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Paper 1 · Lesson 3 — Interests in Land, Mortgages and Caveats — priorities

Interests classification

Classifying interests in land — legal vs equitable, present vs future — and what each entails.

2 questionsAnswers & explanations includedFree — no sign-up

Question 1

Two lenders advance similar sums to the same borrower within a few months of one another. Under the first arrangement the lender, a bank, takes a mortgage over the borrower's flat which is duly registered against the title. Under the second, a finance company simply advances the money against the borrower's signature on a promissory note and takes nothing at all by way of security, having been satisfied by his income and his employment record. The borrower has now defaulted on both, and each lender is considering what it can do.

Consider the following statements.

  1. (i) The second lender may realise the flat on default.
  2. (ii) The second lender has a claim against the borrower personally.
  3. (iii) The first lender may realise the flat on default.
  4. (iv) The first lender has an interest in the flat.
  1. A. (i), (ii), (iii) and (iv)
  2. B. (i) and (iv)
  3. C. (ii) and (iii)
  4. D. (ii), (iii) and (iv)
Show the answer and full explanation

Answer: D

The rule. A secured lender has an interest in the property and may realise it. An unsecured lender has a personal claim only.

Why D is correct. (ii), (iii) and (iv) hold. (i) is false.

The other options.

  • B and A carry the false (i).
  • C drops the correct (iv).

Exam note. Third appearance of this distinction, now framed as what each lender can *do*.

A secured lender has an interest in the property and may realise it →

Question 2

A property is transferred in three ways in the same year. In the first, it is sold to a buyer who pays the market price and knows nothing of an equitable interest affecting it. In the second, it is given outright to a relative. In the third, it passes to a beneficiary under a will.

Consider the following statements.

  1. (i) The paying buyer takes free of the equitable interest.
  2. (ii) A person must both give value and take without notice to do so.
  3. (iii) The relative receiving the gift takes free of it.
  4. (iv) The beneficiary under the will takes free of it.
  1. A. (ii), (iii) and (iv)
  2. B. (i), (iii) and (iv)
  3. C. (i) and (ii)
  4. D. (i), (ii), (iii) and (iv)
Show the answer and full explanation

Answer: C

The rule. A purchaser takes free of an equitable interest only if he gives value and takes without notice. A donee and a beneficiary give no value.

Why C is correct. (i) and (ii) hold. (iii) and (iv) are false.

The other options.

  • B, A and D each admit the donee or the beneficiary.

Exam note. Both limbs are required. Someone who pays nothing cannot take free however innocent.

A purchaser takes free of an equitable interest only if he gives value and takes without notice →

Practise it under exam conditions

Single questions test whether you know a rule. The paper tests whether you can find it in a scenario, at speed, with three plausible alternatives in the way. Start with the free 20-question half-paper.

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