What if your dream home was acquired via someone else’s crime?

The High Court heard a case highlighting the complex interplay between property law principles, contract law, and the powerful reach of Part 5 of the Proceeds of Crime Act (POCA) 2002 when acquired assets are linked to criminal conduct.

Background:

At its heart, the case concerns a property in Leeds bought by a Mr. Hussain, who has since accepted that the property was obtained by criminal conduct, thereby making it "recoverable property" under the POCA  2002. The property was subject to a registered charge in favour of the Royal Bank of Scotland Plc. 

The National Crime Agency (NCA) claimed that the property was acquired through unlawful conduct, specifically money laundering, although the current occupant, Mrs. Katung, was not aware of any criminal activities of the previous owner, Mr. Hussain. Mrs. Katung agreed to purchase the property in 2015 for £1,000,000, paying a substantial deposit of £400,000. The balance of £600,000 was payable on the due completion date. The deposit was transferred in increments from the bank account of Mrs. Katung's company, 1st Resource Consultancy Ltd. Although the deposit was supposed to pay the balance of the mortgage, Mr. Hussain did not transfer it for said purpose. 

She then occupied the property as a "lodger" and later failed to complete the purchase, despite being given extensions. They reached an oral agreement that she would remain in the property and pay council tax, insurance premiums and mortgage instalments, which she did until December 2019. On 3 July 2020, Mrs. Katung registered a unilateral notice in respect of the sale agreement on the Charges Register for the property. Between February 2021 and April 2025, a total sum of £276,081.36 was paid in respect of mortgage instalments by the NCA. In the interim, Mrs. Katung and her family were living at the property, largely free of charge.

The NCA subsequently obtained a Civil Recovery Order (CRO) vesting the property in them. Mrs. Katung resists the NCA's claim, primarily arguing that she holds a beneficial interest in the property, at least to the extent of her £400,000 deposit.

Decision: 

The High Court ruled that Mrs. Katung did not have a beneficial interest in the property, as the deposit she paid did not confer such an interest. Consequently, the NCA was entitled to a CRO and possession of the property. The Court reached this conclusion by noting that the payment of the deposit, even a very large one, did not create a separate beneficial interest in the property, as it was simply a contractual payment towards the eventual acquisition of the full legal interest.

Under Section 245 POCA, “associated property" must be a proprietary right recognisable in law or equity. As the deposit is not an interest in the land, it could not be "associated property" for POCA purposes. 

The Court agreed with Mrs. Katung's counsel that the £400,000 deposit was an "unusual deposit" and likely a penalty clause because it significantly exceeded the conventional 10% and there were no special circumstances to justify it, referencing Workers Trust & Merchant Bank Ltd v Dojap Investments Ltd. However, this finding provided no relief against the NCA.

Furthermore, the Court found that the funds used for the deposit were obtained through an unlicensed money exchange business, which constituted unlawful conduct. 

Mr. Justice Jay also noted that “I do not particularly wish to rub salt into Mrs. Katung's wounds, but I have to say that her solicitors gave her egregiously bad advice. The deposit was atypically and unreasonably high, and the buyer was being informed in terms that the mortgage debt was above £1,000,000. Mrs. Katung may have thought that she was getting the property at a good price, but the overall deal was, in my opinion, an unacceptably bad one.”

Implications:

This judgement reinforces a fundamental principle of property law:- A buyer's equitable interest in a property under a contract for sale is conditional. If the buyer defaults and a valid notice to complete is served and expires, that equitable interest is extinguished. The deposit, while often a significant sum, remains a contractual payment, not a direct proprietary interest in the land itself, unless specifically structured as such (e.g., as part of an option agreement or declaration of trust).

Moreover, the strict interpretation of "associated property" under Section 245 of the POCA has significant implications for those dealing with property subject to civil recovery orders. It confirms that the term refers to proprietary rights, not mere personal contractual claims, such as a right to the return of a deposit. This limits the avenues for third parties to assert interests in criminally tainted property where their interest is not a direct proprietary stake.

The Court also warned against deposits significantly exceeding the traditional 10%, although context is always relevant. If a deposit is deemed a penalty, the seller (or, in this case, the NCA stepping into the seller's shoes) might only be able to retain 10% automatically, with the remainder potentially recoverable by the buyer although, crucially, this would be a personal claim against the seller, not a proprietary claim against the property itself.