The starting point is that if a lender does not register its charge at the LR, then any subsequent registered charge will have priority. But, as always, there are exceptions. One of those relates to subrogation. 


What happened in a recent case, was that the Halifax lent to a buyer. The Halifax’s charge was registered. The buyer then went to Bank of Scotland for a better mortgage deal, and so Bank of Scotland lent money which paid off the Halifax’s loan. But, Bank of Scotland failed to register their charge. In due course, a secondary lender lent money on a second charge, and that was registered (before the Bank of Scotland realised its mistake, and registered its charge). 


Who had priority: was it Bank of Scotland, or was it the secondary lender? Contrary to what might have been expected, the court held that Bank of Scotland had priority over the secondary lender. This was because of ‘subrogation’. 


Subrogation may entitle a lender who has made advances, which had been used to discharge a debt owed to another lender, to step into the shoes of the other lender as far as the security is concerned (thereby gaining priority over other lenders). The logic of this is primarily intended at preventing unjust enrichment (ie it would basically be unjust if Bank of Scotland did not receive the security it had bargained for when it advanced the money to the borrower, and which merely provided a windfall for the secondary lender). Against that, one would surely have thought that Bank of Scotland was the author of its own misfortune in having failed to register its charge at the LR. However, the court disagreed; in its view, subrogation prevails over the Land Registry regime. 


The end result was that Bank of Scotland had priority over the secondary lender. See Anfield v Bank of Scotland [2010] EWHC 2374 (Ch) (access free at www.practicalconveyancing.co.uk). Source: Olswang.