Property Investors – Make Sure Your Money is Secured From the Outset

Investing in property is very far from being risk free but usually has the advantage that monies advanced are secured against real ‘bricks and mortar’ assets. The crucial importance of ensuring that enforceable security is in place before parting with your money was underlined by a High Court ruling.

The case concerned a company’s purchase of a substantial property with a view to its conversion into a nursing home. Private investors were sought on the basis that they would be granted leases of individual rooms. More than 50 investors, who hoped that the leases would be appreciating assets and generate an income, paid deposits before the company entered administration.

The investors had never in fact been granted room leases and therefore had no legal interest in the property. The only security they possessed were purchasers’ liens in respect of deposits paid. They were secured creditors to the extent that they held equitable charges over the property.

Their security was, however, valueless in that a mortgage that the company had entered into in order to fund the property’s purchase took priority. Some investors took the step of registering unilateral notices at the Land Registry, but none did so before the mortgage was registered.

The property had been purchased for £429,000 but was currently being marketed with a guide price of just £250,000. That sum would be insufficient to discharge the mortgage. Having received an unconditional cash offer for the property, the administrators asked the Court to sanction its sale.

Ruling on the matter, the Court described it as a sad case in which investors had been left high and dry with no hope of recovering any of their money. It served as a reminder of the need for investors to ensure that they have security of commercial value and that the security is registered at the Land Registry when granted. In authorising the administrators to proceed with the sale, the Court found that the transaction would be likely to promote the purposes of the administration.