What Happens When A Gift Technically Fails, Can You Cancel A Transfer? Khan v Mahmood & The Perfection Of Defective Transfers

An appeal judgment from 19^th March 2021 considers whether an attempt to abandon a defective transfer can be successful, or whether a defective transfer will assign a party’s equitable interest in a property.

Khan v Mahmood [2021] EWHC 597 (Ch)

Case summary

In 1997, Mr Khan and Mr Mahmood purchased a residential property in their joint names.

In 2007, Mr Mahmood was prosecuted for failing to declare interest in the property while claiming housing benefit and council tax benefit. During the fraud interview, Mr Mahmood claimed that the property was held on a trust for Mr Khan.

In March 2007, Mr Mahmood executed a transfer deed (TR1) – a document used to transfer the legal interest in property at the Land Registry – transferring both party’s legal interest in the property, without any payment, solely to Mr Khan. The cost of completing the transfer was borne by Mr Khan. In turn, both parties believed that the transfer had then been completed and used the transfer deed as evidence in a criminal trial to provide evidence that they had no further interest in the property.

Unfortunately, the transfer deed was completed incorrectly, naming only Mr Mahmood as the transferor rather than both parties as joint owners. This defect was not immediately evident because neither party attempted to register the transfer at the Land Registry. Mr Mahmood was aware of the requirement for registration, however, Mr Khan was not.

Nine years later in July 2020, a dispute arose and Mr Mahmood commenced proceedings. Mr Mahmood asked the Court to abandon the position outlined in the transfer. The Court obtained a declaration that the parties held the property on trust for themselves as tenants in common in equal shares. The Judge, in making this declaration, found the following:

1. A 50% contribution to the purchase price was made (contrary to Mr Mahmood’s assertion that they had provided the entire purchase price); and
2. As the transfer deed was not effective or registered, it had no legal or equitable effect.

An appeal was made and heard this year and it was judged that it would be unconscionable for Mr Mahmood to cancel the transfer, emphasising that the transfer was not a sham transfer. Mr Mahmood genuinely intended to transfer his legal and beneficial interest, and having been shown the transfer, Mr Khan genuinely believed that it was effective. The gift was not judged to be altruistic as Mr Mahmood intended to evade prosecution for benefit fraud, and Mr Khan had paid £400 towards the transfer.

Comment

This judgment highlights a situation where the Courts will use their power to perfect an imperfect gift. This case suggests that the focus in this situation should be on Mr Mahmood’s conduct as donor and assignor, and therefore it did not matter that there was common intention to transfer the property.