Overreaching

A situation that can occur when a purchaser acquires an interest from two or more trustees (or a trust corporation) is that a protected interest can be destroyed or diminished by registration of a competing interest by means of a process called overreaching.

In theory, overreaching is limited to protect the interests of the trust beneficiaries (through practice, use common sense) and if the beneficiaries interest is overreached, then they acquire an equitable interest in the sale proceeds received by the trustees anyway.

The protection of trust beneficiaries is discussed in City of London Building Society v Flegg and State Bank of India v Sood. In the City of London Building society case it was decided that when beneficial interests are overreached, they can no longer by overriding interests but the beneficiaries can have a personal claim against the trustee(s). The State Bank of India case was an example of where in some instances, the protection of beneficiaries can be no safeguard at all and concerned the overreaching of beneficial interest on a mortgage. The court unanimously held that overreaching could occur even where no capital moneys arise at the time of execution of the legal charge in a decision that is non-compliant with section 27(2) of the 1925 Law of Property Act though is compliant with the primary purpose of overreaching, which is the simplification of conveyancing.