As a legal advisor in the recent Sky Apartments case, it was a pleasure to be part of the team that ensured the successful redevelopment of the student accommodation building in order to get it back on track.
Sky was a challenging and complex project which required input from a substantial number of professionals to achieve the results for the investors; and from a legal perspective now a reported case of importance to insolvency, property professionals and litigators with regards to the importance of protection of interests by registration.
Case Summary
As an overall summary, the matter was heard on 1 April 2022 before HHJ Halliwell, who gave directions as to how the proceeds of sale were to be distributed following the disposal of the development by the administrators.
The court was also asked to decide whether equitable liens arising from unregistered agreements for lease were binding on a subsequent purchaser who was aware of their existence; of which it was held that they were not.
With regards to the background of the case itself, multiple investors from across the world had purchased off-plan student accommodation units in the ‘Sky Building’ development at Jubilee Baths, Brunswick Street Newcastle Under Lyme. This particular development was transferred in May 2018, as part of a wider transaction to Sky Apartments 2018 Ltd (‘Sky 2’). At the time of transfer, some of the investors had protected their agreements for lease via an entry at the Land Registry, but others hadn’t.
Sky 2 then went into administration in February 2021. In October 2021, an order was obtained by the administrators permitting disposal of the development free of the equitable liens arising out of the agreements for lease. Directions were also sought as to how the proceeds of sale were to be distributed.
Groups of investors then disputed their entitlement to the proceeds of sale, with some who registered their interest prior to May 2018, and others who had done the same but registered them later; arguing that the transfer in May 2018 was not for valuable consideration.
The court decided however that there was valuable consideration for the transfer and that whilst the purchase price of £2.5m had not been paid, it was held that consideration had been given for the following reasons:
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The transfer unreservedly contained a promise to pay £2.5m
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Sky 2 had entered collateral obligations as part of a wider transaction contained in a deed of consolidation
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Consideration was provided by Sky 2 assuming responsibility of the development, subject to the covenants in the leases that had already been completed.
What does this mean going forward?
From a conveyancing perspective, this matter serves as a reminder of the absolute importance of protection of interests by registration. An unregistered interest can be lost to a subsequent purchaser for valuable consideration, as per section 29 of the Land Registration Act 2002, even one that has notice of the interest.
It also gives guidance as to what may constitute valuable consideration, and that that even where a stated price has not been paid as such there may however be consideration arising from the undertaking of collateral obligations to third parties.
Finally, it serves as an example of the very limited circumstances in which the court will impose a constructive trust on a purchaser for valuable consideration who has notice of an unregistered interest.
The full case judgment can be read here: Sky Apartments 2018 Ltd (in administration); Fish and another (as joint administrators of Sky Apartments 2018 Ltd) v Sky Apartments 2018 Ltd (in administration) and others
Mark Hague, Associate Partner – Insolvency & Litigation, Farleys Solicitors