Conveyancing Explained : Transfer at Undervalue

Applying to Conveyancing in the UKThe Insolvency Act 1986 empowers courts to set aside any property transfer at undervalue if the donor of the gift of the property subsequently becomes bankrupt, or in the case of a Limited Company, if it goes into liquidation. Conveyancing Solicitors should remain vigilant as to these circumstances, given the consequences to a buyer.

This power to “set aside" operates  for 2 or 5 years depending upon whether or not the person transferring the property is a 'connected person' to the person transferring. A 'connected person' includes a ex-spouse, spouse, partner, relatives, employers and employees. In the case of a Limited Company a 'connected person' or associate would include a Director of the Company.

The Insolvency (No. 2) Act 1994 provides that the purchaser of the property from the person who had acquired it at an undervalue or any subsequent would not be at risk of the initial transaction being set aside providing the property was purchased in good faith and for full value.

Since 2001 the price shown on a transfer of a property will appear on the register of title at the land Registry. A buyer of a property and their Conveyancing Lawyer will therefore automatically be aware of the price shown on the previous transfer of the property. If that price, in the absence of an explanation, is significantly below the true market price at the time the transfer was made, the new buyer could be said to be put on notice that there may have been a transfer at an undervalue. If the new buyer or it’s Conveyancing Lawyers fail to make enquiries there is a risk of a court deciding that the buyer was not acting in good faith for the purposes of the Insolvency Act and of a court order requiring it to transfer the property back.