An intention to transfer is not sufficient to claim lost property
The recent case of Lizzium Ltd v The Crown Estate Commissioners serves as a useful reminder to professional advisers to ensure that no land is overlooked when carrying out restructuring exercises in relation to property ownership. These typically occur where an overseas company holding title to property is put into liquidation and its assets transferred to individuals. The case shows the courts taking a narrow approach and holding that there must be a legal right or entitlement to land at the point of a company's dissolution to lead to the court making a vesting order to an applicant; an intention to transfer will not be sufficient.
What is escheat?
The case centres around the doctrine of "escheat", a remnant of English land law and its feudal traditions. Broadly, it occurs when the freehold interest in land is somehow determined and entitlement to possession of the land passes to the Crown (or in some cases, the Duchies of Cornwall or Lancaster). The usual triggers for this are:
- disclaimer by the Treasury Solicitor (in cases where the freehold has vested in the Crown by bona vacantia)
- disclaimer by a trustee in bankruptcy or liquidator, or
- as was the case in the Lizzium case, the dissolution of a foreign company holding the freehold to land in England and Wales.
The Crown is, among other things, able to dispose of escheat property.
What is the position of dissolved companies?
Under the Law of Property Act 1925 a legal estate in land determined by escheat can essentially be recreated by court order and vested 'in the person who would have been entitled to the estate which determined had it remained a subsisting estate' at the point of dissolution, thereby effectively restoring the position prior to the dissolution. The power of the court to make such an order is discretionary.
As a result, it is possible to reverse the effect of escheat where it arises from the dissolution of a foreign company by resurrecting that company.
Lizzium Ltd v The Crown Estate Commissioners – the basic facts
- The applicant, a company incorporated in Jersey (Lizzium), was a shareholder in Clairvale Ltd, a company incorporated in Gibraltar (Clairvale). Clairvale held the freehold title to property near Newmarket.
- Clairvale was dissolved while being the legal owner of the property. The freehold to the property consequently determined and the land was vested in the Crown by virtue of escheat.
- A vesting order was sought from the court to create a corresponding legal estate under the 1925 Act. Lizzium argued that the vesting order should be made to them because the intention in 1997 (prior to the dissolution of Clairvale) had been to transfer the property, along with other land, to Lizzium. This had not happened in reality; only the other land was transferred from Clairvale to Lizzium due to an administrative error.
- While the Crown did not oppose the claim, there was an issue as to which claimant the property should had revested in. Although the person to whom a vesting order may be made is not always limited to the legal owner, that person must have been entitled to the estate which determined; for example, vesting orders had been made in the past to a party previously granted an option to purchase a piece of land.
- The court was willing to make an order vesting the property in Clairvale, but not Lizzium. It held that, on a narrow construction, "would have been entitled" under the 1925 Act refers to legal entitlement. An intention to transfer the land in question to the applicant will not be sufficient – the applicant must evidence that it held a legal right or entitlement to the land on the day of the dissolution of the company. As Lizzium had not evidenced this, a vesting order was not made to it.
- The judgment in Lizzium shows that the court is willing to interpret the relevant section of the 1925 Act narrowly – a legal entitlement to the freehold needs to be shown. In this instance, the intention to transfer the legal ownership was not enough. Clearly there is strong impetus to have escheat property revested, as the Crown may otherwise dispose of the property.
- There is a useful lesson for landowners and intermediaries here. The potential for frustration for clients, both from a time and costs perspective, involved in the investigation of the history of the matter is real where escheat property is involved. The need to engage overseas counsel for restoring the company can exacerbate this. It is therefore crucial when restructuring involves multiple freehold titles to:
- establish all UK property assets to which company holds the legal title when restructuring or winding up by carrying out the necessary searches at the Land Registry and keeping up-to-date records as to ownership
- liaise at an early stage during that process with estate managers, land agents and counsel to ensure pieces of land are not inadvertently missed off during the restructuring.