A common scenario which I have come across when acting for mortgagees in connection with property sales by them involves the following entries at the land registry:
Charges Register:
1. Equitable charge in favour of Random Name Limited.
2. Legal charge in favour of our client.
The question is which one has priority and will be entitled to take the funds due to it first when the property is sold? Many conveyancers do not know the answer to this and the position is not as simple as it may seem.
In the above scenario, the answer is: it depends. It depends on the date each charge was created and the type of charge, i.e. whether the charges are legal or equitable. 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 position above 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 10th January 2010 but the legal charge was created on 9th January 2010, the legal charge has priority despite the fact that the former was registered first. The relevant 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.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
