The Supreme Court has dismissed the appeals in the case of Scott v Southern Pacific Mortgages Ltd in which Lesley Anderson QC and Daniel Gatty of Hardwicke appeared (opposing the appeal) for the Interveners, The Mortgage Business plc, part of the Lloyds Banking Group. They were instructed by Richard Pitt of Eversheds LLP.
The Supreme Court’s decision is the final stage of the North East Property Buyers Litigation, a group of test cases concerning sale and rent back transactions. In sale and rent back transactions, of which there were many thousands in the 2000s, an owner-occupier sells their house to an investor who then rents it back to them. The issue in the test cases was whether a bank which lent money to fund such a purchase, not knowing that the former owner would continue in residence as a tenant, was bound by promises made by the purchasers to the occupiers. The issue arises where, as in all of the test cases, the purchaser has defaulted on the mortgage and the mortgage lender brings possession proceedings, to be faced by an occupier claiming to have been made promises when they sold the house that they could continue to live there for many years or for life.
In 9 test cases arising out of sale and rent back purchases made by a firm named North East Property Buyers which were heard together in 2010, the High Court held that the mortgagee banks were not bound by any interests in the properties arising from such promises [see Re North East Property Buyers Litigation  EWHC 2991 (Ch)]. The occupiers in four of the test cases appealed to the Court of Appeal which dismissed their appeals [see Cook v The Mortgage Business plc, sub nom The Mortgage Business plc v O’Shaughnessy  EWCA Civ 17,  1 WLR 1521]. The occupiers were granted permission to appeal by the Supreme Court. By the time of the hearing before the Supreme Court in March this year, only one of the appeals was still live, the case of Scott v Southern Pacific Mortgages Ltd. Although the appeal in Cook v The Mortgage Business plc had been withdrawn before the hearing, The Mortgage Business plc was given permission to intervene in the appeal in Scott in order to oppose it. Mortgage Express which had been involved in one of the cases in the High Court that settled subsequently and was permitted to intervene in the Court of Appeal was also a respondent in the Supreme Court.
The Justices unanimously accepted the lenders’ argument that promises made by a sale and rent back purchaser could not give rise to proprietary interests in the property until after completion of the purchase. In the light of the House of Lords decision in Abbey National v Cann, the lender would not be bound by interests in the property arising after the simultaneous completion of the purchase and mortgage which were not permitted under the mortgage terms.
The outcome of the appeal has been eagerly awaited, especially by mortgage lenders many of which will have lent on what turned out to be sale and rent back transactions. It is believed that many hundreds, perhaps thousands, of possession claims or potential claims are on hold, pending the decision of the Supreme Court.
Daniel Gatty of Hardwicke appeared not only in the Supreme Court but also at the High Court and Court of Appeal stages of the proceedings.
For further details, please view the judgment in Scott v Southern Pacific Mortages Ltd.