(1) Georgina Eason (2) Michael Sanders (as joint Liquidators of Alpha (Student) Nottingham Ltd) v Anthony Yiu-Wing Wong [2017] EWHC 209 (Ch)

Purchasers of leases “off-plan” have been found to have interests in the air-space where their flats would have been built.

Contracts for the sale of residential leases in a development were entered into “off-plan” between the developer, Alpha (Student) Nottingham Ltd (“Alpha”), and the various purchasers before Alpha went into liquidation. No works had commenced at this point beyond demolishing the existing building on the redevelopment site (the “Site”).

The purchasers argued that they held an equitable lien or charge over the Site by virtue of their contracts and deposits paid. Such a charge would rank them as secured rather than unsecured creditors in the liquidation which was crucial given that the Site was Alpha’s sole asset (albeit valued much lower than the total sums due to the purchasers).

Whilst accepting that such equitable liens could exist the liquidators argued that they were unenforceable on the basis that specific performance of the contracts was impossible where the development works had not been completed and the leases never came into existence. There would also be practical difficulties of enforcement where each lien attached to the whole of the Site. The liquidators sought a declaration from the Court confirming this, so that they could proceed with distribution of assets based on the purchasers ranking as unsecured creditors.

Referring to a number of authorities on the matter, the Court confirmed that:

1. where a purchaser has paid its purchase money (even if part only as in this case) pursuant to a sale contract this entitles him or her to a lien over the property in respect of the monies paid. It is as if, upon payment or part payment, the seller executed a mortgage to the purchaser over the land in question in respect of the monies paid

2. the existence of the lien was dependent on the contract being in relation to specific identifiable property

3. the lien would not attach to the whole of the seller’s interest but to that specifically identified property (which could be the same but not necessarily). In this case the lien attached to the air-space in which the property referred to in each contract would be occupying had they been built

4. the existence and enforceability of the lien was not dependent on the availability of specific performance as a remedy for the purchaser (i.e. the building did not need to have been fully or partially completed)

The Court concluded that the proceeds of the sale of the Site should be distributed amongst the purchasers having first removed from the sum the amount attributable to Alpha’s interest in the unsold leases, ground floor retail properties and the basement (equating to approximately 5% of the proceeds of sale).

Key points

The court in an earlier judgment had found that the unilateral notices registered by the purchasers should be removed to allow the liquidators to sell the property. This second instalment will be a welcome decision for the off plan purchasers, and for others who encounter difficulties with an insolvent developer.

Purchasers in similar situations should note that it was crucial in this matter that each of the sale contracts specifically identified the land demised by the lease which was going to be transferred upon sale and also that deposits had been paid.