Mortgage Express v Lambert [2016] EWCA Civ 555 - 

Unconscionable Bargains, Overreaching and the Effect for Lenders


The case of Mortgage Express v Lambert [2016] EWCA Civ 555 came before the Court of Appeal in June 2016 and concerned the status of Mortgage Express’ charge and Ms Lambert’s interest in a property, following the set aside of a sale as an unconscionable bargain. The facts of the case, and its implications for lenders, are worthy of analysis.

Ms Lambert, the Defendant and Appellant, had struggled to pay her mortgage and was facing possession proceedings.  Out of desperation, she entered into a sale and rent back scheme with purchasers (“the Purchasers”) who took advantage of her position, persuading her to sell her flat for £30,000, an amount which fell far short of its actual value of approximately £120,000.

The Appellant remained in the property as a tenant of the Purchasers, who promised her that she could remain there indefinitely: rent free for the first year and then at a rent of £250 per month thereafter. The Purchasers then secured a mortgage loan against the property with Mortgage Express on a buy-to-let basis. During the mortgage process, the Appellant was asked to disclose any rights she had in respect of the property, whereupon she failed to mention her continuing tenancy.  The sale completed with an explicit clause providing for vacant possession on completion.

The Purchasers of the property failed to make the required payments to Mortgage Express and disappeared with the proceeds of the mortgage. As a result, Mortgage Express sought possession of the property. At first instance, Ms Lambert argued that she was entitled to a leasehold interest for a term of years and that the sale should be set aside. The Judge concluded that the sale had been an unconscionable bargain and so the sale should be set aside, but still awarded Mortgage Express possession in accordance with their charge.

The issues that came before Court of Appeal to be considered included whether Mortgage Express’ charge was subject to Appellant’s right to have the sale set aside. The Court of Appeal also considered the legal basis on which the sale may be set aside as the result of an unconscionable bargain and how that right interacted with the system of land registration.

The Appellant argued that she should be returned to her previous position by receiving the flat back free from the mortgage. It was accepted that, in the circumstances, there had been an unconscionable bargain and that, as a result, the Appellant had an equitable right to set aside the sale.

Lord Justice Lewison, who gave the only judgment, considered that the Appellant’s right to set aside the sale could be capable of constituting an overriding interest. He referred to section 116 Land Registration Act 2002, enabling such rights to be binding on third parties, however, he also reflected upon schedule 3, paragraph 2 Land Registration Act 2002, which preserves existing rights, but does not go so far as to create new ones. He concluded that, whilst the charge in favour of Mortgage Express was not subject to unregistered interests under section 29 Land Registration Act 2002, overriding interests (such as a “mere equity” or an unconscionable bargain) could be an exception.

In determining whether the Appellant’s right to set aside the sale should be binding upon Mortgage Express, the court held that it should not, reasoning as follows:

1.       The Court found that the Purchasers had been trustees under sections 34 and 35 Law of Property Act 1925 who had received capital money in the form of the mortgage loan, holding the rights and powers of absolute owners, including the right to charge the estate.  Therefore, the validity of the mortgage could not be questioned in accordance with section 2 Law of Property Act 1925, which provides that a conveyance by trustees to a purchaser of a legal estate overreaches any equitable interest.


2.       Any potential overriding interest held by the Appellant was overreached because her interest was no longer in the land, but instead was now in the proceeds of the loan. It had been argued, on behalf of the Appellant, that section 2(1) Law of Property Act 1925 was not applicable, as it was limited to beneficial interests under trusts. However, Lord Justice Lewison rejected this argument. Accordingly, the decision clearly demonstrates that the concept of overreaching is applicable more widely than just to trusts.


3.       With regards to the issue of whether the Appellant was barred from asserting her right of occupation against Mortgage Express, it was noted that the Appellant had made no mention of her continuing tenancy, despite having the opportunity to do so, before the mortgage was granted.  Because of her failure to disclose this, it was held that she was precluded from asserting this right against Mortgage Express. Accordingly, Ms Lambert’s appeal was dismissed.

The decision in Mortgage Express v Lambert has important implications for lenders, in particular the reminder that the interest of an occupier may be capable overriding a mortgagee’s registered charge if the occupation would have been obvious on a reasonable inspection or if they are aware of the interest. Furthermore, the Court of Appeal’s finding that the rights of a beneficiary under a trust of land, detach from the land on conveyance and attach to the proceeds of sale, is significant and offers protection to lenders, who may not know they are lending to mere trustees.