In this case, the Court considered whether the interests of a husband’s creditor in the family home take preference over those of his wife and children.
The Claimant, Fred Perry (Holdings) Ltd obtained a judgment against Mr Genis for damages as a result of him selling counterfeit goods. They subsequently obtained three charging orders against his family home, Fallowfield in Mill Hill, London (“Fallowfield”). Mr Genis is the sole legal owner of Fallowfield however his wife, Mrs Genis, contributed £100,000 to the purchase price and also paid the monthly instalments of the first mortgage. In addition to her beneficial interest, Mrs Genis registered a home rights charge under section 30 of the Family Law Act 1996 against the title of Fallowfield. Mr and Mrs Genis (the “Defendants”) purchased Fallowfield so that their children, aged 9 and 14, could attend a specialist school in the area.
The Defendants failed to satisfy the outstanding debt owed to the Claimant and had no means of doing so. Accordingly, the Claimant applied for an order for sale of Fallowfield under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 and an order to terminate Mrs Genis’ home rights interest.
The Court granted the Claimant an order for sale of Fallowfield, to be deferred for a period of 12 months. The Court also ordered that Mrs Genis’ home rights charge would be terminated. In reaching this conclusion, the Court considered the following issues:
a) Trusts of Land and Appointment of Trustees Act 1996 (“TLATA”)
Section 14 TLATA states that “any person who is a trustee of land or has an interest in property subject to a trust of land may make an application to the court for an order under this section”. This provision gives the Court the discretion to make an order relating to the exercise by trustees of any of their functions, including an order for sale. The discretion is limited by Section 15 TLATA which requires the Court to consider, and balance, the following factors when making a decision:
• the intentions of the person(s) who created the trust
• the purposes for which the property subject to the trust is held
• the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home; and
• the interests of any secured creditor of any beneficiary, when reaching a decision.
The Court held that despite Mr Genis being the sole legal owner of Fallowfield, the property was held beneficially by both Defendants. On this basis, the Claimant was entitled to apply for an order for sale under Section 14 TLATA. In deciding whether to exercise their discretion, the Court reviewed the interests of all the parties involved and considered relevant past case law. They referred to the decision in Bank of Ireland Home Mortgages Ltd v Bell  2 FLR 809 in which the Court held that commercial interests are to be given precedence over the security of the family occupying the property. On this basis, the Court held that, on application of Section 14 and 15 TLATA, the Claimant’s interests should be given priority and an order for sale should be granted.
b) Family Home Act 1996 (“FLA”)
Mrs Genis registered a home rights charge under the FLA against the title for Fallowfield. This charge ranked in priority of the Claimant’s charging orders (as they were registered after the home rights charge). In light of this, the Claimant requested that the Court exercise their powers under Section 33 and 34 of the FLA which enables them to terminate a home rights charge if they deemed it just, and reasonable, to do so.
When deciding what was just and reasonable in the circumstances, the Court again considered the competing interests of all the parties. They found that the balance weighed in favour of Mrs Genis and the needs, and security, of her family. Despite this, the Court concluded that it was just and reasonable to terminate Mrs Genis’ home rights interest on the basis that if they were not to do so it would create an anomaly, which could not be justified. The reasoning was as follows; if the Court were unwilling to discharge the home rights interest then this would result in a spouse/civil partner who does not have the benefit of a registered home right, and therefore whose case is solely dealt with under TLATA, being treated differently. The Court held that these types of cases should be treated the same and therefore that Mrs Genis’ home right should be discharged and an order for sale granted, albeit that this should be deferred to allow the family time to relocate.
This finding is a positive result for secured creditors who face challenges when enforcing their security from spouses, or civil partners, who have registered interests in a property. In light of the requirements under TLATA and FLA for the Courts to balance the competing interests of the parties, each case will turn on its own facts, however this case has confirmed that if the sale of a family home falls to be determined under sections 14 and 15 of the TLATA, a commercial creditor’s interests will usually be given priority over a family in occupation of the property. Further, if a home rights charge has been registered that this will not normally defeat a commercial creditor’s interests, even if there are children occupying the property.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.