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« The third real estate forum : Mortgage Lending in Europe »

by Francis Wallace, LL.B, sollicitor at Uckfield

LAW OF LAND REGISTRATION AND MORTGAGES IN ENGLAND AND WALES
________________________________

WARNING: the material contained in these notes is a simplified guide to some of the major topics in English land registration and mortgage law.  It is not intended as a substitute for legal advice on individual transactions, and does not necessarily stand on its own.  Whilst the contents are believed to be correct, the author cannot accept any responsibility for errors or omissions.

1.  INTRODUCTION TO ENGLISH LAND LAW

It is necessary to explain some basic concepts of English land law, before describing the system of land registration. 

1.1 There is a distinction between legal interests and beneficial interests.  The legal interest in land is the interest which belongs to the person whose name appears on the title.  The beneficial interest maybe different.  That is the right to take the benefit from the land, which may mean using it, take the rents from it, or taking a share of the sale proceeds.  Frequently, the legal owner holds the beneficial interest as a trustee, on behalf of the beneficial owners. 

 The details of beneficial interests and beneficial owners are separate from the legal title and a purchaser of land which not be concerned with them.  A purchaser will only deal with the legal owner. 

1.2  Freehold interests 

A freehold interest in land is the ultimate type of ownership.  This normally means that the proprietor owns the land indefinitely.  The land may be subject to a lease or tenancy (these are two words which mean the same thing), but the freehold owner (freeholder) collects any rent during the lease, and when the lease ends, the freeholder takes the land back, and can occupy it himself.  Many legal texts refer to the ”freehold reversion”, where a lease exists.  The freehold reversion is owned by the freeholder, and one can say that the land ”reverts to” the freeholder absolutely, when the lease ends.

1.2.2  Another word for freehold is ”fee simple”.  This is an old fashioned word, but one will still meet it in many text books. 

1.2.1  Not all land in England and Wales is registered.  About 80% is now registered, and this proportion is increasing.  If the land is not yet registered, then the owner normally needs to prove that he has a good ”root of title” which is at least 15 years old, in order to have a good and saleable freehold interest in land.   Various legal documents can amount to a root of title.  The commonest one is a conveyance on sale.  A conveyance is a legal document which passes ownership from a vendor (seller) to a purchaser (buyer).   A conveyance on sale of unregistered land gives rise to an obligation to register the land. 

1.3 Leasehold interests

A lease, or tenancy agreement, is a document under which a landowner (or landlord / lessor)  agrees to allow a tenant (or lessee) to occupy the land for a period of time.  Normally a rent is charged.  A lease may be granted by a freeholder or by a tenant who creates a sub-lease out of his leasehold interest. 

1.3.1  English lawyers say that a lease, or leasehold interest, has to be ”carved out” of a superior title.  The superior title can be the freehold, or a superior lease (headlease).

1.3.2  Here is an example.  A freeholder , Portland Properties plc, owns a piece of land which contains an office building.  It grants a 21 year lease of the whole building to a tenant,  Green Stockbrokers Ltd.    Green then grants a sub-lease for 10 years to Mr Jones, of the first floor of the building only.  Green is the head tenant or head lessee.  Mr Jones is the sub-tenant or sub-lessee.  Green must pay the rent on the whole building to the freeholder.  It collects rent from Mr Jones for the first floor. 

1.3.3  There can be other variations.   Green might grant to Jones an underlease of the whole building, for 20 years; or even for 21 years less one day.  An underlease must be for less time than the headlease. 

1.3.4  Leases can be sold, or assigned, from one tenant to another.  So Green might assign its 21 year lease (or whatever time it has left to run) to Black & Pink Ltd.  Usually, this needs the consent (or licence) of the landlord, Portland.  Mr Jones would then become the tenant of Black & Pink Ltd, and would pay his rent to them. 

1.3.5  A lease is sometimes called a ”term of years”.  That is because it is an interest in land which is granted for a period of time.  The period of time could be indefinite, and the lease could be ”for one year and thereafter from year to year”.  Once the fixed period has expired, a lease or tenancy of this sort is called a ”periodic tenancy”.  A periodic tenancy would carry on, one year at a time, until it were ended by the happening of some event: for example, it might be terminated by the tenant giving notice to the landlord, or a periodic tenancy might carry on from month to month, if  the rent is paid monthly.

1.3.6  If a person wants to buy a lease (that is, a leasehold interest in a piece of land), then he will ask to see the lease itself, and he will ask the lessee or tenant, from whom it is buying, a number of questions.  He will want to know, for example, whether the rent has been paid up to date, and whether the lessee has carried out his other obligations, for example, to maintain the building which is on the land.  The lease itself is the document of title. 

1.3.7 Short leases, for 3 years or less, can be created verbally, that is, without any written document.  These leases can last indefinitely, if they are periodic tenancies, for example tenancies from month to month. 

1.4 Other interests

There are other interests in land, apart from freehold and leasehold interests.  Common examples include:

1.4.1  Interests and rights of persons in actual possession or occupation of land.  These may be persons who occupy under a contract, who are not tenants.  An example would be a large house in which individual rooms are let to students, who share the same kitchen and bathroom.  The students are not tenants, because there is normally no tenancy where they are sharing occupation of part of the building. They will be ”licensees”, that is, people who are licensed or permitted to be there, by the landlord.  Their contract may entitle them to a period of notice before they can be required to leave.  As they are occupying the building as their home, the landlord must obtain a possession order from the court, before he can legally evict them. 

1.4.2  Some people may occupy land without any contract with the owner: for example, tresspassers or ”squatters”, who go onto land, or break into a building, without the owner’s permission.  If they manage to stay in occupation for twelve years, it will be too late for the owner to apply to the court to evict them.  They will then have acquired ”squatter’s rights”, or a possessory right to the land. 

1.4.3  A mortgage granted to a lender is another interest in land, which is generally neither a freehold nor a leasehold.  The freeholder, or leaseholder, can mortgage or charge his interest in the land, as security.  Usually this is security for a loan.  The lender is the mortgagee, and the owner / borrower is the mortgagor. 

1.4.4  There may be rights which affect what the owner can do with the land.  The most common of these are easements and restrictive covenants.  An easement is a right of passage over or under the land.  This may be a right of way, that is, a right to pass over the land, for pedestrians, vehicles, or both.   It may be a right allowing electricity, gas or water to run across or under the land, in pipes or wires.   Neighbouring owners, or official bodies such as the gas and electricity companies usually have the benefit of these rights.  The owner of the land must not obstruct the rights. 

1.4.5  Restrictive covenants stop the owner of the land doing certain things: for example, using a domestic house for any trade or business, or for the parking of commercial vehicles, or so as to cause a nuisance or annoyance to neighbouring owners.  They may prohibit the owner from putting up any more buildings.  It can be difficult to find out who has the benefit of these restrictive covenants, particularly if they were imposed many years ago.  There are also positive covenants, for example to erect and maintain fences between different pieces of land.  It is more difficult to enforce these covenants against successors of the original owners who entered into them.  Generally this is only possible if each successive owner has given a covenant to his Seller to observe the positive covenants.

1.4.6  The land may be subject to financial payments, for example rentcharges.  These are very old rights, usually where a large landowner once owned many properties, and gradually sold off their freeholds, but wanted to reserve some income from them in the future.  It has not been possible to create new rentcharges for many years.  Those which already exist may still be valid.  An example would be a rentcharge of £100 per year, which has to be paid to the rentcharge owner.  That person is not a landlord, and the person liable to pay it is not a tenant, but simply the owner of the land on which the rentcharge is imposed. 

1.4.7 Another example of a financial payment is a charging order.  These can be imposed by the courts, usually to enforce payments under judgments.  The land is ”charged with” payment of the debt, so it cannot normally be sold without the debt being paid off. 

1.4.8 Particular persons may have special rights over the land.  For example, if the owner has been made bankrupt, then he can no longer sell the land.  That right belongs to his ”trustee in bankruptcy”.    If the owner is married, then the wife or husband of the owner  has a right to occupy a house which has been used as the matrimonial home.  If there are divorce proceedings, that right can be protected by registration. 

1.4.9  The land may be affected by local rights, usually in favour of local authorities.  These are called local land charges.  For example, the local planning authority may have issued an enforcement notice, to put right a breach of town planning law.  This may require the owner to demolish a building which was erected without planning permission.   The enforcement notice will be registered as a local land charge, against the land on which the building stands. 

1.4.10 Other rights which may affect the land include public rights of way: roads and public footpaths.  These are not registered at the Land Registry nor in the Land Charges Register.  Local authorities keep maps which show where the public roads and footpaths run. 

1.4.11 Certain rights, which you would expect to go with the land, may not do so ; or they may have been taken away from the land.   For example, the shooting or fishing rights for a country estate may have been sold to someone else.  The mines and minerals under the land may have been sold to a mining company.   Generally, the right to extract coal or other minerals from deep in the ground belongs to the state, which has now sold most of its interests to a private mining company. 

1.4.12 Generally, it is important to remember that a landowner cannot necessarily use his land for what he wants.  There is a strict system of control of land use.  This is called ”town & country planning”, because the legislation is found in the Town & Country Planning Acts.  If you are buying land in England, you need to find out what the authorised planning use is.  If you want to use the land for something different, you need to apply for planning permission.  This will normally be refused, unless it is for a use which conforms with the planning policies for the area.   For example, it is normally extremely difficult to get planning permission to build new houses in open countryside, away from existing towns or villages; or to build factories in residential areas.   You also need planning permission for important or ”material” changes in use of land: for example, changing the use of a house from a domestic residence to an office. 

1.4.13 The owner of land, and in some cases a mortgage lender, can be liable for the cost of cleaning up any environmental pollution or contamination of the land.   In some situations, this liability can pass to a new owner, whether he knows it or not. 

1.5  Questions to ask

If you are buying or selling a piece of land, or if you want to take a mortgage security on it,  you should ask yourself, the seller, or the prospective borrower a number of questions.  The following are the most important:
 

who owns the land? 
does he own a freehold, leasehold or some other type of interest?
who else has rights over the land, and what are they?
will the seller pay off or remove any rights (e.g. mortgages) of other persons, before selling the land to a buyer?
can the owner prove that his title to the land is good? 
what can the land lawfully be used for?
is there any evidence that the land is contaminated? 
are there any other factors, such as disputes with neighbours, which make the land less attractive to a buyer? 

Under English law, the general rule ”caveat emptor” (buyer beware) applies.  The seller must give accurate answers to any questions which a buyer asks him, but he does not have to volunteer information for which he is not asked. 

1.6 Registered and Unregistered Land

The title to land in England and Wales did not have to be registered at all, until 1897, when compulsory registration was introduced for limited parts of the country.  The Land Registration Act 1925 extended this greatly, but it was not until 1989 that compulsory registration was extended to all of England and Wales.  This means that there is still a considerable amount of land which is not registered.   As a general principle, an owner must only register the title to his land when ownership changes: normally, when he buys it.    Most of the land which has not changed ownership since 1989 is still unregistered.  A large proportion of this land is in Wales and in rural areas.  Most of the land  in London and the larger cities has been registered for many years. 

1.6.1  Where the title to land is unregistered, it depends on the owner being able to show a good root of title.  Normally he does this by producing a chain of legal documents which prove the transmission of the title from one owner to the next, starting with a document which amounts to a good root of title and which is at least 15 years old. 

1.6.2  Where the title is registered, it is guaranteed by the state.  The owner has a land certificate to prove his title.  He must show a good root of title when he first applies to register.   After that, he only need to produce his land certificate. 

1.7 Local Land Charges

These are matters affecting land, including financial charges and restrictions on the use of land, which must be registered with the local authority.  This applies to registered and unregistered land.  The local authority will generally be the District Council, Borough Council (for a large town), City Council or London Borough. 

1.7.1  A local land charge is, generally, one which falls within any of the following descriptions:
 

a charge acquired by a local authority or sewerage undertaker (usually a water company), under the Public Health Acts or the Highways Act 1980, provided that this is a charge which is binding on successive owners of the land affected.
any prohibition of, or restriction on, the use of land, where this is imposed by a local authority, or government department,  or where it is enforceable under an agreement made with the local authority or government department,  where the prohibition or restriction is binding on successive owners of the land. 
any positive obligation affecting land, enforceable by a local authority or government department, under any agreement with that authority or department, where the obligation is binding on successive owners of the land.
any charge or matter which is expressly made a local land charge by any legislation not mentioned above. 

 1.7.1 Local planning authorities are required to keep a register of their planning decisions, under the Town & Country Planning Acts.  These show what planning permissions have been granted and refused for the use of land, and they also show any conditions which apply to planning permissions.  These are not local land charges in the strict sense, but they are important records which have a major impact on what the land may be used for.

 1.7.2 There are other local interests which are not local land charges, as such.  They are special interests which are maintained by local authorities under specific legislation.  An example is rights of common,  which are registered under the Commons Registration Act 1965.   These affect areas of land which are, or used to be, parts of village greens or other communal land.  Local inhabitants may have the right to graze their animals on the land, or to gather firewood and other produce from the land.  These are known as rights of common.   Although they are historic rights, many of them still exist today.  If they are registered, then they bind any owner of the land affected.  They may impose serious limitations on what the owner can use the land for, as he must respect the rights of common.

 1.7.3 Procedure to register a Local Land Charge

 For many charges, the local authority (which keeps the register) is itself under a duty to register the charge, so it will take the necessary action.  Otherwise, the authority which requires the charge will apply to the local authority for the registration

 1.7.4 Effect of registration of a Local Land Charge

 Once an entry is registered, this is regarded as actual notice of registration, whether the owner or person affected knows about the registration, or not.   Generally, local land charges are valid and enforceable, whether or not they are registered.  In some situations, a purchaser of land affected can obtain compensation from the local authority, if they have failed to register the charge (so he could not have found out about it), or if they have told him in error that no charge was registered, when there was one. 

 1.7.5 Cancellation of Local Land Charges

 If a registered charge has been modified, or if it is incorrect, the local authority may amend the registration.  If the charge has ceased to have effect, the authority must cancel it.  Registrations can be cancelled pursuant to a court order.  Normally one would apply to the local authority first, and then to the court as a last resort.

 1.8  Unregistered Land:  the Land Charges Register

 For unregistered land, the title itself is not recorded in a central register anywhere.  Certain important interests in the land, such as first mortgages, are not capable of registration, either.  A first mortgage (that is, the mortgage which is earliest in date, and ranks first in priority), relies for protection mainly on the deposit of the title deeds with the mortgagee.  The title deeds are all the documents forming the chain of title, going back to a good root of title.  The owner cannot sell the land without producing the title deeds, and he cannot do that without the mortgagee’s agreement. 

 1.8.1 Some other interests which affect the land must be registered, even though the title to the land itself is not.  This register is kept under the Land Charges Act 1972, and it is generally called the Register of Land Charges, or Land Charges Register.  In fact, there are a number of different registers:
 

the register of Land Charges : this contains mainly second and subsequent mortgages, where the mortgagee does not have the title deeds, restrictive covenants, some types of easements, and ”estate contracts”, which are usually options to buy the land; charges to protect the rights of occupation of spouses. 
the register of pending actions  (lawsuits affecting the land, or bankruptcy petitions against the owner)
the register of writs and orders affecting land: court orders issued against the land to enforce judgments, orders appointing receivers in respect of the land, and bankruptcy orders. 

For ease of reference, I will refer to all of these registers as the Land Charges Register, and matters which can be registered as Land Charges.

 1.8.2 All entries in the Land Charges Register are made against the owner of the land, and not against the land itself.   This system has many disadvantages, which is one reason why all land now has to be registered when ownership changes.  If you are buying land, then you will need to check whether any land charges are registered against any of the previous owners, even owners who were earlier than the root of title.  This involves listing the names of all the previous owners, and mistakes can occur, for example where people have changed their names and the changes have not been recorded properly. 

 1.8.3 The office which maintains the Land Charges Register also keeps a central register of all bankruptcy petitions and bankruptcy orders.  These are not land charges as such, but they have a major effect on land ownership.  If an individual is made bankrupt, he no longer has the right to sell any land which belongs to him. 

 1.8.4 Effect of registration of land charges 

Registration of land charges amounts to actual notice of them, whether one knows of their existence, or not.  Generally,  unless a matter affecting land is registered in the Land Charges Register, it is void against a purchaser of the land.  That means the purchaser will take the land free of it. 

If the matter concerned is registered correctly, it is binding on the present and any future owners of the land. 

 1.8.5 Procedure for registration in the Land Charges Register

The person who wishes to register, for example a second mortgagee, has to complete a simple application form and make a statutory declaration (that is, a formal statement, made before a solicitor, which sets out the reasons why the applicant wants to make a registration)   in support of the application.  He must also pay a small fee, and he may have to produce a copy of the document which is to be registered.  The application is made to the Land Charges Department.  This is a section of the Land Registry, a central government department,  and its office is at Plymouth. 

 1.8.6 Procedure for changing the Land Charges Register

If an error in a registration application has led to a corresponding error in the Land Charges Register, it is possible to apply for the original registration to be cancelled, and for a new one to be made in its place.   This process is called rectification of the register.  Any person who had a copy of the original registered entry is protected, as they are not affected by any later rectification. 

Registrations may be cancelled pursuant to a court order. 

 1.9 Registered Land

Where the title to land is registered, the government department responsible is the Land Registry  (full title: Her Majesty’s Land Registry).  The head office of the Land Registry is at Lincoln’s Inn Fields, London, but it has many regional offices which cover particular geographical areas: not necessarily the areas which are nearest to them. 

 The register is organised into three parts: 
 

The Property Register:  this states the interest in the land which is registered, e.g. freehold or leasehold.   It describes the land, and states any postal address and the name of the local authority.  It refers to an official plan (the filed plan), of which a copy is attached, showing the boundaries of the land.  It will contain details of any rights which benefit the land: e.g. rights of way over neighbouring land, or rights to which the land is subject: e.g. rights of way for neighbouring owners. 
The Proprietorship Register: this states the name of the owner of the land, and their address.  They must give an address within England and Wales where legal and court documents can be sent to the. 
The Charges Register: this states any financial charges (e.g. mortgages) which are secured on the land, and any restrictions to which it is subject.  These include restrictive covenants, legal documents dealing with rights of way and contributions towards maintenance costs, and possibly many other matters.   The register will either set out the charges in full, or it will refer to the documents which created them, and will state that these are contained in the land certificate or can be obtained from the Land Registry. 

1.9.1 Effect of Registration of Land

Registration is conclusive proof that the registered owner has a good title to the land, and that any mortgages and other charges affect the land.   The title is guaranteed by the state.  A purchaser of the land will acquire it subject to any matters registered, and free of any which should have been registered, but which are not.   If a mistake is made by the Land Registry, it is liable to pay compensation to any persons affected by the mistake who suffer loss. 

1.9.2 Procedure to register land

Normally, it is a purchaser who will apply, immediately after he has bought the land.  If it has not been registered before, then he applies to the Land Registry which deals with the area where the land is, for first registration.  He will have to complete a form and pay a fee.  He must produce the document (called a Transfer) which passes the land to him from the seller, and he must also produce all the deeds and documents which exist, to prove the chain of title, going back to a good root of title at least 15 years old.   He must produce certificates (search certificates) from the Land Charges Register, against all the previous owners, and from the local authority.  He must also produce the documents which were generated during his purchase: for example, the written questions he asked of the seller, together with their replies.   The Land Registry must check all these documents, ask for any information which is missing, and enter the information and documents in the correct parts of the register.   The purchaser pays a Land Registry fee, which depends on the value of the land. 
 

1.9.3 Procedure for transfer of registered land

If the land is already registered, the procedure for the buyer is much simpler.  He sends the Land Registry an application form, a fee, and the Transfer which passes the title in the land to him. 

1.9.4 Procedure to change the Register

It is possible to apply to the Land Registry to change (rectify) the Register, where a mistake has been made.  Usually, the Land Registry will need to see a statutory declaration from the applicant,  to explain the reasons, together with copies of any documentary evidence in support.   The Land Registry will give any persons affected (e.g. neighbouring owners) an opportunity to comment on what the applicant says. 

If the Land Registry decides to rectify the register, then any person who suffers loss as a result may apply for compensation. 

The court can make an order for rectification of the register.  The Land Registry is not a court, and its decisions can be very slow.  If there is a major disagreement, such as a neighbour dispute over the boundary of land, it is often essential to resolve that dispute by court action. 

2.  INTRODUCTION TO ENGLISH LAW OF CHARGES AFFECTING LAND

2.1 The various kinds of land charges
 

local land charges, and similar matters affecting land
central  charges which may affect registered or unregistered land
charges relating to limited companies
land charges affecting unregistered land 
land charges affecting registered land

 2.2 Local Land Charges

 If a local land charge is registered, this means that the land is subject to it, whether or not the ownership changes.

 2.2.1 Types of local land charges, and their meanings

 There are many different types of local land charge.  The more important ones include the following:
 

  financial charges: these can include the costs incurred by local authorities or water authorities for taking over the maintenance obligations for new roads or new sewers; also the costs incurred for repairing unfit buildings or rectifying certain breaches of planning control.
listing of buildings as being of special architectural or historic important.  If a building is listed, then it is subject to special controls.  It cannot be demolished nor altered without listed building consent, or the owner commits a criminal offence.  The object is to preserve the character and interest of the building. 
designation of conservation areas: these are usually areas of towns or cities which are architectural or historic importance.  There are special planning controls in conservation areas.  It is more difficult to get planning permission for new buildings, or alteration of old ones, within a conservation area.  The object is to preserve the character of the area. 
declarations that streets are prospectively maintainable by the public: in other words, a notice that the local authority will ”adopt” the street.  This can mean a compulsory payment from each house or piece of land which has a frontage on the street.   Often, developers of new housing estates deposit money with the local authority to cover those payments. 
repair notices for unfit houses: these notices can be issued by the local authority, for houses in very poor condition.  The notice requires the owner to do repairs.  If he fails to do so, the local authority can do the work, and place a financial charge on the land to cover its costs.
compulsory purchase resolutions local and central government authorities can pass resolutions to buy land without the owner’s consent, if the land is needed for public works, such as a new road scheme.  There is a complex scheme for compensating the owners.  Notice of the authority’s intention to acquire the land compulsorily will be registered.
planning charges:  these include prohibitions on use of the land for particular purposes, or conditions or restrictions regarding its use.  An example is an enforcement notice, sent to the owner and / or occupier of land to stop building work or use of the land which is in contravention of town & country planning laws.  If the owner / occupier disobeys the notice, he commits an offence.  A mortgage lender who has taken possession of the land to enforce payment of the debt may well be an ”occupier”.

 2.3 Central charges which may affect registered or unregistered land

 The most important charges in this category are bankruptcy petitions which are pending before the courts, and bankruptcy orders.   If a person is made bankrupt, his property belongs to his trustee in bankruptcy, meaning that he cannot sell it.  In many respects, a bankruptcy order has retrospective effect.  The trustee in bankruptcy can attack certain transactions (e.g. land sales) by the bankrupt person, in many cases for up to 5 years before the bankruptcy order is made. Sometimes, third parties (e.g. purchasers) are forced to hand over land which they have bought from a debtor, before he was made bankrupt,  if the transaction was to the disadvantage of the creditors in general.   It is therefore most important for the public register (strictly speaking, the register of pending actions, and the register of writs and orders affecting land , kept by the Land Charges Register at Plymouth) to contain an accurate record of all bankruptcy petitions (which may lead to bankruptcy orders being made) and the orders themselves. 

 The register will contain details of the court dealing with the proceedings, and also the name and address of the debtor, and of the  creditor who presented the bankruptcy petition or obtained the bankruptcy order.  These details will enable an interested party to contact the court, and to find out from the court who the trustee in bankruptcy is. 

 2.4 Charges relating to limited companies

 Charges can be registered against the names of limited companies which own land, either in the Land Charges Register (for unregistered land) or in the Land Register, for registered land. 

 However, many transactions and events affecting companies must also be registered with the Registrar of Companies, whose office is in Cardiff.  In particular, the following must be registered there:
 

a mortgage created by a limited company:  this type of mortgage is often called a debenture. The mortgage must be registered within 21 days from the date when it is created. 
insolvency notices, and similar: these include the presentation to the court of a winding-up petition, requesting that the company should be dissolved; notice of a winding-up order itself; notice of appointment of a liquidator or receiver. 

Mortgages must also be registered against the name of the company in the Land Charges Register, if the land is unregistered.  If the land is registered, they must be registered against the land, in the Land Register.  These registers should also contain information about insolvency notices etc., for particular land owned by the company, but third parties must check with the Registrar of Companies before they enter into major transactions with the company, as an entry in the Companies Register is regarded as actual notice of its contents, in most situations. 

 2.5  Land Charges relating to Unregistered Land

 The Register of Land Charges is divided into various classes, for different types of charge.  Note: these charges generally relate to rights and restrictions created between individuals, or classes of individuals, rather than public rights and restrictions, which are more likely to be registered as local land charges. 
 

  Class A : land charges in this class are rents, annuities or other payments, which are charged on land as security for payment.  They are charges created where a person or body has the right to a charge, under an Act of Parliament, for securing money spent by him.   These charges are rare.
Class B : these are rents, annuities or other payments pursuant to specific legislation.  The list is in Schedule 2 to the Land Charges Act 1972.  An example is a charge under the Land Drainage Act 1930: the charge is to secure payment of sums which are due in lieu of an owner’s obligation to repair river banks, watercourses etc.   These charges are also rare, and most of the legislation is now obscure.
Class C (I) : a puisne mortgage : this is a legal mortgage which is not protected by deposit of the title deeds to the land with the morgagee.  A legal mortgage is a mortgage of the legal estate to the land, and is the best form of security.  It should be compared with an equitable mortgage, where only the beneficial interest in the land is mortgaged, or where some of the legal formalities required to create a legal morgage cannot be satisfied.   A puisne mortgage is normally a second or third mortgage, where the mortgagee cannot hold the deeds, as the first mortgagee has them. 
Class C (II) : a limited owner’s charge: this is a charge acquired by certain persons who have inheritance rights, covering amounts they have paid in tax.  These charges are rare. 
Class C (III) : a general equitable charge: this is a charge which is not secured by deposit of the title deeds relating to the legal interest, and which is not included in any other class of land charge.  It could include an equitable mortgage, where the arrangement to lend money was originally an informal one, and where for some reason the borrower cannot hand over the title deeds.  Note: equitable charges now have to be created in writing.   A bank would normally have a Class C (I) charge rather than a C (III) charge,  as it will want a legal mortgage, or legal charge, if at all possible.  An equitable charge/mortgage is an inferior form of security. 
Class C (IV) : an estate contract: this is a contract to convey or transfer a legal estate (e.g. the freehold interest in a piece of land).  It includes options and rights of pre-emption.  Options are often taken by property developers.  They pay a sum of money for the right to acquire land in the future, during a limited period of time.  They may or may not wish to exercise the option when the time comes.  Rights of pre-emption are ”rights of first refusal”: the owner of land agrees that if he wants to sell it in the future, he will give the other party the first opportunity to buy it, before he offers it to anyone else. 
Class D (I) : an Inland Revenue charge: these are to secure payment of tax, usually inheritance tax, payable to the government. 
Class D (II) : a restrictive covenant: these are restrictions created by a legal document between individuals.  Typically, the original builder of a housing estate will impose a list of restrictive covenants on the buyers, to protect the character of the estate: e.g. no building of extra houses on the individual plots; no fences in the front gardens; no commercial use of the houses. 
Class D (III) : an equitable easement: this is a right of passage over or under land, either for people or for water, electricity etc., where there is only an equitable interest in the land, rather than a legal interest.   Most easements are legal interests, as they are created by a formal deed and are noted on the title deeds to land. 
Class E : an annuity created before 1.1.1926 and not registered in the register of annuities. These charges are extremely rare and obscure.
Class F: this is a charge imposed on a matrimonial home, to protect the rights of occupation of the non-owning spouse.  Usually these charges are registered when problems arise in the marriage, to prevent the owning spouse selling without reference to the other. 

 2.6  Charges over Registered Land

 Once the legal title to land has been registered with the Land Registry, charges which affect that land must be entered on the Charges Register for that land.  Each registered title (piece of land)  has its own title number, and the register for each title is divided into the property register, proprietorship register and charges register.   Some pieces of land will have more than one registered title: for example, where the freehold of a block of flats is owned by one landlord (who owns the freehold title) and each flat owner has his own leasehold title. 

Important note: Overriding interests:normally, all registered land is subject to certain important rights, which do not need to be mentioned on the land register.  These rights include:
 

  rights of common, drainage and public rights, and certain types of easements
the rights of any person in actual occupation of the land

 It is therefore most important for purchasers or mortgagees to make proper enquiries before buying or lending money on the security of land.  Even a registered title with no charges against it may be subject to adverse rights, e.g. someone who is occupying the property, but who does not appear on the register.  The purchaser / mortgagee may have to take the property subject to that person’s prior rights.  If the mortgagee cannot sell the property with vacant possession, the value of the property as security will be greatly reduced. 

 2.6.1 Contents of the Charges Register:

 The Charges Register contains:
 

  incumbrances which exist at the date of first registration
later charges and other incumbrances: these include notice of leases, and other notices of adverse interests or claims
notes relating to covenants, conditions and other rights which adversely affect the land
dealings with registered charges and incumbrances: e.g. where the owner of a registered charge changes. 

 The individual entries on the Charges Register fall into different categories:
 

  Charges: these are the commonest entries and is typically a mortgage to a bank or building society, to secure money lent to the registered proprietor for the purchase of the land.    Other types of charges are possible, but rare.   Local land charges, for example, may also be registered as charges, where they affect registered land. 
Notices: these are to protect  certain important rights which will bind the land despite any transfer of ownership.    Examples include the following:
· notice of a lease: this will be noted against the freehold title
· notices of restrictive covenants or rights of way affecting the land
· notices of the rights of occupation of spouses
· notices of claims affecting the land
· notice of rentcharges
Cautions: a person who has an interest in land, of the appropriate kind, can protect that interest by applying to the Land Registry to enter a caution, usually called a caution against dealings,  on the register.  This requires the Land Registry to give him notice of any application to deal with the land (or charge) in a way which would affect the cautioning person’s rights.  A caution does not prevent the registration of a dealing with the land: it simply gives the cautioner the right to object to that registration.  The Land Registry may decide to cancel the caution, if the cautioner does not reply, or if it considers his objections are insufficient.  The cautioner can apply to the court if he is dissatisfied with the Registry’s decision. 
Judgment creditors commonly register cautions: frequently, to protect charging orders, which charge the land with payment of the amount due under a judgment debt of the court. 

A caution may be registered, as an alternative to a Notice, by a person who has a claim against the land concerned.  It is not necessary to produce deeds and documents to the Land Registry in support of an application to register a caution.  It would be necessary, though, to register a notice.

Cautions can be registered to protect most matters affecting land, which could be registered as Land Charges if the land were unregistered. 

Inhibitions: an inhibition can be registered against the title, to prevent any dealings with the title and any further entries from being placed on the register.  Inhibitions are commonly registered by the trustee in bankruptcy, where the owner (registered proprietor) of the land has gone bankrupt.   This prevents the owner from attempting to sell the land: it belongs to the trustee legally, and only he can sell it or deal with it. 
Restrictions: if the owner of land wishes to place restrictions on transferring or charging the land, or dealing with the land or any registered charge, he can ask the Land Registry to enter a restriction on the register.  Restrictions are most commonly registered to protect joint owners and mortgagees.  For joint owners who do not wish the survivor of them to inherit automatically a deceased owner’s share, they will seek a restriction stating that no dealing with the land can be registered, without the signed consent of them both, or an order of the Registrar or of the court.  Some mortgagees have a policy of entering restrictions, as further protection for their registered charges: the restriction usually says that no dealing with the land can be registered without the consent of the mortgagee as owner of the charge. 

 2.7  Do charges have to be registered? 

The answer to this question is, almost invariably, yes.  If a charge is not registered, then the rights of the charge owner will be prejudiced.  It should be noted that a first charge over unregistered land will not be registered at the Land Charges Registry.  The charge must however be registered with the Companies Registry if the borrower is a limited company.  The owner of the charge, usually a bank, takes as security a signed mortgage deed and possession of all the title deeds and documents which prove the title to the property.  To prevent fraud, the Land Registry keeps an index map.  The public can ask the Registry to make searches of the index map, to confirm whether or not a particular piece of land is registered. 

 The consequences of non-registration are usually serious.  In summary:
 

local land charges : registration amounts to actual notice to purchasers.  If something should have been registered as a local land charge, but was not, then purchasers are generally not bound by them, unless they are guilty of fraud. 
land charges affecting unregistered land: again, these are generally not binding on purchasers of the land, if they should have been registered, but have not been. 
pending bankruptcy petitions, and bankruptcy orders: even if these are not registered with the Land Charges Registry, they are not void.  The property of any bankrupt person belongs to the trustee in bankruptcy, whether or not the bankruptcy appears in the public register.  The trustee in bankruptcy may, however, have difficulties in protecting the property, if the bankruptcy petition and the bankruptcy order were not registered.
mortgages by limited companies: if these are not registered with the Registrar of Companies within 21 days, they are void against a liquidator of the company, so the mortgagee could lose his security altogether.  This is so, even if the mortgage is correctly registered at the Land Registry, against any registered land involved. 
registered land: if the title to the land should have been registered, but has not been, then it is potentially a defective title.  Any mortgage lender should insist on a good title, before accepting it as security.  Once the land is registered, then in general, the land can only be sold or dealt with by registered transactions.  So, if an owner of registered land sells it to a buyer, the buyer must register the transfer to him.  If he fails to do so, then that transfer will be void, if the seller then transfers the same land to someone else who does register his transfer.   The same principles apply to mortgages.  These are dealings with the land, which must be registered in order to be protected.   The contents of the Land Register are generally conclusive, and an official copy (called an office copy) of the register is admissible as evidence in court. 


 

 2.8 Is there a hierarchy amongst the registered rights?

 The basic answer to this question is yes.  As a general rule, any property is subject to certain types of local land charges and to such matters as easements, and restrictive covenants. These are rights which generally bind the land permanently, and which will continue to be binding even when the land is sold from one owner to another.  Other charges, such as financial charges to mortgage lenders, and cautions in favour of judgment creditors, then rank in date order.   This applies both to registered and unregistered land.

 Certain later charges, such as bankruptcy orders and inhibitions, will affect the property even though they are registered later than other charges.  However, a mortgage lender who has a charge registered will not lose his security, simply because the owner of the land goes bankrupt.  The trustee in bankruptcy may be able to force a sale of the property, but the mortgagee will be entitled to take his secured loan out of the sale proceeds, before any money goes to the trustee in bankruptcy. 

 2.9 On what does the order of precedence of registered rights depend? 

 The basic charges affecting the title to land, such as  some types of local land charges, and easements or restrictive covenants, normally come first in priority. Many local land charges do not have to be registered with the local authority before land charges or charges registered at the Land Charges Registry or Land Registry, in order to have this priority.  Other types of local land charges do have to be registered first, to have priority over charges at those other registries.  This depends on the exact wording of the legislation under which the local land charge is registered.  As a guideline, financial local land charges will rank for priority, among financial charges on the other registers, according to date order.  So, if a bank has a mortgage which is registered on the title to registered land, this will have priority over a financial charge to a local authority which is registered later than the mortgage.  This is only a general guideline and one has to consult the legislation to check the priority of any particular local land charge. 

In practice, financial local land charges are not very common.  The area where priority is really important is among financial charges on an individual title at the Land Registry, or entries relating to a piece of unregistered land on the Land Charges Register.  The rule is that they rank in date order.  In registered land cases, subject to any entry to the contrary on the register, registered charges on the same land as between themselves rank according to the order in which they are entered on the register, and not according to the order in which they are created (S 29 Land Registration Act 1925).  This governs the priority of mortgage lenders.   Some mortgages also cover further loans which are made later; some do not.  If they do not, then the lender will need to make sure that any later-ranking lenders (with charges bearing a later date) agree to postpone their priority, to the extent of the further lending, if it is to have priority under the original mortgage.  Failing this, the first lender will have to take a new charge, which will go to the bottom of the priority order, for the new part of the lending.

If the owner of land wants to create new rights for third parties, such as easements or rights of way, he will need the consent of any charge owners (normally mortgage lenders) who already have registered charges.  That is because the easement will, otherwise, have to take effect subject to the mortgagee’s rights, which may make it completely uncertain. 

Judgment creditors who register cautions or land charges to protect their charging orders cannot gain priority over any charges already registered.   They join the bottom of the queue, according to the date on which their charge or caution is registered. 

 Buyers, mortgage lenders and others are careful to make official searches with local authorities (for local land charges), with the Land Charges Registry (for unregistered land, and for bankruptcy entries) and with the Land Registry for registered land, before they complete their transactions.   This is to make sure that they know of any prior-ranking charges, and ensure that any objectionable ones are removed.  This applies, in particular, to mortgage loans of the seller.  A search certificate issued by the Land Charges Registry or Land Registry confers a priority period or period of protection on the person making the search: he can then register his new charge within that period, in the knowledge that no other new charges can take priority over him during that time.    Local authorities do not give these priority periods.  Local searches are generally regarded as acceptable if they are under 3 months old,  but sellers will be asked to confirm that no notices have been received from the local authority, before a sale proceeds.  There is a small element of risk here. 

 2.10 Are the registered rights negotiable? 

 In general, financial charges are negotiable, whereas other types of charges (such as restrictive covenants, easements, or restrictions imposed by central or local authorities) are not.  The latter can only be altered with the consent of both of the original parties, or an order of the court. 

 Financial charges can be transferred from one owner to another.  This happens quite frequently in the banking industry.   Details of the transfer of ownership, and the name and address of the new owner, must be sent to and placed on the relevant register.   The borrower under the charge should be notified of the transfer by the new owner, and will also be notified by the Land Registry in the case of a mortgage over registered land. 

 It is a general principle that any chargee (charge owner) must supply for the register an address in England andWales, where any notices and legal proceedings can be served on him.  If the chargee does not have an office in England and Wales, he should appoint someone in those countries to act as his address and local contact: e.g. a solicitor. 

 2.11 How are individual mortgages or charges defined, including the extent of liability under the charges?

 The basic rule is that the document which creates a charge  describes the nature and extent of that charge.  These particulars will appear on the relevant register. 

 2.11.1 Financial charges are usually quite long documents, as the mortgagee will want to state in full all its powers to deal with the mortgaged property, if the borrower defaults.  There is a short form of statutory mortgage which can be used, under Section 117 Law of Property Act 1925.   The Act states that certain obligations are implied into the mortgage, so these need not be stated in full.  Statutory mortgages are not often used by banks, but they are sometimes used by private individual lenders, who want a short and simple form of security. 

 2.11.2 Section 28 Land Registration Act 1925 also sets out certain obligations which are implied into any charge over registered land, unless the contrary is stated in the document.  These include:
 

a covenant (promise) to pay the principal sum, and interest at the stated time and rate
if the interest charged is a leasehold interest, a covenant by the borrower to observe the conditions of the lease, including payment of rent, and to indemnify the lender in respect of any breaches of the terms of the lease. 

 2.11.3 Local land charges: the register will state who has registered the charge (usually a local or central government department), when it was registered, and if it is a financial charge, how much it is for.   The register will state under which legislation the charge is registered.  The authority which keeps the register will supply a copy of the charge, on request.

 2.11.4 The Register of Companies: the register will say when a mortgage (debenture) was created by the company, and when it was registered.  It will say who has the benefit of the charge, and what its main terms are.  The charge may be for particular assets (e.g. a piece of land), or over the company’s assets generally, including its land: this is called a floating charge.  The Companies Registry will supply a copy of the charge, on request. 

 2.11.5 The Land Charges Register: again, the register will say who registered the charge, and when.  Normally, a statutory declaration (a formal witness statement which is declared to be true) will be filed with an application to register a charge, and also a copy of any signed document which created the charge.  The Land Charges Department will supply copies of these documents on request. 

 2.11.6 The Land Registry: the Charges Register for the piece of land concerned will state the date of any charge, the date of registration, and the address of the charge owner.  The Land Registry will supply a copy of the charge on request.  The owner of a financial charge is given a charge certificate by the Registry.  This is an official copy of the register and plan for the  land concerned, with a copy of the charge attached. 

 For non-financial charges, such as rights of way or other easements, the register will either state the date of the document which created the charge, and summarise the main terms of it, or it will refer to the document itself, which is available from the Registry on request. 

 2.12 Is there any specific consumer protection? 

 2.12.1 Yes.  The banking and financial services sectors in England and Wales are highly regulated.    Any lender who is considering lending in England and Wales, either with or without security, should obtain detailed advice.  Failure to observe the legislation can mean that the loan contract is unenforceable, and even that the lender is subject to criminal penalties.     The following is a brief summary of the more important pieces of consumer protection:
 

anyone who is in the business of lending money (as opposed to someone who lends as an occasional favour to a friend or business contact) has to be registered as a moneylender.
If the mortgaged property is a dwelling-house, that is a domestic residence, then the lender can only take possession of the property, without the borrower’s consent, if he obtains a possession order from the county court which is local to the area where the property is.  The court has wider powers to refuse or suspend the operation of a possession order, in dwelling house cases.  Generally, the court will make a suspended order, meaning that the lender cannot get possession unless the borrower defaults on the court’s conditions, if the borrower can show that he can meet the current monthly instalments under the mortgage, and pay off any arrears in those instalments over a reasonable period.  ”Reasonable” is generally 12 months or less, but in some cases it is much longer.
Whether or not the loan is secured by a charge on land, if it is not for the purchase or improvement of land, then it is probably subject to the Consumer Credit Act 1974.   This Act generally does not apply to loans larger than £25,000.  Many ”second mortgages”, for example to buy cars or household goods, are subject to the Act.  The CCA  is a very complex Act, designed to protect consumers against sharp practice by unscrupulous moneylenders.  Typically, the Act applies to loans to buy consumer goods, including cars.  It applies to straightforward loan situations, where the borrower owns the good, and to hire purchase cases, where the goods belong to the lender and the borrower merely hires them, while he is making the payments.  Some of the more important features of the Act are as follows:
the lender must be licensed under the Act
the loan agreement must be in a complex special form, telling the borrower of his rights. The contents must be set out in a particular way. The interest rate  annual charge for credit (APR) and total interest charges, must be stated clearly.  The borrower must be supplied with various copies of the agreement, at the correct times.   The borrower may have the right to a cooling-off period, that is a period of time when he can cancel the agreement with no penalty.  If the lender gets any of these formalities wrong, the borrower may be able to escape from the agreement and even keep the money lent, without repaying it. 
If the borrower has paid at least half the total price for the goods purchased with the aid of the loan agreement,  the lender cannot generally repossess the goods without a court order.
The lender is generally liable for defects in the goods, or for other breaches of contract by the supplier of the goods, if they were bought with the aid of a CCA regulated loan. 
If the court considers that the whole loan agreement is grossly unfair on the borrower (an extortionate credit bargain) then it can reopen the agreement, and effectively rewrite it. 

2.12.2 Consumer protection: is there a public guarantee for the Registers?

The overall answer is yes, because the law states that the contents of the registers are generally conclusive, and if there are mistakes on the registers, then in some circumstances those affected may seek compensation. 

2.12.3 Local land charges

Failure to register a local land charge does not generally affect the enforceability of a charge.  However, where a person made a valid search in the local land charges register, and then purchased land affected by a charge, he is generally entitled to compensation for any loss which he suffers in consequence.  The compensation is payable by the local authority keeping the register. 

2.12.4 Unregistered land: the Land Charges Register

As a general rule, a purchaser is not bound by a matter which should have been registered as a land charge against the relevant estate owner, but which was not registered.

If a purchaser has suffered loss because the land purchased is affected by a registered land charge, which was registered against the ”wrong” estate owner, then the purchaser is entitled to compensation, subject to conditions.  The main condition is that the charge was registered against the name of an owner of an estate in the land who was not as owner of any such estate a party to any transaction, or concerned in any event, comprised in the relevant title. 

2.12.5 Registered Land

The general rule is that what is stated on the register is conclusive. 

The register can be amended, or rectified, if a mistake is made.  The following persons can apply for compensation:
 

any person who suffers loss by reason of rectification
any person who suffers loss by reason of non-rectification
a person in whose favour the register is rectified, if he suffers loss as a result of the mistake, despite the fact that the register is rectified. 

3. CONFLICT MANAGEMENT IN THE CASE OF CROSS-BORDER LAND CHARGES

3.1  May mortgages and secured claims be subject to different legal systems?

The basic answer to this question is: ”theoretically yes, but in practice law and jurisdiction which is local to the land covers all the main issues”

Jurisdiction

3.1.1 The United Kingdom is party to the Brussels and Lugano Conventions.  These regulate whether courts in the U K have jurisdiction in civil or commercial matters.   Under the Conventions, the U K courts may have jurisdiction in a particular case; alternatively, they may have no jurisdiction, or they may have jurisdiction together with the courts of another contracting state. 

3.1.2 The principal basis for jurisdiction is the domicile of the defendant in any legal action.  This is subject to some exceptions.  Most importantly, proceedings which have as their object rights in rem in immovable property or tenancies of immovable property fall within the exclusive jurisdiction of the courts of the contracting state in which the property is situated.  A claim has as its object rights in rem in immovable property if it is brought to vindicate legal ownership of the land in question.  On the other hand, a claim does not have rights in rem as its object, if it is brought to enforce personal obligations owed by the legal owner of the land. 

3.1.3 Because of the operation of these rules, it is almost inevitable that  a mortgage or secured claim would be subject to the jurisdiction of the English courts, if the claim is brought to enforce the security, or to prove that the security is valid.   Other arguments between a lender and borrower, not directly concerned with the land itself, could be brought in other courts: probably the courts for the state where the borrower is domiciled. 

Choice of law

3.1.4 In general, all questions concerning rights over immovable property are governed by the lex situs, that is, the law of the country where the immovable is situated. 

3.1.5 The Rome Convention governs the applicable law in relation to contractual obligations.  In principle, this Convention does not apply to property rights, but it can be difficult to determine what is ”contractual” and what is ”proprietary”.   The Convention allows the parties to chose the applicable law in contractual matters; in the absence of a specific choice, the law of the place most closely connected with the contract will apply.  So it is possible that some aspects of a contract between lender and borrower could be determined according to the laws of a foreign state, particularly if both parties come from that state and the mortgage was agreed there.  Enforcement of the mortgage, for example by seeking a possession order, would however have to be dealt with according to English law, if the property is situated here. 

3.2  Can mortgages be registered in foreign currency? 

Yes, it is possible for the mortgage account to be held in a foreign currency.  The lender can also bring a court action for recovery of sums due, expressed in that currency.  The borrower may, however, pay any amounts due under a judgment or court claim in pounds sterling, converting the currency at the date of payment.  This can cause losses to either party, if exchange rates fluctuate. 

3.3  Can documents of foreign notaries be registered?

In principle, yes.  If the document creates rights in relation to land, then it can be registered against that land: in unregistered land, probably as a Class C I land charge, or by a caution on the register, for registered land.   A statutory declaration which complies with the English registration rules would be needed to accompany the notarial document, explaining how (under the relevant foreign law) the document is effective to create a security over the land.  The English rules on signatures would have to be observed, and the notary would have to produce a copy of his power of attorney from the landowner. 

Certain notarial documents are recognised as authentic instruments under the Brussels and Lugano Conventions, meaning that they are recognised and enforced in England  in a similar way to court judgments.   An example is the German  Schuldanerkenntnis (acknowedgement of debt), where the debtor admits formally that all his assets (including land) can be seized if he does not comply with the agreed terms for repayment of a loan.  A land charge or caution could be registered immediately the creditor applied to the English court to register the Schuldanerkenntnis as an authentic instrument. 

3.4  Do ordre-public provisions exist?

English law does not recognise the concept of ”ordre public”, as such.  There are, however, certain rules which state the formalities necessary for valid property transactions.  The following are some of the most important:

3.4.1  A legal mortgage (which is a mortgage of the legal title, as opposed to an equitable mortgage, which is an inferior security relating to the equitable, or beneficial rights in the property only) must be made by deed.   A deed is a document signed and sealed by the parties.  It is no longer necessary for wax or paper seals to be attached to the document.  A form of words ”signed as a deed” followed by the party’s signature is sufficient for an individual. 

3.4.2  Even an equitable mortgage must be in writing.  If it is not, then it is invalid.  In the past, it was possible to create an equitable mortgage simply by depositing the title deeds with the lender.  That is no longer possible. 

3.4.3  English contract law requires an offer, acceptance of the offer, consideration (which is money or something worth money), and an intention to be bound legally.   Contracts made by deed do not have to have consideration.   In addition, contracts for the sale or other disposition of an interest in land must be in writing and signed by the parties.  The writing must incorporate all the terms which have been agreed by the parties.    It is possible for the signed document to refer to another document which itself contains the agreed terms.  Failure to observe these requirements can mean there is no valid contract. 

3.4.4  As an exception to the general rule in 3.4.3, a tenancy agreement for a term of less than 3 years need not be in writing.

3.4.5  Certain documents, including leases and documents which transfer interests in land, are liable to a government tax called stamp duty.   A receipt for payment of the tax is stamped on the document by the tax authority.  If this has not been done, then the document cannot be produced as evidence in court.   Usually, mortgage documents do not attract stamp duty.   However, a mortgage lender will want to ensure that the title to the security property  is good in all respects.  That includes payment of stamp duty on the purchase document. 

3.4.6  English law does not require documents to be notarised.  The services of a notary are normally needed only to authenticate documents which are to be used abroad. 
 

4.  INTRODUCTION TO MORTGAGE REDEMPTION PROCEDURE AND INDIVIDUAL ENFORCEMENT 

4.1  How can I execute against land?

4.1.1 The simplest way to proceed is for the mortgagee to take physical possession of the land, over which he has a charge, and then to sell it on the open market.  This is only possible for non-residential property, where the borrower is not in occupation or offers no resistance.  Otherwise, a possession order from the local county court is needed. 

4.1.2 A possession order obliges the borrower to leave the property and give possession of it to the mortgagee.  The mortgagee can then sell it. 

4.1.3 The owner of a charging order against land, usually imposed to secure payment of a debt due under a court judgment, can also seek a possession order. If he obtains it, he can then proceed in the same way as a normal mortgagee. 

4.1.4 In commercial mortgages and loan transactions, the bank usually has the power to appoint a receiver to take possession of the borrower’s assets (including land) if he defaults.  The receiver can ask the borrower to leave the land, and if he refuses, can apply for a possession order or can simply take direct possession if the borrower does not resist.   There are various types of receiver.  The administrative receiver is the most common, and has the widest powers to deal with the borrower’s property.  Other types of receivers include the ”LPA receiver” : LPA stands for Law of Property Act 1925, and the receiver has the more limited powers stated in the Act.

4.1.5 Once the mortgagee or his receiver has possession, there is no need to sell at public auction or in any particular way.   There is no equivalent of the German Zwangsversteigerung.  The mortgagee will probably sell by using an estate agent. The mortgagee or receiver has a duty not to be careless in the price which he obtains for the property, but he cannot be required to incur delay in holding out for the best possible price.

4.2  What purpose does the execution of land serve? 

Quite simply, to enable the creditor to get his money.   Either the borrower will pay off the secured loan (probably by borrowing the money from someone else) when the creditor applies for a possession order or takes possession directly, or otherwise the creditor will sell the land and take his money, plus the costs of enforcement action and sale, from the sale proceeds. 

4.3  Who is in charge of the opening and execution of the executory process?

Strictly speaking, the creditor is in charge, because he decides whether to take action, and if so, what action and when. 

Other agencies may become involved, and will then control part of the process:
 

the creditor may delegate the process to his receiver.  An administrative receiver must hold a licence to practise as an insolvency practitioner.  Most insolvency practitioners are accountants rather than lawyers. 
If the creditor needs a possession order, which he almost certainly will in the case of a residential property, the local county court will control whether or not a possession order is made, and how long the borrower is given to vacate.   The court cannot normally refuse an order, if the borrower has defaulted, but it can adjourn the proceedings or make a suspended possession order in a residential case, if the borrower can meet the current payments and clear the arrears over a reasonable time. 
If a possession order is made, but the borrower fails to vacate the land, then the county court bailiff must be used, to visit the property and evict the borrower from the property.  The bailiff is a court employee, and he acts only in response to a request from the creditor, after a possession order has taken effect. 

 4.4 How does the executory process function? 

 4.4.1 Where the creditor has a court judgment and wants a charging order, he applies to the court which issued the judgment.  If that is not the debtor’s home court, the action will be transferred to the home court.   The procudure is:
 

the creditor states how much is due under the judgment, and confirms how much is unpaid.   He produces evidence of the debtor’s title to land: usually a printout or office copy of the Land Register, where the land is registered.  He asks the court to charge the debtor’s interest in the land with payment of that sum, plus interest and costs. 
The court makes a charging order nisi, if it is satisfied with the creditor’s paper application.  The creditor registers this at the Land Charges Register against the debtor’s name, or registers a caution at the Land Registry against the land title concerned. 
The creditor informs the debtor  and any co-owners and other charge owners of the charging order nisi,  and notifies them of the next appointment at the court, when the creditor will seek the charging order absolute.  This procedure gives the debtor a chance to object to the order being made permanent, or absolute. 
The creditor registers the charging order absolute
If the creditor is not satisfied with the borrower’s proposals to pay the debt, he can start a new court action to seek a possession order.  The court has a wide discretion as to whether or not to grant this.  Holders of charging orders do not very often seek possession orders, but prefer to see the order as a long term security.  They may, however, succeed in getting a possession order, particularly if the amount owed is large, relative to the value of the land.   As a general principle, the interests of a creditor will prevail even over the right of the debtor’s family to use the property as a home, after one year. 

 4.4.2 Where the creditor already has a mortgage, he will issue a possession summons  in the county court local to the property:
 

He must say when the mortgage was signed, what is owing, and confirm that he has a right to possession under the terms of the mortgage.  This may involve his confirming that he has sent a formal demand for repayment to the debtor. In the summons, the creditor asks the court to make an order for possession of the mortgaged property.   He must say if it is a residential dwelling; if so, he has to use a special court form giving details of the debtor’s circumstances. 
The court fixes a hearing date: normally 4 to 6 weeks after issue of the summons.  It has to be at least 4 weeks from issue. 
The creditor tells any other mortgage / charge holders about the proceedings.  He sends a notice addressed to ”the occupier”, to tell anyone in occupation about the proceedings. 
The creditor and debtor appear at the  possession hearing, and each argues his case.  In the vast majority of cases, the court has no choice but to make a possession order, but suspended orders are common in residential cases. 
The creditor issues a warrant for possession , addressed to the county court bailiff, if the debtor does not leave by the due date. 
The bailiff informs the debtor when he will execute the warrant.  The creditor or his agent then attend at the property with the bailiff, to receive possession.  Normally the creditor will wish to change the locks. 
The creditor sells the property.

4.5  How are the proceeds of sale distributed?

The creditor deducts the costs and expenses of sale.  He then pays off any prior mortgages or charges: those which rank before his own charge.  Usually these charges were registered earlier.  The creditor then takes sufficient money to cover the secured debt, plus interest to date.  If there are any subsequent mortgages, ranking after his own, he must pay those off, in order of priority.  If there is any surplus money left after completing this process, the creditor has to pay that to the debtor. 

The court is not involved in this process, unless there is a dispute between the parties about priorities or amounts.  The creditor and his solicitor normally deal with the accounting process. 
 

4.6  Are there any special consumer protection rules?

4.6.1 If the loan agreement is regulated by the Consumer Credit Act 1974 (i.e. under £25,000; not borrowed to buy or improve land), then there is a complex formula which the creditor must follow.  This sets out the maximum amount which the borrower can be made to pay.   That depends on how much he has already paid, relative to the total value of the credit agreement.   In some situations, which are quite rare,  the court can re-open the whole agreement if it considers it to be an extortionate credit bargain.  If that should happen, then the court is very likely to refuse to make a possession order. 

4.6.2 As we have seen, in residential mortgage situations the borrower has greater protection than in other types of loan. 
 

5. APPENDIX

5.1  Office copy of the land register for a freehold residential property. 

5.2  Land Charges Act registered land charge against a property owner’s name.

Francis Wallace, LL.B , Solicitor
Rix & Kay
The Courtyard, River Way, Uckfield, East Sussex TN22 1SL
January 2001

 

 
 
 
 







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