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A scenario which I have come across when acting for lenders in connection with property sales involves the following entries at the Land Registry:
Charges Register:
1. Equitable charge to ABC Limited.
2. Legal charge to our lender client.
The question is, which one has priority and will be entitled to receive the funds due first if the property is sold? I have discovered that many conveyancers do not know the answer to this and in all honesty, the position is not as simple as it may seem. It is however a very important point, especially if there is insufficient equity to repay both and for example, our client has taken possession to sell the property.
In the above scenario, the answer is that further information is required. It depends on the date each charge was created. Notice that I said “created”, not “registered”. Unlike registered legal charges, an equitable charge is not afforded any priority against competing financial charges on the basis of when it was registered against the title alone.
Had the above entries been reversed, the legal charge would always have priority regardless of when it was created.
The date of creation is the important date when considering an equitable charge. If the equitable charge was created on 8th February 2015 but the legal charge was created on 7th February 2015, the legal charge would have priority despite the fact that the former was registered first. The main statutory provisions for this are Sections 28 and 32 Land Registration Act 2002 (“LRA”).
If the equitable charge was created and registered before the legal charge, it would have priority as registering it against the title preserves any priority it may have.
When dealing with competing legal charges, the position is much simpler in accordance with section 48 LRA in that the first registered charge has priority.