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12/07/2008

Constructive trust and dodgy RTB

There is an all too common situation. A tenant with the right to buy is offered a capital sum and the mortgage payments for the (in this case) three years needed to avoid repaying the RTB discount on transfer. In the meantime, they either get to stay or hand over control of the property to the shadow. Recent RTBs have provisions in the lease to make this more difficult, as well as a much reduced discount, but there remain a lot of sharks circling.

McGuane v Welch [2008] EWCA Civ 785 was an appeal of a County Court judgment awarding an equitable interest of 100% in a lease of the property concerned to Mr Welch (W), against the title of Mr McGuane (M), the erstwhile tenant.

I’ve not got time to do a detailed report, but the appeal succeeded, largely on the basis that there was an express trust, not a constructive trust, and that the claimant did not come to equity with clean hands. In particular the Claimant had engaged a not entirely reliable solicitor, May & Co, supposedly to act for the Defendant in the arrangement. They never met their supposed client or advised him directly in person or in writing. One trusts the SRA have taken note.

The Defendant pleaded the whole arrangment being the act of “a poor and ignorant man”, (Creswell v Potter (1968) [1978] 1 WLR 255, Backhouse v Backhouse [1978] 1 WLR 243). But the judgment left the erstwhile tenant liable to repay all the monies that the Claimant had spent on the property in mortgage and refurb, so effectively meaning a plague on both your houses.

There are a number of issues in this judgment that I want to return to – in particular the requirement for ‘stamped’ trust deed and transfer for admission as evidence, and the way in which express trust is dealt with. But that will have to wait for a fortnight or so. No time now, I’m afraid.

In the meantime, it is clear that the Court deeply disapproves of the ‘transaction’, but absent evidence or argument on breach of statute, can’t say much more.

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts.

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