On most occasions the purchaser’s solicitor has the opportunity to examine the Contracts and Title before his client signs a legally binding Contract of Sale. This is particularly so under the new procedures created by the Law Society in December 2019, where Pre-Contract Requisitions on Title with Replies and vouching documents are furnished with the Contracts of Sale.
On some occasions however, more particularly where lands are sold by a Bank or a Receiver of mortgaged property in arrears, the property is often sold by way of Online Auction, where the purchaser subsequently arrives into their solicitor, announcing that they have purchased a property and paid the deposit. In many such cases the Contract is drawn up totally in favour of the vendor and the purchaser’s solicitor is on the “back foot”: trying to make the “best of a bad lot”. Title issues need to be resolved, but often it is only possible to resolve those issues after the sale has been completed, as there is often a very short time within which to complete the sale. Matters will always be more complicated where the purchaser is relying on a Loan. I cannot state if these were the circumstance in the purchase the subject matter of the High Court on Appeal Decision in the case of Michelle Maher Plaintiff -v- Dublin City Council Defendant Record No. 2022/195CA  IEHC 408, but it certainly seems a lot like it!
Derelict Sites Act 1990 Charge
In this case the property was subject to a Derelict Sites Act Charge, arising from the imposition of a levy by the local Council. At the time of the sale of the land in 2014, the aggregate amount secured by the Charge as of 30 September 2014 had been approximately €37,000, consisting of a levy of €18,575.84 and penalty interest.
Section 24 of the Derelict Sites Act 1990
Section 24 of the Derelict Sites Act 1990 provides as follows:
“(1) Where a derelict site`s levy for a local financial year, or any portion of it, is due and owing, the amount of the levy and the interest due and payable thereon shall, on the date on which it becomes so due and payable, become and shall remain until payment thereof, a charge on the relevant urban land.
(2) Subsection (1) shall not apply in any case where a vesting order is made in relation to a derelict site”.
The Bank Sale
The Mortgage, on foot of which the Bank was selling in this instance, had been created on the 8th October 2007, the Mortgage was registered in the Registry of Deeds on 31 October 2007. The following year, Dublin City Council made demand of the (then) owner of the land for the payment of a derelict sites levy pursuant to the Derelict Sites Act 1990. The demand was for the financial year 2008. The levy was in an amount equivalent to three per cent of the market value of the land. The levy was not paid within the two-month period allowed. The legal consequence of this is that the unpaid levy became a “charge” on the land pursuant to Section 24 of the Derelict Sites Act 1990. The Charge was not registered in the Registry of Deeds until May 2013.
Statutory Power of Sale and Overreaching
Section 21(1) of the Conveyancing Act 1881 provides, relevantly, as follows:
“A mortgagee exercising the power of sale conferred by this Act shall have power, by deed, to convey the property sold, for such estate and interest therein as is the subject of the mortgage, freed from all estates, interests, and rights to which the mortgage has priority, but subject to all estates, interests, and rights which have priority to the mortgage; […].”
In this instance the Bank was selling the property under Section 21 (1) of the Conveyancing Act. Where the Council had only registered it’s Charge in May 2013 subsequent to the Bank’s Mortgage, one might reasonably believe that it would be accepted by the Council that the Bank as vendor in this instance was entitled to overreach the Council’s Charge, so that the purchaser could get title to the property free from all subsequent purchase.
Clarification Requested from Council
The Solicitor for the purchaser wrote to the Council requesting confirmation that the Council accepted that the Bank’s mortgage in this sale “overreached” the Council’s Levy. As noted by Mr. Justice Garrett Simons in the High Court Judgment, the Council’s response was, to put it charitably, unhelpful. The Local Authority refused to say whether the purchaser would be liable to pay the outstanding levy. The approach ultimately adopted by the local authority was to say that athe Bank`s Mortgage “may” have priority over a Charge under the overreaching provisions, but that it was a matter for the purchaser to satisfy themselves as to the precise position in the particular case.
Completion of Sale
The sale of the land closed on 30 September 2014. The following year, the local authority wrote to the purchaser on 30th June 2015 demanding payment of the outstanding derelict sites levy. In effect, this represented a volte face on the part of the local authority. At this stage, the aggregated payment paid by the Council was now a whopping €50,153.42, consisting of a levy of €18,575.34, together with penalty interest of €31,578.08 Interest charged at 1.25 per cent per month or part thereof.
Needless to say, the purchaser’s solicitor must at this stage have been having sleepless nights!
Proceedings were instituted in the name of the purchaser. When heard before His Honour Judge O’Connor in the Circuit Court, he dismissed the plaintiff’s proceedings. The plaintiff/purchaser lodged an Appeal against that Decision to the High Court. Again, throughout this period sleepless nights must have been continuing!
The High Court Decision
Mr. Justice Simons, noting that under Section 21 of the Conveyancing Act 1881, an earlier interest has priority over a subsequently created interest, subject to the rules on registration, noted that the Mortgage in the present case would have priority over the Council levy Charge in circumstances where the Mortgage was created and registered in the Registry of Deeds, prior to the Council Charge arising.
Where the local authority contended that the overreaching provisions were inconsistent with the legislative intent of the Derelict Sites Act 1990, the Judge was of the view that in the absence of express provision for enforcement, it must have been intended by the Government that the normal procedure which is available for enforcing a Charge would apply. In the case of unregistered land, this would involve an application for a Well Charging Order and Order for Sale. In the case of registered land, the holder of a statutory Charge may apply to register the Charge pursuant to Section 77 of the Registration of Title Act 1964 and then seek to enforce the newly registered Charge pursuant to Section 62. The registered Charge would however be subject to overreaching in the ordinary way.
The question of whether a particular estate, interest or right has priority over a statutory Charge (in this instance the local authority levy) will require consideration of the timing of the creation and registration of that estate, interest or right relative to the timing of the creation and registration of the statutory Charge. The Judge concluded that, on the facts of the present case, the Mortgage had priority over the levy charge in circumstances where both the creation of the Mortgage and its subsequent registration in the Registry of Deeds predated the Council Charge. It followed therefore, that the Council Charge was overreached on the sale by the Mortgagee (the Bank) and that the purchaser was not liable to pay the outstanding Derelict Sites Levy.
There can be no doubt that all of this was very worrying for the purchaser’s solicitor. Having been given no assurance by the local authority at the time of completion of the purchase, it is assumed that he had no alternative but to complete the purchase. Having completed the purchase, he was then notified of the fact that the Council was now demanding the payment of the levy from the purchaser. At an interest rate of 1.25% per month the interest on the aggregate amount was going to increase substantially as time went on.
The purchaser, through the solicitor, had no alternative but to issue Proceedings but, having done so, the Proceedings were dismissed in the first instance by the Circuit Court. It was only when the matter came before the High Court, with all of the cost and worry of such High Court Proceedings, that Mr. Justice Simons decided in favour of the purchaser.
When solicitors are asked to give Estimates of Costs to their purchaser client, we will always (or should always) make provision for the fact that unforeseen matters could arise. Purchasers will often ask “What could possibly go wrong?”. Let this case be a salutary lesson to all!
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