Экзамен зачет учебный год 2023 / Sparkes, A New Land Law

interest rate is fixed for a period, of say two or five years, giving a known monthly budget.19

Late payment of commercial debt is an increasing problem.20 Many mortgages provide for an increase in the interest rate after a default has occurred.21 This may be a penalty if applied retrospectively22 so it is safer to offer a lower interest rate on prompt payment.23 Equity is no longer hostile24 to interest on arrears of interest (otherwise called compound interest or the capitalisation of arrears). After (say) 21 days, arrears of interest will be added to capital, so that the arrears are then subjected to interest. This leads to an enormous increase in the burden of the arrears,25 and places a strong weapon in the hands of the lender, though care is needed to preserve the power of sale.26 Nevertheless the provision for interest on interest is not an unfair term.27

Christian objections to lending on interest have evaporated, but Muslim mortgages do not provide directly for interest.

3.Costs

[29.03] A mortgage invariably requires the borrower to pay all the lender’s expenses, both as a debt and as an addition to the security. Examples are costs of a completed28 mortgage, money spent in preserving the property,29 insurance premiums, management expenses, repairs, redemption costs, and interest on prior mortgages.30 Litigation costs include those relating to the security, its enforcement, or defence of title to the property,31 but not the costs of asserting the validity of the mortgage itself against an outside party.32

Contractual entitlement to costs can only be curtailed by conduct amounting to a violation or culpable neglect of the lender’s duty under the contract.33 Nevertheless

19Usually there is a penalty against redemption within the fixed period, so the fix may be disadvantageous if interest rates drop.

20Late Payment of Commercial Debts (Interest) Act 1998 (8% above base rate).

21Lordsvale Finance v. Bank of Zambia [1996] QB 752, Colman J (valid if increase modest); Burton v. Slattery (1725) 5 Bro PC 233, 2 ER 648, HL; Herbert v. Salisbury & Yeovil Rly Co (1866) LR 2 Eq 221;

General Credit & Discount Co v. Glegg (1883) 22 Ch D 549.

22Seton v. Slade (1802) 7 Ves 265, 273, 32 ER 108; Dunlop Pneumatic Tyre Co v. New Garage Motor Co

[1915] AC 79, 87, Lord Dunedin; AC Meredith (1916) 32 LQR 420.

23Wallingford v. Mutual Society (1880) 5 App Cas 685, 702, Lord Hatherley. This right is lost (1) by a single default: Maclaine v. Gatty [1921] 1 AC 376, HL; (2) on taking possession without any default: Bright

v.Campbell (1889) 41 Ch D 388, Kay J; Wrigley v. Gill [1906] 1 Ch 165, CA.

24Ex p Bevan (1803) 9 Ves 223, 32 ER 588; The Maira [1990] 1 AC 637, HL; Westdeutsche Landesbank Girozentrale v. Islington LBC [1996] AC 669, 684G, Lord Goff; Whitbread v. UCB Corporate Services

[2000] 3 EGLR 60, CA.

25First National Bank v. Syed [1991] 2 All ER 250, 253g, Dillon LJ.

26Davy v. Turner (1970) 21 P & CR 967, Brightman J.

27Director General of Fair Trading v. First National Bank [2001] UKHL 52, [2002] 1 AC 481; see below

[30.07].

28Costs of proposed mortgages require a specific agreement, a solicitor’s undertaking, or payment of fees up front.

29Sinfield v. Sweet [1967] 1 WLR 1489 (express term).

30Hollis v. Wingfield [1940] Ch 336, CA.

31Re Leighton’s Conveyance [1937] Ch 149, CA; Halsall v. Egbunike (1963) 187 EG 101; Saunders v.

Anglia BS [1971] AC 1004, HL.

32Parker-Tweedale (No 2) v. Dunbar Bank [1991] Ch 26, CA.

33Cotterell v. Stratton (1872) LR 8 Ch App 295, 302, Selborne LC.

there is power for a taxing master to limit what is proper and reasonable,34 and the court can control litigation costs – having power for example to deprive a lender of his costs after he has refused a proper tender.35

B. OVERDRAFT MORTGAGES AND TACKING

1.Nature

[29.04] Mark Twain defined a banker as “the person who lends you his umbrella when the sun is shining and who wants it back the minute it rains.” That encapsulates an overdraft facility. The overdraft may initially be zero,36 but as money is drawn on the account, the bank is lending money to the customer. Add to that a charge on the land to secure the running balance37 and you have an overdraft mortgage. The mortgage deed is usually brief, setting a limit to which the customer is allowed to borrow,38 but securing any amount lent even if greater than the preset limit; this is the so-called “all monies charge”.39

Usually the amount owing is payable on demand40 or, what is the same thing, on request.41 The overdraft conditions may require a demand in writing, which is then a precondition to enforcement. A facility which provides for payment on a fixed day unless called in earlier, requires a reasonable and substantial period of notice giving time to ensure that the money is to hand.42 If the money is payable on demand the lender has to find the borrower to demand payment: the borrower must keep funds ready, but is allowed time to procure the money and to check the authority of the person making the demand.43 Time need not be allowed to negotiate a deal to find the money to pay,44 nor if the debtor company makes clear that it cannot pay.45

2.Tacking

[29.05] Tacking enables a loan to gain a higher priority than normal, because the lender is allowed to amalgamate his later advance with the debt secured by an earlier

34CPR 48; PD 48; Parker-Tweedale v. Dunbar Bank (No 2) [1991] Ch 26, CA; Gomba Holdings (UK) v. Minories Finance (No 2) [1993] Ch 171, CA.

35Supreme Court Act 1981 s 51(1); Barrett v. Gough-Thomas [1951] 2 All ER 48, 50, and many earlier cases; Gomba at 190H–198F, Scott LJ.

36It may still overreach: State Bank of India v. Sood [1997] Ch 276, CA.

37Also an independent debt: Barclays Bank v. Beck [1952] 2 QB 47, 54, Denning LJ.

38The bank could not unilaterally vary the amount guaranteed: Lloyds TSB v. Shorney [2001] EWCA Civ 1161, [2001] 1 FLR 81. If it does so any surety is discharged.

39White v. City of London Brewery Co (1889) 42 Ch D 237, CA; Burnes v. Trade Credits [1981] 1 WLR 805, PC.

40It is not tortious to call in the money: Edwin Hill v. First National Finance [1988] CLYB 3417, CA.

41Re Brown’s Estate [1893] 2 Ch 504; Bradford Old Bank v. Sutcliffe [1918] 2 KB 833, 840, Pickford LJ;

Lloyds Bank v. Margolis [1954] 1 WLR 644.

42Brighty v. Norton (1862) 3 B & S 305, 312, 122 ER 116.

43Toms v. Wilson (1862) 4 B & S 442, 454, 122 ER 524.

44RA Cripps & Son v. Wickenden [1973] 1 WLR 944, 955A.

45Sheppard & Cooper v. TSB Bank [1997] 2 BCLC 222, CA.

mortgage. Further advances rank in priority to subsequent mortgages46 of the same property47 thus:

(1)B borrows £X from L1;

(2)B borrows £Y from L2;

(3)B borrows £Z from L1.

If tacking is permitted the first lender may claim priority for the combined loan, thus: L1 (£X+£Z); L2 (£Y); borrower.

3.Priority of a registered overdraft

[29.06] Tacking of overdrafts secured on registered land is put on a new, simpler, basis by the Land Registration Act 2002,48 the scheme having being copied from the banking practice of other EU states. When tacking is allowed, priority is secured for the principal, interest, and costs due under the mortgage, but not the costs of enforcement. It can now occur in four circumstances:

(R1) A further advance agreed by later lenders;49

(R2) Normal overdrafts provide for further loans at the discretion of the lender. The overdraft can be increased until the registrar serves notice on the lender that a second mortgage has occurred; after that time further advances will no longer obtain priority. A further advance may be made by the proprietor of a registered charge at that a time that he has not received from a subsequent lender notice of creation of subsequent charge.50 Notice is deemed to have been received at the time it ought to have been under the rules.51 The innovation under this heading is that notice is now given by the second lender and not as previously52 by the land registry.

(R3) Where there is an obligation to make a further advance, which binds any later lender if the obligation is entered in the register.53 It is up to the lender who wants to tack to identify the existence of the obligation to the registrar, a separate application now being required.54

(R4) Further advances up to a maximum amount,55 a new head. It is permissible for an overdraft mortgage to state a maximum amount secured, say £100,000, so that when only £80,000 has been advanced any later lender knows that

46LPA 1925 s 94(1).

47Consolidation involves mortgages of different properties; see below [29.50ff].

48LRA 2002 s 49; Law Com 271 (2001), [7.18–7.36], EN [225–234]; DLRR 2003 r 106; LPA 1925 s 94(4) is amended by LRA 2002 sch 11.

49Priorities can always be varied by agreement: LRA 2002 s 49(6).

50S 49(1).

51S 49(2). DLRR 2003 r 106 gives the date that notices served by various methods are deemed to be received.

52LRA 1925 s 30; LPA 1925 s 94.

53LRA 2002 s 49(3). A registered charge is no longer necessary: Law Com 271 (2001), [7.22–7.28]; compare: LRA 1925 s 30(3); Lloyd v. Nationwide Anglia BS [1996] EGCS 80.

54DLRR 2003 r 107.

55LRA 2002 s 49(4); DLRR 2003 r 108; LR Forms CH4–CH6.

another £20,000 may be borrowed. The maximum amount must be entered on the register.56

4.Priority of unregistered overdraft

[29.07] Section 94 of the Law of Property Act 1925 allows tacking in unregistered land,57 in four cases:

(U1) If an arrangement to allow tacking has been made with the intervening lender.58 Lenders are always free to re-order their priorities by mutual agreement.59

(U2A) Where a mortgage is made expressly for securing a current account or other further advances, tacking is permitted until the earlier lender receives notice of another mortgage.

Notice may be actual, constructive, or imputed, but not through land charges registration:60 a bank manager is not required to carry out full conveyancing searches before increasing the overdraft limit. Later lenders should give written notice of their security to stop tacking by an earlier lender.

(U2B) Even if further advances are not contemplated by the mortgage, tacking is permitted61 until the prior lender receives notice62 of a subsequent mortgage.63

(U3) Further advances are obligatory.64 If a mortgage obliges the lender to lend £100,000 at the time of the mortgage and £50,000 one year later, the mortgage gives priority to a loan of £150,000 and any later lender can discover this. Tacking occurs even if there is notice of a subsequent mortgage.

5.Summary of tacking

56LRA 2002 s 49(4)–(5); Law Com 271 (2001), [7.32–7.36].

57LPA 1925 s 94(4); Megarry & Wade (6th ed), [19.263–19.262].

58LPA 1925 s 94(1)(a).

59Cheah v. Equiticorp Finance Group [1991] 4 All ER 989, PC.

60S 94(2) excluding s 198. Pre-1926 see: London & County Banking Co v. Ratcliffe (1881) 6 App Cas 722, HL; Deeley v. Lloyds Bank [1912] AC 756, HL.

61Marsh v. Lee (1869) 2 Vent 337, 86 ER 473; Hopkinson v. Rolt (1861) 9 HLC 514, 541, 11 ER 829, Lord Cranworth; Young v. Young (1867) LR 3 Eq 801, 805, Malins V-C.

62Pre-1926 cases: Hopkinson v. Rolt (1861) 9 HLC 514, 11 ER 829; London & County Banking Co v.

Ratcliffe (1881) 6 App Cas 722, HL; Bradford Banking Co v. Henry Briggs Son & Co (1886) 12 App Cas 29, HL; Union Bank of Scotland v. National Bank of Scotland (1886) 12 App Cas 53, HL; Hughes v. Birmingham PBBS [1906] 2 Ch 607, Kekewich J; Deely v. Lloyds Bank [1912] AC 756, HL.

63LPA 1925 s 94(1)(c).

64S 94(1)(c).

C. TERMS FETTERING REDEMPTION

[29.09] Equity intervened to protect borrowers because redemption actions came to Chancery. After 1540 usury laws fixed the maximum interest rate permissible and prohibited extra or disguised profits, but the last statute was repealed in 1854. G & C Kreglinger v. New Patagonia Meat & Cold Storage Co65 finally freed the law from this legacy in 1914 and Knightsbridge Estates v. Byrne66 disentangled commercial mortgages from the old law of oppression. Thus a commercial mortgage is usually valid in all its terms and fully enforceable. A residual power exists to invalidate terms of mortgage transactions because of technical inconsistency between the clause and the borrower’s equity of redemption, though these vestigial traces of the old doctrine against clogs and fetters now operate in a capricious and unjust fashion. So much so that the Master of the Rolls has recently described the doctrine of clogs on the equity of redemption as an appendix to the law which serves no useful purpose and should be excised.67

1.Equity will not allow an irredeemable mortgage

[29.10] A transaction which is in substance68 a loan may be redeemed by repayment. “Once a mortgage always a mortgage.”69 Three tests70 are entitlement to get back the property by repayments, a duty to account for any surplus on sale, and liability for any shortfall. Problems of differentiation were inevitable in the past when a mortgage took the form of a conveyance of the estate to the lender,71 but accidental confusion is much less likely after 1925 and the form of the deed is usually conclusive.72 If a loan is deliberately dressed up as a sale, an old-style mortgage by demise is created.73

2.Options to purchase

[29.11] Samuel v. Jarrah Timber Wood Paving Corporation74 held to be void an option in a mortgage of debenture stock enabling the lender to buy the mortgaged

65[1914] AC 25, HL, 47, Lord Parker.

66[1939] Ch 441, 454, Sir Wilfrid Greene MR.

67Jones v. Morgan [2001] EWCA Civ 779, [2002] 1 EGLR 125, [86], Phillips MR; MP Thompson [2001]

Conv 502.

68Baker v. Wind (1748) 1 Ves Sen 160, 27 ER 956.

69Seton v. Slade (1807) 7 Ves 265, 32 ER 108; Santley v. Wilde [1899] 2 Ch 474, 475, Lindley MR; Noakes v. Rice [1902] AC 24, 28, Lord Halsbury

70Re George Inglefield [1933] Ch 1, 27, Romer LJ; Stoneleigh Finance v. Phillips [1965] 2 QB 537, CA.

71Bowen v. Edwards (1661) 1 Rep Ch 221, 21 ER 555; Barnhart v. Greenshields (1853) 9 Moo PCC 18, 14 ER 204.

72Barton v. Bank of New South Wales (1890) 15 App Cas 379, PC.

73LPA 1925 ss 85(2), 86(2); Grangeside Properties v. Collingwoods Securities [1964] 1 WLR 139, CA.

74[1904] AC 323, HL; F Pollock (1903) 19 LQR 359; N Bamforth (1996) 49 CLP 207.

property.75 An option to purchase given on the creation or transfer of a mortgage76 is void, but one given afterwards77 is valid, as is a right of pre-emption.78

This is because an option would put the borrower too much in the power of the lender,79 and some later cases also rest on the degree to which the borrower becomes vulnerable to pressure. However, Jarrah Timber invalidated an option which was entered into freely and at a fair price80 and oppression is no longer relevant in normal commercial transactions.81 So, the real ground must be technical inconsistency between the right to redeem and an option granted by the mortgage.82 There is no legitimate reason to distinguish transactions at the time of the mortgage and subsequent dealings. It would be better to allow any option which is fairly obtained.

Thus in Jones v. Morgan83 an agreement to avoid repossession of a nursing home provided for part to be sold and for another part to be transferred to the lender. That agreement reached after and independent of the mortgage was unaffected by the doctrine of clogs and was perfectly valid.

3.Postponement of contractual redemption

[29.12] Equity allows redemption of a mortgage after the contractual redemption date, by tradition six months after the date of the mortgage. Postponement of this date pushes back the chance for the borrower to redeem the mortgage, a perfectly legitimate adjunct to a fixed rate mortgage. No postponement was permitted before the latter part of the nineteenth century,84 but then the movement towards sanctity of contract created a torrent of cases,85 raging on into the twentieth century86 which finally reversed the law on this point. Modern equity permits a postponement of contractual redemption unless the right to redeem is rendered illusory or it is actually oppressive. In Knightsbridge Estates Trust v. Byrne,87 a freehold estate was mortgaged to secure a loan of £310,000, payable by half-yearly instalments over 40 years. The borrowers wished to redeem after only six years,88 but the postponement was held to

75Including the freehold reversion in a mortgage of a lease: Nelson v. Hannam [1943] Ch 59, CA; but not an option over other items such as the sheep skins in Kreglinger (below).

76Lewis v. Frank Love [1961] 1 WLR 261, Plowman J; EH Scammell (1961) 24 MLR 385; PV Baker (1961) 77 LQR 163; Jones v. Morgan [2001] EWCA Civ 779, [2002] 1 EGLR 125.

77Reeve v. Lisle [1902] AC 461, HL. Even one day may suffice: [1904] AC 323, 325, Halsbury LC.

78Re Petrol Filling Station, Vauxhall Bridge Road (1969) 20 P & CR 1; Orby v. Trigg (1722) 9 Mod 2, 88 ER 276. Is there a solid distinction?

79Toomes v. Conset (1745) 3 Atk 261, 26 ER 952.

80[1904] AC 323, 325, Lord Halsbury (distaste for rule).

81Unless perhaps at a very low price or fixed in price over a long period.

82[1904] AC 323, 328, Lord Lindley (but see at 326, Lord Macnaghten); Lewis v. Frank Love [1961] 1 WLR 261, Plowman J.

83[2001] EWCA Civ 779, [2002] 1 EGLR 125; MP Thompson [2001] Conv 502; Lewis v. Frank Love applied.

84Jason v. Eyres (1681) Freem Ch 69, 22 ER 1064; Cowdry v. Day (1859) 1 Giff 316, 65 ER 936.

85Teevan v. Smith (1882) 20, Ch D 724, CA; Biggs v. Hoddinott [1898] 2 Ch 307, CA; Bradley v. Carritt [1903] AC 253, 259, Lord Macnaghten; Williams v. Morgan [1906] 1 Ch 804; Morgan v. Jeffreys [1910] 1 Ch 620 (28 years); Davis v. Symons [1934] Ch 442.

86Esso Petroleum v. Harper’s Garage (Stourport) [1968] AC 269, 341; Marden v. Multiservice Bookbinding [1979] Ch 84; Twentieth Century Banking Corp v. Wilkinson [1977] Ch 99.

87[1939] Ch 441, CA; HKM (1939) 7 CLJ 146; RE Megarry (1940) 56 LQR 504.

88Interest rates having fallen, they wished to borrow more cheaply elsewhere.

be valid. Oppression was wholly absent from this commercial arrangement between legally advised parties. Gradual repayment of such a large loan was perfectly natural and anyway, corporate borrowers can issue irredeemable debentures.89

Contractual postponements of redemption may not render the right to redeem illusory. The last rule caught the mortgage in Fairclough v. Swan Brewery.90 A lease of an hotel with 17 years left to run was mortgaged to a brewery, the hotelier tying himself to Swan’s beer. Repayments were to end only six weeks before the expiry of the lease, but the tenant was able to break this arrangement and redeem after only two years. Technical malformation is irrelevant where the postponement has a legitimate commercial object to secure some future obligation. In Santley v. Wilde91 a postponement until the last six weeks of a 10 year lease was intended to secure to the lender a one third share of profits accruing in the tenth year. The tenant could not redeem early to deny the lender his profits in later years.92

4.Collateral advantages

[29.13] These are rights enjoyed by the lender apart from the return of his loan with interest and costs. Examples are tied house clauses tying a pub to the beer of a particular brewer and corresponding ties to a brand of petrol (solus agreements).

Mortgage transactions were regulated by the usury laws between 1545 and 1854.93 The overall return was regulated, so equity invalidated any secret profit masquerading as a collateral advantage.94 Repeal of the usury laws95 and the shift to sanctity of contract96 called for a deep-rooted rethink. Collateral advantages are generally valid in modern law, even if limited to continue after redemption unless, that is, the right to redeem is rendered illusory or (very rarely) the advantage is secured by oppression.

The turning of the tide was marked by G & C Kreglinger v. New Patagonia Meat & Cold Storage Co.97 A meat preserving company which intended to secure additional funding had a plentiful supply of animal skins. Wool brokers had £10,000 available and wished to secure a supply of sheepskins. A loan was negotiated secured by a floating charge over the assets of the meat preserving company;98 by a separate document the wool brokers were given a pre-emption for five years over all the borrower’s sheepskins at the market price. When the loan was paid off after two years, the right of preemption continued in full force for the agreed period.99 The House of Lords faced a number of binding decisions that collateral advantages were destroyed by redemp-

89Companies Act 1985 s 193; Knightsbridge [1940] AC 613, HL (on 1929 Act).

90[1912] AC 565, PC; explained in Knightsbridge at [1939] Ch 411, 456–457, Greene MR.

91[1899] 2 Ch 474, CA; Re Cuban Land & Development Co (1911) [1921] 2 Ch 147.

92Later history: (1) disapproved in Noakes & Co v. Rice [1902] AC 24, 32–33, 34; Bradley v. Carritt [1903] AC 253, 255–258; (2) approved with reservations in Bradley [1903] AC 253, 278, Lord Lindley; (3) approved in Kreglinger [1914] AC 25, 43, 56; (4) ignored in Knightsbridge, CA.

93Mainland v. Upjohn (1889) 41 Ch D 126; Noakes [1902] AC 24, 33; Bradley [1903] AC 253, 255; Krelinger [1914] AC 25, 37, 54; ECC Firth (1895) 11 LQR 144.

94Spurgeon v. Collier (1758) 1 Eden 55, 28 ER 605; Seton v. Slade (1802) 7 Ves 265, 32 ER 108; Treevan

v.Smith (1882) 20 Ch D 724.

95Barrett v. Hartley (1866) LR 2 Eq 789; Biggs v. Hoddinott [1898] 2 Ch 307, CA.

96Salt v. Marquess of Northampton [1892] AC 1, 19, Lord Bramwell.

97[1914] AC 25, 37, Lord Haldane, 56, Lord Parker.

98Ie it charged any asset owned by the company for the time being.

99Biggs v. Hoddinott [1898] 2 Ch 307, CA (tied house clause).

tion, so the technical ratio may be restricted to collateral arrangements reached in a separate (albeit contemporaneous) transaction.100 However, now that the House of Lords is free to depart from earlier decisions, a wider interpretation of the ratio is likely.

Collateral advantages which create a permanent fetter remain invalid. A borrower cannot restrict his land for ever. Noakes v. Rice101 concerned a leasehold pub with 26 years of the term outstanding; a tied house clause throughout the remaining 26 years was invalid from the time of redemption of the loan. Similarly in Bradley v. Carritt102 a provision securing to the lender the position of broker to a tea company in a mortgage of shares in the company was void, since the shares were permanently devalued.

5.Unlawful restraints of trade

[29.14] Any interference with a freedom of action in trading is a restraint, liable to be struck down in English law as contrary to public policy,103 or by European rules.104 Restraints of trade survive only if reasonable in the private interests of the parties105 and also in the public interest.106 Mortgage terms are open to challenge as shown by

Esso Petroleum Co v. Harper’s Garage (Stourport)107 in the House of Lords. Esso lent £7,000 to Harper’s Garage in return for a “solus” agreement preventing the sale of competitors’ brands of petrol. The tie on the Corner Garage at Stourport for 21 years was held to be an unreasonable restriction of free competition.108 A shorter tie for five years affecting a garage at Kidderminster was acceptable.109 The doctrine is arbitrary since it bites only if a trader loses some existing freedom to trade,110 but not where he uses a mortgage to fund the initial acquisition of premises from which he never enjoyed uncontrolled trading rights111 nor where the mortgage and tie are in separate documents.112

100Vauxhall (1969) 20 P & CR 1, 6–9, Ungoed-Thomas J; Glanvill Williams (1944) 60 LQR 190.

101[1902] AC 24, 35, Lord Davey.

102[1903] AC 253, HL; approved in Kreglinger [1914] AC 25, HL.

103Nordenfelt v. Maxim Nordenfelt Guns & Ammunition Co [1894] AC 535, 565, Lord Macnaghten.

104Delimitis v. Henniger Brain [1991] ECR I–935; Star Rider v. Inntrepreneur Pub Co [1998] 1 EGLR 53, Blackburne J; N Hopkins (1998) 49 NILQ 202; Inntrepreneur Pub Co (CPC) v. Price [1999] EGCS 185, Ch D; Gibbs Mew v. Gemmell [1999] 1 EGLR 43, CA; Passmore v. Morland [1999] 3 All ER 1005, CA.

105The relaxed view in Kreglinger applies: Hill v. Regent Oil Co [1962] EGD 452; Esso [1968] AC 269, 341G, Lord Wilberforce; Alec Lobb (Garages) v. Total Oil GB [1985] 1 WLR 173.

106Nordenfelt [1894] AC 535, 573–574, Lord Macnaghten.

107[1968] AC 269, HL; PG Whiteman (1966) 29 MLR 77; PV Baker (1966) 82 LQR 307; PV Baker (1967) 83 LQR 478; T Heyden (1969) 85 LQR 229, 232 (lease and lease back).

108At 321G, Lord Morris.

109Also: Texaco v. Mulberry Filling Station [1972] 1 WLR 814 (five years); Alec Lobb (Garages) v. Total Oil GB [1985] 1 WLR 173 (break clause after 7 and 14 years).

110Esso at 298B–E, Lord Reid, 309B–F, Lord Morris, 325C–E, Lord Pearce; Cleveland Petroleum Co v. Dartstone [1969] 1 WLR 116, CA.

111Alec Lobb [1985] 1 WLR 173.

112Re Petrol Filling Station, Vauxhall Bridge Road (1969) 20 P & CR 1.

D. COMMERCIAL REPOSSESSION

1.Right to possession

[29.15] Possession is a right of a mortgage-lender whose security is legal.113 Why? Because a lender with a legal charge has the same rights as a lender by demise, who is entitled as a tenant of the property.114 This preserves the pre-1926 rights of lenders derived from ownership of the estate mortgaged. A lender with an equitable mortgage does not hold a legal estate, and requires a court order before taking possession115 or collecting rent.116 However, it is arguable today that the rights under a Walsh v. Lonsdale equity117 should correspond to those under a legal mortgage, given the prospective effect of specific performance. An equitable charge gives no right to possession.118

Domestic borrowers are protected against minor defaults by the Administration of Justice Acts 1970–1973.119 In the commercial sector, possession is not dependent upon default. That the right pre-dates the contractual redemption date is demonstrated by Harman J’s remark in Four-Maids v. Dudley Marshall (Properties)120 that the lender “may go into possession before the ink is dry on the mortgage.” Possession is needed after a default to facilitate a sale and at any other time when the value of his security is threatened, but the lender may take possession even if he cannot demonstrate any reason to go in. Equity never intervened to prevent a common law possession action,121 a theoretical inequity but one which has proved of little account since equity did compel the lender to account by paying an occupation rent after taking possession for his own purposes.122 The common law right to repossession was examined in exhaustive detail by the Court of Appeal in Ropaigealach v. Barclays Bank.123

When the Chancery Division assumed exclusive jurisdiction over mortgage repossession in 1936, the only power was to stay proceedings for a short time to enable the mortgage to be redeemed in full, and this remains the only protection for commercial borrowers.124 Apart, that is, for the contractual provisions, which are generally

113Sufficiently proved by official copies: CPR 33.

114LPA 1925 ss 87, 95(4); Spector v. Applefield Properties (1968) 206 EG 537 (includes successors). First lenders before later ones if there is a competition: Practice Direction [1968] 1 WLR 422; Cassell Arenz & Co

v.Taylor (1968) 209 EG 357.

115Barclays Bank v. Bird [1954] Ch 274, Harman J; Ex p Bignold (1832) 2 Deac & Ch 398, Eldon LC; Spencer v. Mason (1931) 75 SJ 295.

116Cox v. Bishop (1857) 8 De GM & G 815, 44 ER 604; Finck v. Tranter [1905] 1 KB 427; Vacuum Oil Co v. Ellis [1914] 1 KB 693, CA.

117RE Megarry (1954) 70 LQR 161; HWR Wade (1955) 71 LQR 204; see above [24.05].

118Bland v. Ingram’s Estate (No 2) [2001] EWCA Civ 1088, [2002] 1 All ER 264, [19].

119See below [30.18ff].

120[1957] Ch 317, 320.

121But see below [30.34].

122See below [29.17].

123[2000] QB 263, 271–276, Chadwick LJ; Remon v. City of London Real Property Co [1921] 1 KB 49, CA; Cruise v. Tewell [1922] 1 KB 644, CA; Lavender v. Betts [1942] 2 All ER 72.

124Birmingham PBS v. Caunt [1962] Ch 883, 894, Russell J; RE Megarry (1962) 78 LQR 171; Mobil Oil Co v. Rawlinson (1982) 43 P & CR 221, Nourse J; Ropaigealach at 272F, Chadwick LJ.

included in commercial mortgages, for example, limiting the right to possession125 so that it accrues only on default.126

2.Position of borrower

[29.16] Borrowers are usually left in possession. They have been viewed successively as tenants at sufferance,127 and contractual licensees,128 but are now better seen as exercising ownership until the lender asserts his superior rights. Thus, for example, the borrower may collect rent129 suing in his own name.130

3.Occupation rent where lender takes possession

[29.17] Read literally, mortgages allow the lender at one and the same time both possession of the land and interest under the borrower’s personal covenant to pay it, but first the usury laws (now repealed) and later equity intervened to prevent this double profit.131 A lender who takes personal occupation is required to pay an occupation rent,132 and if he collects rent under an existing lease133 it must be applied to payment of interest, with surpluses going to reduce the capital debt.134 Rent and interest were balanced annually if there was no reason to take possession – that is if there was no default and the rents exceeded the interest135 – but otherwise over the whole period of possession.136

The account extends beyond actual receipts to include what the lender ought to have received137 on the basis of wilful default. Where a purchaser was allowed rentfree occupation for four months before completion of the purchase, a master was left to determine whether wilful default had occurred.138 Property must be let if possible139 at a market rent.140 White v. City of London Brewery Co141 bought to book a brewery company which had taken possession of a pub and then let it as a house tied

125Four Maids [1957] Ch 317, 320, Harman J; Braithwaite v. Winwood [1960] 1 WLR 1257.

126Birmingham PBS v. Caunt [1962] Ch 883, 912, Russell J; RJ Smith [1979] Conv 266; H Wallace (1986) 37 NILQ 336. Some peg is required on which to hang this implication: Esso Petroleum Co v. Alstonbridge Properties [1975] 3 All ER 358, 367–368, Walton J (default is a once and for all trigger); Western Bank v. Schindler [1977] Ch 1, CA; (1976) 92 LQR 482; TSB Bank v. Ladsky (No 2) (1997) 74 P & CR 372, CA.

127Thunder d Weaver v. Belcher (1803) 3 East 449, 102 ER 669.

128Rhodes v. Allied Dunbar Pension Services [1989] 1 WLR 800, 807, Nicholls LJ; EC Ryder (1969) 22 CLP 129, 142–143.

129LPA 1925 s 141(2); LT (Covenants) Act 1995 s 15(1)(b).

130LPA 1925 s 98. Defects in Judicature Act 1873 s 25(2) were remedied in 1881: Turner v. Walsh [1909] 2 KB 484, 496, Farwell LJ.

131Bright v. Campbell (1885) 54 LJ Ch 1077, CA.

132Trulock v. Robey (1847) 2 Ph 395, 41 ER 995; Marriott v. Anchor Reversionary Co (1861) 3 De GF & J 177, 193, 45 ER 846, Turner LJ.

133Possession of rents is taken by giving notice: Turner v. Walsh [1909] 2 KB 484, 494, Farwell LJ; Moss

v.Gallimore (1779) 1 Doug KB 279, 99 ER 182; Pope v. Biggs (1829) 9 B & C 245, 109 ER 91.

134Gaskell v. Gosling [1896] 1 QB 669, 691, Rigby LJ dissenting; on appeal [1897] AC 595, HL.

135Wrigley v. Gill [1906] 1 Ch 165, CA. A break in the accounts a rest.

136Nelson v. Booth (1858) 3 De G & J 119, 122, 44 ER 1214.

137Parkinson v. Hanbury (1867) LR 2 HL 1, 15, Lord Westbury.

138Shepard v. Jones (1882) 21 Ch D 469; Bright v. Campbell (1885) 54 LJ Ch 1077.

139Brandon v. Brandon (1862) 10 WR 287; Noyes v. Pollock (1886) 32 Ch D 53.

140Sherwin v. Shakespear (1854) 5 De GM & G 517, 537, 43 ER 970.

141(1889) 42 Ch D 237, CA.