property purchase, constitute actual occupation?
  • If so, would this interest override the mortgagee’s legal charge, effectively preventing repossession?

The House of Lords’ decision clarified these issues and set a precedent for how overriding interests are assessed in the context of mortgage-backed purchases.

Facts of Abbey National Building Society v Cann 

George Cann (the first defendant) and his mother, Daisy Cann (the second defendant), were the main parties in this case. The facts unfolded as follows:

  1. Contributions and Constructive Trust: George Cann applied for a mortgage from Abbey National Building Society to purchase a property. Daisy Cann, George’s mother, contributed significantly to the purchase price, giving her an equitable interest under a constructive trust. However, the property was registered solely in George’s name, and Daisy’s financial contribution was not disclosed to Abbey National.
  2. The Purchase and Mortgage: George used Abbey National’s mortgage funds to complete the property purchase. Unknown to Daisy, George also secured a second mortgage.
  3. Timing of Occupation: Daisy moved some furniture into the property 35 minutes before the legal completion of the purchase and mortgage. She argued that her physical act of moving in furniture constituted actual occupation, which, when combined with her equitable interest, gave her an overriding interest under section 70(1)(g) of the Land Registration Act 1925.
  4. Repossession Proceedings: George defaulted on his mortgage payments, leading Abbey National to seek repossession of the property. Daisy resisted, claiming that her overriding interest in the property precluded Abbey National from evicting her.

The case eventually reached the House of Lords on appeal, where the key legal principles regarding overriding interests and actual occupation were rigorously examined.

The Legal Issues

The main legal issues in Abbey National Building Society v Cann  before the House of Lords were:

  1. Whether Daisy Cann’s equitable interest (arising from her financial contribution) could bind Abbey National’s mortgage.
  2. Whether moving in furniture 35 minutes before the completion of the mortgage transaction amounted to “actual occupation” under section 70(1)(g) of the Land Registration Act 1925.
  3. Whether the mortgage transaction and the property purchase constituted a single, indivisible process.

If Daisy’s occupation and interest satisfied these criteria, she could assert an overriding interest that took priority over Abbey National’s legal charge, thereby preventing repossession.

Abbey National Building Society v Cann  Judgement

The House of Lords, led by Lord Oliver, ruled in favour of Abbey National Building Society. The appeal was dismissed, and Daisy Cann’s claim was rejected. The key findings were:

Single, Indivisible Transaction

The court in Abbey National Building Society v Cann  held that when a property is purchased with the assistance of a mortgage, the purchase and the creation of the mortgage constitute a single, indivisible transaction. For an interest to override the mortgage, the actual occupation must exist before the creation of the legal charge. In this case, the mortgage was integral to the property purchase; therefore, Daisy’s interest arose after the mortgage funds were advanced.

Actual Occupation Requires Permanence

Moving in furniture minutes before completion was deemed insufficient to constitute actual occupation. Actual occupation requires a degree of permanence and continuity. Temporary or preparatory acts, such as moving belongings, do not meet this threshold.

Timing of Interests

Daisy’s equitable interest, while valid, could not bind Abbey National because her occupation occurred too late to qualify as overriding. The relevant time for assessing overriding interests is the moment of the creation of the legal estate (i.e., completion), not the registration date.

As a result, Abbey National’s legal charge took priority over Daisy Cann’s equitable interest, and the building society was entitled to repossess the property.

Lord Oliver’s Reasoning in Abbey National Building Society versus Cann Case

Lord Oliver delivered the leading judgement and provided crucial clarification on the concept of actual occupation and its timing:

  1. Avoiding Absurdity: Lord Oliver emphasised that it would be absurd for the relevant time for actual occupation to be the registration date rather than the date of the legal transfer. If this were the case, individuals could occupy a property in the gap between completion and registration, undermining the certainty of mortgage lenders’ interests.
  2. Practical Implications for Lenders: Allowing post-completion acts to create overriding interests would make it impossible for lenders to conduct effective searches before advancing funds. There is always a delay between the completion of the legal transaction and the registration process; lenders rely on the certainty that no new overriding interests can arise during this period.
  3. Nature of Actual Occupation: Actual occupation must demonstrate a real and substantial presence. Mere preparatory steps, such as placing furniture in a property, do not satisfy the requirement for permanence and continuity.

Lord Oliver’s reasoning was pivotal in establishing a clear and practical framework for assessing overriding interests and actual occupation under UK land law.

Conclusion

The House of Lords’ decision in Abbey National Building Society v Cann provides a definitive interpretation of actual occupation and overriding interests under UK land law. By treating the purchase and mortgage process as a single, indivisible transaction, the court upheld the certainty of mortgage lenders’ interests and set a high threshold for actual occupation claims.

For equitable interest holders, the case serves as a reminder of the importance of securing their rights through formal registration or legal agreements. Temporary or preparatory acts will not suffice to establish actual occupation, and interests that arise after the creation of a mortgage will not override a lender’s legal charge.

Ultimately, Abbey National BS v Cann strikes a fair balance between protecting lenders’ security and ensuring that overriding interests are applied in a clear, consistent, and practical manner. The decision continues to guide courts, practitioners, and landowners in resolving disputes involving actual occupation and mortgage-backed property transactions in the UK.

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