Lenders v Non-Owning Occupiers: The Need For Occupiers To Waive Their Interests

Introduction

When a lender takes security over property, it seeks to

ensure that it can realise its security, including the ability

to be able to ultimately sell the property. As part of this, a

lender will want to ensure that no one has a prior interest

ahead of the lender.

Lenders have become increasingly cautious about non-owning

occupiers (for example, a spouse who does not co-own the

property, but is in actual occupation) and the potential for

them to have beneficial interests, which will bind a lender.

This article considers the case law in this area and the need

for non-owning occupiers to execute documentation which will

have the effect of waiving their interests to ensure that the

lender's interest will rank in priority to that of any

interest held by a non-owning occupier.

Interests Which Bind

Williams & Glyn's Bank Limited v Boland

[1981] AC 487 demonstrated the problems caused by non-owning

occupiers. In this case Mr Boland was the registered proprietor

of the property, but Mrs Boland (who was not a registered

proprietor of the legal estate) also occupied the property with

Mr Boland. Mrs Boland was held to have an equitable interest in

the property as she had contributed to the purchase price.

Consequently, when Mr Boland defaulted on his mortgage, the

lending bank who had secured its interest on the property, was

not allowed to assert its interest in priority

to Mrs Boland's interest. The court held that Mrs Boland

had an overriding interest which ranked in priority to the

interest of the lender.

In Boland, title to the property was registered,

however, case law has held that the situation will be similar

for unregistered land, as long as the lender has notice of the

non-owning occupiers' interest in the property

(Kingsnorth Finance Limited v Tizard [1986] 1 WLR

119). As a result, a lender should always make enquiries as to

who will occupy the property on completion, in order to

ascertain whether there will be any potential prior interest,

which might affect its security.

Protecting The Lender

Subsequent to both Boland and Tizard,

Bristol and West Building Society v Henning [1985] 1

WLR 778 considered the position where a non-owning occupier had

notice of the fact that a mortgage was being obtained. In this

case, Mr Henning purchased a property by obtaining a mortgage

from the claimant lender. However, Mrs Henning was in actual

occupation and had contributed to the purchase price, and

therefore had an overriding interest.

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