The High Court decision in Credit & Mercantile plc v Kaymuu Ltd and others provides useful guidance to lenders seeking to defeat an occupier’s claim that their beneficial interest takes priority to a charge provided by the lender.

In this case the occupier (the Occupier) relied on a third party (S) to purchase property for his benefit. Then unbeknown to the Occupier, S purchased the property in his business’s name and obtained a loan which was secured over the property.  The Occupier took no part in the purchase of the property and allowed S free rein in the acquisition of the property.

The court held that, although the legal title to the was in the name of S’s business, the beneficial interest in the property was held by the Occupier as a result of an agreement between the Occupier and S. It was also accepted that the Occupier and his partner had been in actual occupation at the time when the charge was granted and that the lender was not aware of the Occupier’s occupation following a survey of the property.

In relation to whether the Occupier was bound by the lender’s charge the court held that, by not involving himself in the mechanics of the purchase, the Occupier had given S full authority to represent himself as the beneficial owner of the property with full authority to deal with third parties.

Therefore S was the agent of the Occupier and the acts of S were enforceable by the lender against the Occupier. Consequently, the lender’s charge was binding on the Occupier and the lender was able to recover the full value of the loan from the proceeds of sale. 

The Occupier would not have been bound by S, acting as agent, and he could have protected his position, by bringing his interest to the attention of the lender before the charge was granted.

This ruling demonstrates the possibility of defeating an occupier’s claim to proceeds of sale, by showing that the mortgagor acted as agent of the occupier. However it should also serve as a reminder to lenders to be vigilant for the presence of occupiers when surveying properties to avoid entitlement disputes later.