Key Point

In certain circumstances, a purchaser’s deposit may constitute an equitable lien upon the liquidation of the seller.

The Facts

An application under s112 IA 1986 was made by the joint liquidators of Alpha (Student) Nottingham Ltd to determine whether the purchasers of unbuilt flats had the benefit of equitable liens, and therefore ranked as secured creditors in the liquidation.

The leases, for which the purchasers had paid deposits, were entered into ‘off plan’, but beyond the demolition of the buildings previously occupying the site, no construction work had taken place. Each contract annexed a floor plan detailing the specific flat purchased. In light of this, if equitable liens existed, the joint liquidators also sought guidance on what land those liens attached to.

Decision

The court ruled that:

  • Equitable liens existed.
  • The liens attached to the land forming the subject matter of each lease, rather than the site as a whole (the latter position being the one adopted by the purchasers).
  • In light of ‘2’, there was no question of competing priorities between the liens, and the purchasers ranked equally with one another to be paid pro rata out of the proceeds of sale.

Alpha Student (Nottingham) Ltd (In liquidation) v Eason and another [2017] EWHC 209