Williams v Broadoak Private Finance Ltd  EWHC 1107 (Ch)
In property transactions exchange of contracts takes place when all parties are ready to proceed with the transaction. When exchange of contracts takes place this becomes a legally binding contract. Usually you exchange on one day and complete i.e. hand over the property on another day but this can be simultaneously if need be. Do note on exchange of contracts the buyer has to pass a deposit, usually 10% of the purchase price to the seller’s solicitors.
When you exchange contracts, you acquire an equitable interest in that property. However, you will not gain the legal interest until completion. To protect the equitable interest the exchanged contract can be noted against the seller’s title to the property at Land Registry, until completion takes place. This is quite common where the seller is a developer and is selling the property off-plan and the property has not been built yet. This is because there will generally be a long period of time between exchange of contracts and completion and you need to protect your interest.
A recent case of Williams v Broadoak Private Finance Ltd concerning a developer who had gone into administration during the course of a project after exchange of contracts had taken place on a number of flats.
Each of the purchasers had paid a substantial deposit of 25% of the purchase price, which had been released to the developer to fund the development.
The court then held the most realistic option for the administrators was to the sale of the partly developed land to a third party, as the administrators were unlikely to complete the development themselves. The main concern for the purchaser’s was there was a charge registered in favour of Broadoak (“chargee”) whose interest was also noted on the title as a charge.
The court acknowledged that each of the purchasers were entitled to a purchaser’s lien over the property, however only 3 of the purchasers had registered a notice on the title before registration of the charge, Broadoak. 46 purchasers registered the notice after the charge in favour of the chargee was registered and 5 of the purchasers had taken no steps to note their interest on the title.
The court held although all the contracting purchasers were entitled to a purchaser’s lien over the property, only the 3 who had registered the notices of their exchanged contract before the legal charge had priority over the chargee, therefore they would get their money back before Broadoak.
Broadoak would then have their debt repaid and the remaining 46 purchasers would have the remaining surplus due to the fact their notice was registered after Broadoak’s charge. Given that the expected sale price was £4.48 million and the chargee was owed £4,409,593, this was unlikely to leave any surplus for the remaining purchasers.
This decision does not offer any new law, but an illustration of the dangers of purchasing a property off-plan. It also serves as a reminder to the purchaser’s solicitors to register a notice after exchange of contracts to ensure that their client’s interest has priority against any other registered restriction.
Finally, many residential purchasers who purchase off-plan are often provided with a new home warranty provider such as NHBC which protects their deposit, however these schemes have limits to the deposit protected and if you are purchasing with a higher deposit you may find you are not fully protected.
If you need any Commercial Property advice contact our Specialist Team on 0800 088 6004