Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

borrower’s right to peaceful enjoyment of their property124 or their right to family life125 guaranteed by the European Convention on Human Rights as implemented in the United Kingdom by the Human Rights Act 1998. Such an argument is tenable126 and the law of human rights is dynamic and still of uncertain scope in its relationship with English land law. On the other hand, a mortgagee’s claim to possession is in pursuit of their legitimate rights under the mortgage, especially if such possessory rights are a proportionate response to the mortgagor’s default. At present, the

tenor of decisions in related issues surrounding possession is against the success of this argument.127

10.10.4 Appointment of a receiver

The ability of a mortgagee to appoint a receiver to manage and administer the mortgaged property is another method by which it can recover the interest owed, and possibly sell the mortgaged property as a ‘going concern’.128 The right to appoint a receiver is often expressly included in the mortgage contract, but, in any event, such a power will be implied into every mortgage by deed (section 101 of the LPA 1925). The implied power becomes exercisable only in those circumstances in which the power of sale becomes exercisable, and it is often an alternative to that remedy and the duties of a receiver may generally be regarded as similar to those imposed on a selling mortgagee.129 The great advantage of the appointment of a receiver is, however, that it avoids the dangers of the mortgagee taking possession of the property themselves. This is because the receiver is deemed to be the agent of the mortgagor, not of the mortgagee130 with the consequence that any negligence in the administration of the property is not attributable to the mortgagee and neither is the mortgage liable to account for any income generated (or not generated) by the receiver.

10.10.5 Foreclosure

The remedy of foreclosure is potentially the most powerful remedy in the armoury of the mortgagee, although it is now used very infrequently. If successful, foreclosure will extinguish the equity of redemption and result in the

124Protocol 1, Article 1

125Article 8.

126See Barca v. Mears (2004) in the context of a sale of family property after bankruptcy.

127London Borough of Harrow v. Qazi; Kay v. Lambeth LBC; Pye v. U.K.

128See for example, the Billy Row case (2000).

129Silven Properties v. Royal Bank of Scotland. See generally, Medforth v. Blake.

130Chatsworth Properties v. Effiom (1971), Lloyds Bank v. Bryant (1996).

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transfer of the mortgaged property to the mortgagee, free of any rights of the mortgagor. In other words, the effect of a foreclosure is to vest the mortgagor’s estate in the mortgagee and to extinguish the mortgage and its terms (section 88 of the LPA 1925).131 So, if the property is freehold, the mortgagee will acquire that freehold, and similarly for a leasehold. The mortgagee’s right of foreclosure arises as soon as the legal date for redemption is passed, although it is common for the mortgagee to promise not to foreclose without notice, and only in respect of specified breaches of covenant. Essentially, should the need arise, the mortgagee will begin an action in court asking for foreclosure unless the mortgagor repays the mortgage within a specified time. If repayment does not occur, the mortgagee will be given a foreclosure nisi, which, in effect, gives the mortgagor a further period (usually six months) in which to raise the money to pay off the loan. Failing that, the order of foreclosure will be made ‘absolute’, and the mortgagor’s interest in the property will be extinguished. This is usually the end of the matter, save that in exceptional circumstances, the court may open a foreclosure absolute and allow the mortgagor to redeem the mortgage at a later date. This is very unlikely if the mortgagee has already sold the property to a purchaser who has no notice of the previous mortgage (Campbell v. Holyland (1877)).

10.10.5.1 Statutory control of foreclosure

In view of the powerful nature of foreclosure, the court has power, under section 91(2) of the LPA 1925, to order sale in lieu of a foreclosure. If such a sale occurs, the proceeds will be distributed according to section 105 LPA 1925 (as above in the context of a mortgagee’s sale), and this means that the mortgagor will receive surplus funds (if any) after the mortgage is paid off. Obviously, such a solution is desirable from the mortgagor’s point of view, especially where the mortgage debt is less than the value of the property. In fact, the ability of the court to order sale in lieu of foreclosure has meant a steep decline in the number of successful foreclosure actions. After all, it is a remedy which can destroy the mortgagor’s entire interest in the property and for that reason alone should be viewed with some suspicion.

10.10.5.2 Effect of foreclosure on other mortgagees

If a mortgagee successfully forecloses, this necessarily has consequences for any other mortgagees who have also lent money to the mortgagor. First, the rights of mortgagees under mortgages that were created before the mortgage

131The mortgage is extinguished completely, and so the mortgagee may not sue the mortgagor personally for any shortfall.

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that triggers the foreclosure are unaffected. In other words, whoever obtains the land after the foreclosure takes it subject to all prior mortgages. Second, the rights of mortgagees under mortgages that were created after the mortgage that triggers the foreclosure will be destroyed. This is because the foreclosure vests the mortgagor’s estate in the ‘foreclosing mortgagee’ free of any subsequent interests. However, the subsequent mortgagees are given an opportunity to redeem any previous mortgages if foreclosure is likely. In effect, they are given the opportunity to take the place of previous mortgagees by paying them off.

10.11The rights of a mortgagee under an equitable mortgage

The rights and remedies of a mortgagee under an equitable mortgage or charge are similar to that of the legal mortgagee, although modified, because the mortgagee cannot be treated as having a legal estate in the land. Briefly, the equitable mortgagee or chargee has the right to sue for the money due in the same way as the legal mortgagee. This right is founded in the contract between the parties. Second, where the equitable mortgage is made by deed, the mortgagee has the power of sale, although no power to convey the legal estate to a purchaser. This defect can be overcome by conveyancing devices in appropriate cases.132 Where the power of sale does not exist, the equitable mortgagee may apply for sale at the court’s discretion under section 91(2) of the LPA 1925. Third, an equitable mortgagee under a mortgage created by an equitable lease/sublease probably has the right to possess the property (i.e. as an equitable tenant), or may be given this expressly in the mortgage contract. An equitable chargee does not have a right of possession, as they have no estate in the land, unless possession is specifically given in the mortgage contract. Fourth, the position in respect of the appointment of a receiver is the same as with the power of sale. Finally, an equitable mortgagee has a right of foreclosure in the same way as a legal mortgagee. An equitable chargee does not, as they have no estate in the land.

132 This explains why even equitable mortgages are often made by deed.

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THE LAW OF MORTGAGES

The essential nature of a mortgage

A mortgage is a contract and the mortgagor and mortgagee are free to stipulate whatever terms they wish for repayment of the loan, the rate of interest and so forth. However, a mortgage also generates a proprietary interest in the land for both parties: both mortgagee and mortgagor have (or are treated as having) an estate in the land.

The classic definition of a mortgage

A mortgage is security for a loan. A mortgage of land comprises a transfer (conveyance) of a legal or equitable interest in the borrower’s land to the mortgagee, with a provision that the mortgagee’s interest shall lapse upon repayment of the loan plus interest and costs.

The creation of mortgages

For a legal mortgage, the mortgagor (having a legal estate) may grant a legal mortgage of a registered title by means of a charge by deed expressed to be by way of legal mortgage: sections 23 of the LRA 2002 and section 85(1) and 87 LPA 1925. Legal mortgages of unregistered land may be created by a charge (and usually are) but also by the ‘long lease’ method. Equitable mortgages may exist when there is a mortgage of an equitable interest, when there is an informal mortgage of a legal interest (i.e. when writing but not a deed is used, or where registration of a deed does not take place), under the rules for equitable charges, and via the operation of proprietary estoppel.

The rights of the mortgagor: the equity of redemption

The mortgagor has a contractual right to redeem the mortgage on the date specified in the mortgage contract. Under the maxim ‘once a mortgage always a mortgage’, a court of equity would allow redemption after the legal date for redemption had passed. A mortgagor also enjoys the equity of redemption which represents the sum total of the mortgagor’s rights in the property, including his paramount title out of which the mortgage is granted. The mortgagor’s rights within the equity of redemption include: the rule

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against irredeemability; the invalidity of a mortgagee’s option to purchase the property; the insistence on unfettered redeemability and the scrutiny of collateral advantages; and the objection to unconscionable terms.

Undue influence

A mortgage (or a severable part of it) may be struck down if it was obtained by the undue influence of the mortgagee or a third party acting on behalf of the mortgagee. Undue influence may be ‘actual’ or ‘presumed’. In cases of actual undue influence, it is not necessary to prove that the mortgage was to the ‘manifest disadvantage’ of the mortgagor. In cases of ‘presumed’ undue influence, this is necessary. In cases where the mortgagor is claiming that they were unfairly induced to enter the mortgage not by the mortgagee directly, but by another person, then the mortgagee will not be able to enforce the mortgage if either:

1the real inducer was acting as agent of the mortgagee (rare);

2or the mortgagee had actual or constructive notice of the inducer’s unfair conduct and had not taken the steps specified in Royal Bank of Scotland v. Etridge to ensure that the claimant was independently advised and thereby itself protected.

Unlawful credit bargains

Mortgages are subject to statutory controls designed to protect an impecunious borrower from the unfair practices of unscrupulous lenders: Consumer Credit Act 1974, as amended and enhanced by Consumer Credit Act 2006.

Restraint of trade

A mortgage that attempts to ‘tie’ a mortgagor to a particular company or mortgagee may fall foul of the contractual rules prohibiting contracts in restraint of trade.

The rights of the mortgagee under a legal mortgage: remedies for default

1An action on the contract for recovery of the debt. The mortgage is a contract and can be sued on in the normal way.

2The power of sale. If the power of sale has both arisen and become exercisable, the mortgagee may sell the property and apply the

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proceeds of sale to meet the mortgage debt and associated liabilities according to the provisions of section 105 of the LPA 1925.

3The right to possession. By virtue of the way in which legal mortgages are created, the mortgagee will have the equivalent of an estate in the land and an immediate right to possession, even if the mortgagor is not in default, subject only to any provision to the contrary in the mortgage itself or in statute. The consequences of taking possession are that the mortgagee will be called to account strictly for any income generated by their possession. If a mortgagee brings an action to recover possession of land ‘which consists of or includes a dwelling house’, the mortgagor may plead the protection of section 36 of the AJA 1970 (as amended by section 8 of the AJA 1973). Certain other limitations on the mortgagee’s right to possession may exist.

4Appointment of a receiver. The right to appoint a receiver is often expressly included in the mortgage and such a power will be implied into every mortgage by deed: section 101 of the LPA 1925. The receiver is deemed to be the agent of the mortgagor, not of the mortgagee, and so the mortgagee can avoid the dangers of taking possession.

5Foreclosure. If successful, foreclosure will extinguish the equity of redemption and result in the transfer of the mortgaged property, to the mortgagee, free of any rights of the mortgagor: section 88 of the LPA 1925. The court has power under section 91(2) of the LPA to order sale in lieu of a foreclosure and the proceeds will be distributed according to section 105 of the LPA 1925. The rights of a mortgagee under a mortgage created before the mortgage that triggers the foreclosure are unaffected, but the rights of a mortgagee under a mortgage that was created after the mortgage that triggers the foreclosure will be destroyed.

The rights of a mortgagee under an equitable mortgage

The rights and remedies of a mortgagee under an equitable mortgage or charge are similar to those of a legal mortgagee, although modified because the equitable mortgagee does not have a legal estate in the land. The equitable mortgagee has the right to sue for the money due on the contract; where the equitable mortgage is made by deed, the mortgagee has the power of sale, although no power to convey the legal estate to a purchaser. Where the power of sale does not exist, the equitable mortgagee may apply for sale at the court’s discretion under section 91(2) of the LPA 1925. An equitable mortgagee under a mortgage created by an equitable lease/sublease proba-

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bly has the right to possess the property or may be given this expressly in the mortgage contract. An equitable chargee does not have a right of possession as he has no estate in the land, unless possession is given specifically in the mortgage contract; the appointment of a receiver is as the power of sale; an equitable mortgagee has a right of foreclosure in the same way as a legal mortgagee. An equitable chargee does not, as he has no estate in the land.

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CHAPTER 11

ADVERSE POSSESSION

The law of adverse possession is something of a peculiarity in English law. It is, in effect, a set of rules that offers an opportunity1 to a mere trespasser actually to acquire a better title to land than the person who ‘legally’ owns it and to whom it was once formally conveyed with all the solemnity of a deed or registered disposition. In fact, adverse possession is rooted in the feudal origins of English land law for it is the most obvious modern example of the ‘relativity of title’ that once lay at the heart of the doctrine of estates. Given that in English law no person may own land itself – only an estate in it – it is in theory perfectly possible for someone other than the ‘paper’ or ‘formal’ owner to gain a better title without any formal transfer of ‘ownership’. A person’s title to land, including the paper owner’s, is, as a matter of theory, only as good as the absence of a person with a better title. However, as we shall see, this justification for adverse possession is fast becoming out of date. Although it remains the case under the Land Registration Act (LRA) 2002 that a person is still registered with an estate – not with the land itself 2 – registration as proprietor under the 2002 Act is a more absolute guarantee of ownership than anything that has gone before. There is still room for alteration of the register, and adverse possession of a registered title is not impossible – just impossibly difficult – but registration of a person as proprietor under the LRA 2002 is the closest thing in over 900 years to absolute ownership of land. This has led to a radical overhaul of the law of adverse possession as it applies to registered land and this must be remembered in the ensuing discussion. It is dealt with more fully below.

Despite the radical surgery performed by the Land Registration Act 2002, the fact that the common law should have developed a set of principles that might operate to deprive a ‘paper’ owner of his title to land is not as remarkable as might first appear. Historically, the common law always has been more concerned with the development of remedies for concrete situations rather than the formulation of abstract rights, and so the apparent lack of regard for the ‘rights’ of the paper owner, expressed in terms of a denial of

1As we shall see, the Land Registration Act 2002 has diminished substantially the chance of a successful claim to adverse possession of a registered title. Just how much of an ‘opportunity’ now exists remains a matter of debate.

2Hence the Crown is authorised to grant itself an estate in order to register its own land – it cannot just ‘register it’.

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a remedy if the defendant can plead adverse possession, is not particularly surprising or unique. It is also clear that a doctrine of adverse possession can be justified on substantive grounds, even in an age of registration of title. In terms of the legal process, adverse possession is an expression of a policy that denies legal assistance to those who sleep on their rights, as well as ensuring that there is an end to disputes concerning ownership of land.3 Similarly, land is a finite and scarce resource, and the principles of adverse possession can help to ensure its full economic and/or social utilisation, as in Hounslow v. Minchinton (1997) where the adverse possessor brought neglected land back into use. All this said, however, it would be a mistake to accept unquestionably the relevance of adverse possession in our modern system of land law, especially one that is moving towards electronic dealings with land. This is especially so in the context of land of registered title where entry of the ‘paper owner’ on the register of title – with a title guaranteed by the State – seems to preclude even the possibility that some interloper might acquire that ownership by mere possession of the land. Indeed, in so far as adverse possession had developed as a response to difficulties of proving title to land (e.g. where deeds were lost or no good ‘root of title’ could be shown), compulsory and widespread registration of title has removed its raison d’etre. Indeed, there is a point of principle here. If being registered as proprietor of an estate in the land is supposed to be a guarantee of the validity of that title to the whole world (subject only to the limited power to rectify the register under the Land Registration Act 2002), should the registered owner ever be susceptible to the claim of a mere trespasser? Moreover, how can we move to a system of e-conveyancing if the ‘mere’ fact of possession by another person might defeat the e-title of the e-vendor?

Such concerns have, of course, proved decisive, and the Land Registration Act 2002 establishes a new regime for adverse possession in respect of registered land – and we should remember that registered land now comprises over 85 per cent of all titles. Indeed, given that the relevant parts of the 2002 Act are in force, successful new claims to adverse possession of registered land are likely to slow to a thin trickle – if that. However, for the present and for so long as there remain large areas of unregistered land,4 we need to understand the substantive law of adverse possession. Thus, in the modern law, there remains one common set of rules concerning how adverse possession might be established, but two sets of divergent rules about the effect of a successful claim on the paper’s owner’s title. The rules common to

3RB Policies v. Butler (1950).

4Although there are less than 15 per cent of unregistered titles, this comprises somewhere between 30 to 35 per cent of land by area. In other words, unregistered titles comprise large parcels of land, often owned by the Crown, the Church, ancient institutions and local authorities.

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both registered and unregistered land are the substantive principles developed through case law over many decades and now largely codified by the House of Lords in J A Pye Ltd. v. Graham (2002). These rules establish when a claim of adverse possession might succeed factually and apply equally to registered and unregistered title. Beyond this, however, there is divergence, with the ‘traditional principles’ of limitation applying to land of unregistered title and the statutory scheme of the LRA 2002 applying to registered title. In fact, it is difficult to imagine a contrast so marked as now exists: adverse possession of unregistered land remains a real possibility, but successful5 adverse possession of registered land is highly improbable in the vast majority of cases. Indeed, so safe is land of registered title from the claims of an adverse possessor that owners of unregistered estates – particularly local authorities and public bodies with scattered and unmonitored holdings – are applying for voluntary first registration of title primarily to bring themselves within the protective umbrella of the new legislation.

11.1How is adverse possession established? The rules common to unregistered and registered land

Whether the claim for adverse possession is made in respect of unregistered land, or registered land subject to the old regime of the LRA 19256 or registered land subject to the new regime of the LRA 2002, the crucial question still remains: when will the possession of a trespasser be such as to establish title. Or, to put it another way, how is ‘adverse possession’ established factually? Fortunately, the rules about this are the same irrespective of whether the land is of unregistered or registered title.7

The relevant principles are not found in statute, not even in the Limitation Act 1980 itself,8 but have been developed through case law over generations. As judge-made law, these are flexible, changeable, malleable and not always consistent. This has the advantage that the substantive principles may respond to changing times, but the disadvantage of making it less easy to predict a court’s decision. There is no doubt, for example, that some recent decisions have been ‘adverse possessor friendly’, in the sense that the courts no longer manifest an inbuilt hostility to the adverse possessor, but that may be contrasted with the decision of the High Court in Beaulane Properties v. Palmer which attacks the essence of the law of adverse possession on human

5‘Successful’ in the sense of the adverse possessor actually acquiring title.

6Being land where the adverse possession was completed before the 13 October 2003, the date of entry into force of the LRA 2002.

7See Schedule 6, paragraph 11 of the LRA 2002.

8This governs the situation in unregistered land and, prior to the LRA 2002, the position in registered land also. It is considered more fully below.

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