Can an equitable interest in a house take priority over a legal charge? Nicholas Asprey reports
Take a simple case in which an elderly lady living on her own wishes to raise money for her old age. She owns the house in which she lives. A friend suggests that she sells the house to him and he will rent it back to her at a discounted rent. He assures her that she can remain living there for as long as she likes. The sale price is reduced accordingly.
The purchaser applies for a mortgage loan. He instructs solicitors, who also act for the lender. Other solicitors act for the vendor. The lender is told that the house is being purchased subject to an assured shorthold tenancy (AST) of six month’s duration, but is not told about the promise made to the vendor that she can live there for as long as she likes. The draft contract makes no mention of this promise either.
Contracts are exchanged, the vendor executes a transfer in favour of the purchaser
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