PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
A recent case dealt with the thankfully rare circumstance of someone buying a property without knowing that the vendor is a bankrupt.
When the buyer bought the property, the search of the title at the Land Registry did not show a ‘bankruptcy restriction’. In these circumstances, the buyer has a six-week period to register the title in their name and to have priority over any other claim to the property.
In this case, the buyer did not register her title within six weeks. In the meantime, the bankruptcy restriction was entered against the title. Once a bankruptcy restriction has been entered, a property cannot normally be registered in another name until after the title has been registered in the name of the trustee in bankruptcy (the trustee).
However, the Land Registry then entered the buyer as the registered proprietor of the property and cancelled the bankruptcy restriction.
Was the Land Registry right to do what it did?
Under insolvency law, the assets of the bankrupt pass to the trustee immediately. In slightly simplified terms, under the Land Registration Act 2002 (LRA), where land is purchased from a bankrupt, if the purchase is made in good faith and the purchaser has no knowledge of the bankruptcy, the title of the trustee is void as regards the purchaser.
In this case, however, the bankruptcy restriction had been registered before the purchaser sought to register her title. It was argued that the buyer had not been unfairly prejudiced because she could have obtained good title to the land by registering her title within six weeks of completion.
The High Court did not accept this argument, concluding that the protection offered under the LRA applies at the date of ‘disposition to the buyer’, not the date of registration of the title.
The case will come as a relief to buyers, but will no doubt encourage insolvency practitioners to make sure that the registration of a bankruptcy restriction is done promptly.
For the purchaser of a property, the moral is to get the title registered promptly in order to avoid unexpected court proceedings.