REF/2012/1006

REC/2013/0041

FIRST-TIER TRIBUNAL

PROPERTY CHAMBER

LAND REGISTRATION DIVISION

LAND REGISTRATION ACT 2002

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY

 

BETWEEN

JONATHAN HOWARD ROBERTS

JANET ANN THAIN

MORGOED ESTATES LIMITED

 

APPLICANTS

 

and

 

BRENDAN KEEGAN

RESPONDENT

 

Property Address: 1 Arlington Road,

Title Number: BL128360

Before: Judge Mark

Sitting at: Alfred Place

On: 23 and 24 July 2014

 

Applicant Representation: David Roberts solicitor

Respondent Representation: in person

___________________________________________________________________________­

 

A lease created by the owner of a rentcharge pursuant to section 121 of the Law of Property Act 1925 is not registrable as a lease at HM Land Registry but is a mortgage which can only be protected on the register by a notice at least where the rentcharge is to end in 2037 under the Rentcharges Act 1977.

 

Costs recoverable under the rentcharge and lease do not include costs unreasonably incurred.

 

Cases referred to:

Santley v Wilde, [1899] 2 Ch 474, CA

Gomba Holdings v Minories Finance [[1993] Ch 171, CA

Co-operative Bank v Phillips [2014] EWHC 2862 (Ch

 

1. For the reasons given below, I shall direct the Chief Land Registrar to cancel the application of the first two Applicants dated 2 April 2012.

 

2. By an Indenture dated 16 January 1903, mortgagees conveyed what is now 1 Arlington Road Brislington Bristol (the property) to William James in consideration of a perpetual yearly rentcharge of £2-15s (now £2.75) a year payable by two half yearly payments on 25 March and 29 September in each year. It appears to have been payable in arrears as the first half yearly payment or a proportionate part of it was to be made on the following 25 March.

 

3. The Indenture contained a proviso that if during a perpetuity period there described the rent charge should be in arrears for 12 months or if there should be a breach of any of the covenants 3, 5, 6, 7 and 8 contained in the Indenture then subject to any statutory provision, if the mortgagees (which includes their successors in title) so declare in writing, the property should revest in the mortgagees. The first two covenants in the Indenture by the purchaser, Mr James, were to pay the rentcharge and to complete the house and other buildings being built on the property. Covenants 3, 5, 6, 7 and 8 were, in brief summary, to keep the property in repair and insured, and not, without the mortgagees consent, to pull it or any part of it down, or to add to or alter it, and to observe certain restrictive covenants in respect of it or use it in certain ways.

 

4. By the end of the last century, the benefit of the rentcharge was vested in a Miss Moorse. She also owned several other rentcharges. The rentcharge was then and remains, unregistered. The property was also unregistered until September 2000 when it was registered, apparently by the personal representative of the late owner, a Mrs. Duck. The existence of the rentcharge was then noted in the Charges Register. The property was then sold to the Respondent, Mr Keegan, and on 6 December 2000 he was registered as proprietor with title absolute, the price for the property being stated to be £59,000.

 

5. Miss Moorse appears by that time to have been elderly and becoming infirm. Her accounting records show that Mrs. Duck had been the owner of the property but there is a manuscript note on them that she was deceased and the new entry refers simply to the occupier of the property. She appears from those records to have been paid her £2.75 by one annual payment. A payment was made in April or August 2000, so that payments were up to date when Mr. Keegan purchased the property in November 2000. He was aware of the rentcharge, which was entered on the charges register of the property, but he had no recollection of the details. This is unsurprising in view of the annual amount involved which would not have caused him any concern.

 

6. His evidence was that he and a friend lived in the property, and that he was often away. He had no recollection of any demand for payment of the rentcharge in 2001. He did receive a demand in about March 2002 for that year’s rentcharge and the arrears for 2001. The demand was addressed to “The Occupier” at the property. The total was £5.50 and he made a note on the demand “Paid Postal Order 5/4/02 + cover letter”). I accept that he paid this sum and that he sent a covering letter which would have included his name. There is no indication, however, that Miss Moorse updated her records as to his name, and although she entered the figure of £5.50 in her accounts, unlike other sums she did not record it as paid.

 

7. By a conveyance dated 25 September 2003, Miss Moorse conveyed to the Third Applicant (Moergoed) 102 rentcharges including that in respect of the property. I note that by that time she was in a nursing home, and I also note that her previous address as given in the conveyance is not the same as that on the demand which she had sent to “The Occupier” of the property. It is possible that Miss Moorse used an old address on the demand with the result that the postal order and letter sent in return never reached her.

 

8. It would appear that a firm of solicitors, Veale Wasbrough, acted for her on this sale of rentcharges, which realised £3500. The average annual amount due in respect of each of the 99 rentcharges was in the region of £3-£4. Veale Wasbrough provided Morgoed with a form of authority on their headed notepaper for Morgoed, dated 9 October 2003, to send to each of the owners of the 102 properties informing them of the assignment of the benefit of the rentcharge in question.

 

9. Because Miss Moorse’s records were incomplete, Morgoed did not know who the owner of the property then was. I accept the evidence of the First Applicant, Mr. Roberts, who is a director of Morgoed and was responsible for advising owners of the assignment, that he therefore sent notice to “the owner” at the property. The standard form letter in the hearing bundle is dated 27 October 2003, which also states that the 2003 demand and statement were enclosed. It also included an invitation to the owner to purchase the ground rent outright. Mr. Keegan says that he never received the notice and other documents, but in view of his evidence that, like many others by that time, he would treat as junk mail and throw away letters addressed to the occupier or the owner, I find that in all probability the letter did arrive but was thrown away by Mr. Keegan as junk mail without opening it. A demand for the 2004 payment is also said to have been made, presumably again addressed to the owner and if it arrived at the house it would have been dealt with in the same way by Mr. Keegan.

 

10. Nothing further then appears to have happened until February 2005, by which time Mr. Roberts had made further enquiries and identified Mr. Keegan as the owner of the property. By letter dated 9 February 2005 he wrote on behalf of Morgoed to Mr. Keegan referring to the rent payment as long overdue, enclosing a possession notice and stating that if it was not complied with, possession proceedings would be issued, the total costs of which would fall on Mr. Keegan. The amount claimed to avoid possession proceedings was £71. I note that at that stage the 2005 rent was not yet due and the total rent arrears were £5.50. Mr. Keegan was also informed that a copy of the notice had been forwarded to his mortgagee. A letter to his mortgagee of the same date also threatens possession proceedings, stating that “This action has only been taken with regret after several demands have met with no response.” The possession notice refers to arrears of £11, apparently because Morgoed was unaware of the payment of £5.50 in April 2002 which had not been recorded by Miss Moorse. The £71 comprised the alleged arrears of £11 and £60 in respect of costs incurred in preparing and serving the notice including Land Registry fees. The fees in question appear to be a charge by the Land Registry for providing information as to the registered proprietor.

 

11. On 10 February 2005, Mr. Keegan responded by telephoning Mr. Roberts. When told that the demands and other information had been posted to the owner, Mr. Roberts states in his witness statement that Mr. Keegan told him that he was in the habit of filing items of correspondence addressed to the owner in the bin. Mr. Roberts observed that all Morgoed correspondence was sent with standard first or second class stamps affixed rather than postal impressions and so Mr. Keegan should not have assumed that the content were junk mail. Apart from that Mr. Roberts could not recall anything from the conversation except that it was “somewhat contentious”. It is plain from what Mr. Roberts does recall that Mr. Keegan made it plain that he was not aware of receiving any demands or other correspondence and that if it had been addressed to the owner, he would have treated it as Mr. Roberts describes. Mr. Keegan’s note of the telephone conversation states that Mr. Roberts was very aggressive and refused to provide him proof of ownership or of the previous letters sent, if any, by Morgoed. Mr. Keegan then appears to have spoken to Veale Wasbrough who, he states were checking their records, and there then appears to have been a further conversation with Mr. Roberts where Mr. Keegan notes “Finally agreed as I said would send cheque & he would send copy [?] deed title by [?] & how £60 charge is arisen [sic].” Mr. Roberts denies promising to send anything and states in paragraph 16 of his witness statement:

 

“… if there had been a need to follow up on matters raised within the conversation, I would have made a note on the database to do this as it was and remains Morgoed’s primary method of recording tasks. Furthermore it is a long standing policy of Morgoed (instituted at my direction) not to supply any copy documentation without recovering its costs unless there is a valid reason to do so. I am firmly of the belief that the original rent authority letter was validly served and cannot recollect ever holding any other belief. I would not therefore have agreed to issue a copy without charging the Respondent for the same and any charge quoted would have itself been noted on the database.

 

12. In giving evidence at the hearing, Mr. Roberts stated that he had formed an adverse opinion of Mr. Keegan’s willingness to pay the rent charge. There had been rare occasions when they had sent out duplicate letters but it was extremely expensive to send out copy one off documents. Deeds were filed in packages and they would have to recover the original file from the deeds department and the original rent authority letter. This was a blank letter and they would have to generate a database copy to add the name and address and the name and address would not be enough for Mr. Keegan.

 

13. Mr. Roberts went on to say that they had probably paid about £16-17 for the rentcharge and that was why they did not send duplicates. Notice to the owner was enough under section 196(1)-(2) of the Law of Property Act 1925 (LPA 1925), with which Mr. Roberts was plainly very familiar – he said that he was a barrister and property conveyancer for many years. The rent authority notice was, he contended, notice perfecting the assignment of the chose in action under that Act. Morgoed had more than 32,000 rentcharges and ground rents through the UK and 3-5000 were in arrears. Their present arrears were about £100,000 to £150,000. It would have cost more than the ground rent to provide a photocopy of the documents. In cross examination by Mr. Keegan, Mr. Roberts said that he did not think he would have offered to send out copy documents unless, for example, he had got the address wrong. He would have offered to do so for remunerative payment. He was often asked for title documents but did not do this as titles sometimes ran to hundreds of payments. He would have asked for £10 to £15 to provide a copy of the Veale Wasbrough letter and title documents would have been more.

 

14. With regard to the £60 charges, that included the Land Registry fee and also the time spent making the application to the mortgage company to pay the outstanding rent. He was not sure they had heard back from the mortgage company but they did not pay.

 

15. In his own evidence, Mr. Keegan said that he had been told by Mr. Roberts’ son, who represented the Applicants as their solicitor before me, that the notice had been sent in a plain envelope with no return address. There was nothing to distinguish it from reams of junk mail coming in. Occasionally he opened such letters but not anything before the first letter addressed to him personally assuming such letters had been sent and arrived. When speaking with Mr. Roberts, he understood that if he paid the arrears of rent he would be sent proof of ownership. He was not told that he would have to pay for a copy of the letter. He had paid the £5.50 arrears but had still received no copy of any document. He also heard nothing further from Veale Wasbrough, which was not surprising as he had had no reference of any kind to provide to that firm.

 

16. Mr. Keegan did pay the £5.50 arrears by cheque at the beginning of March 2005. It was received and noted in Morgoed’s records. Morgoed still did not accept that he had paid a further £5.50 by postal order to Miss Moorse and by a combined rent demand and statement dated 9 March 2005, it claimed £68.75, comprising the new year’s ground rent, the alleged continued arrears and the alleged outstanding charges of £60. This document also offered to sell the rent outright for the arrears and charges plus a single capital payment of £49.50 – a reasonable sum but about three times what had been paid for the rentcharge by Morgoed. Similar demands and offers were made in the following years.

 

17. Not having received any of the documents he had sought and expected, Mr. Keegan took advice from a Citizens’ Advice Bureau and also consulted the police. Somebody at the Citizen’s Advice Bureau advised him that it was probably a scam.

 

18. Insofar as there is a difference between the evidence of Mr. Keegan and Mr. Roberts as to what was said on 10 February 2005, I consider that this is largely because, in the course of a heated discussion or heated discussions on the phone, they ended up misunderstanding each other. Mr. Keegan was upset to receive the notices that he received demanding £71 for not paying a ground rent of £2.75 for two years to a company he knew nothing of and from which, so far as he was concerned, he had no evidence of entitlement. Letters in plain envelopes addressed to “the owner” with no return address were junk so far as he was concerned and if they arrived, I am satisfied that he binned them unopened. Had he opened them, his reaction would have been to respond to them, just as he responded on getting the letter of 9 February 2005.

 

19. His request for copies was a very reasonable one, and he must have been taken aback by Mr. Roberts’ flat refusal to send them either at all or unless a substantial fee was paid for them. I am satisfied that he acquired the impression by the end of the conversations that he would get copies if he paid the arrears of ground rent, but I am also satisfied that Mr. Roberts in fact was determined not to supply them unless paid a substantial sum. Mr. Roberts’ stance was so unusual and unreasonable that it is not entirely surprising that Mr. Keegan failed fully to grasp that he was taking that position.

 

20. While it may be sufficient legally to serve a document by posting it in a blank white envelope with a first or second class stamp but no return address, to the owner of the property to which it is sent (at least if it arrives – I deal with the legal position further below), in 1925 property owners did not face the battery of junk mail addressed to the owner or occupier which estate agents, utility providers and others now send out. Mr. Keegan is by no means unique in binning such mail unopened, and it should come as no surprise to Morgoed that this should happen. Nor was Mr. Keegan to be aware that Miss Moorse had failed to deal with his postal order for the 2001-2 rentcharge payments or that she had failed to note his name in her records.

 

21. He may have paused to wonder why he had not received any further demands from Miss Moorse, but in truth the amount involved of £2.75 per year was so trivial as, for most people, hardly to be worth the bother of demanding it and it could easily slip his, or anybody’s, mind until demanded even though as a matter of strict law it was payable whether demanded or not.

 

22. Morgoed was in the business of buying rentcharges in bulk at low cost, and hoping to make money surrendering them for a small premium. I note that the rent demands sent out do not even include provision for payment by direct debit or standing order, but only by cheque or postal order. It seems to me that the cost of dealing with those owners who lost or failed to receive notification of the assignment of their rentcharge is something that needed to be built into the sums paid for the rentcharges generally, and given that the price in this case was one third of the redemption figure demanded by Morgoed, it would appear to have been built in. Further, given the extent to which Morgoed’s records were computerised, it should not have been difficult to scan in the Veale Wasbrough letter and to recreate in February 2005 a copy for Mr. Keegan of that and any covering letter. Whether that is so or not, to refuse his request for copies either absolutely or except for an unspecified fee which may in total have approached or exceeded the redemption cost was manifestly unreasonable. Whether Mr. Keegan would have accepted Morgoed’s title had his request been dealt with sensibly and reasonably is not something I need to determine, but if that is wrong, I conclude that if he had been provided copies of the documentation and a reference at Veale Wasbrough, he would have been able to satisfy himself of the transfer and of Morgoed’s title and subsequent problems would have been averted with the possible exception of the £60 fees to which I shall return.

 

23. As it was, Mr. Keegan did not pay any rentcharge or expense claimed and on 28 March 2012 Morgoed exercised the power granted by section 121(4) of LPA 1925 to grant a long lease of the property to the first two Applicants, who were both directors of Morgoed. The Applicants then applied to the Land Registry to register the lease and Mr. Keegan objected to this. Although Mr. Keegan made it plain that he was willing to have negotiations to settle this matter, the Applicants did not agree, and the dispute was referred to the Adjudicator to the Land Registry. As a result of the transfer of the powers and functions of the Adjudicator to the Property Chamber of the First-tier Tribunal, the dispute is now being dealt by me as a judge of that tribunal.

 

24. The lease is made between Morgoed and the first two Applicants (defined as the Trustees).It recites the 1903 indenture and rentcharge arrears totalling £13.75. In the expressed exercise of the power conferred by sections 9 and 121 of the Law of Property Act 1925 and every other power enabling it to do so, Morgoed demises the property to the Trustees for 99 years without impeachment of waste upon the trusts and subject to the provisions set out in the lease. No rent is reserved. The trustees are empowered by mortgaging or selling the term created by the deed or by receiving income from the property or by any other reasonable means “to raise and pay the rentcharge and all arrears of it due and to become due and all costs and expenses occasioned by non-payment of the rentcharge or incurred in compelling or obtaining repayment of it or otherwise relating to it including the costs of [Morgoed] and the Trustees respectively of and incidental to the preparation and execution of this deed and of the execution of the trusts of this deed”.

 

25. There followed a provision for the Trustees to stand possessed of any money raised or received under the trusts of the term upon trust first to pay the costs and expenses referred to and then the rentcharge and arrears with the surplus being held in trust for the person entitled in reversion on the term created by the lease. Morgoed and any successor in title to the rentcharge was given the power in the lease to appoint new trustees and also gave an indemnity to the Trustees in respect of claims against them “in respect of any exercise or purported exercise of the trusts or powers of this deed”.

 

26. The backsheet of the lease is entitled “Demise to secure payment of rentcharge”.

 

The law

 

27. The historical background and a summary of the law relating to rentcharges is set out by Principal Judge Cousins in paragraphs 25 to 32 of his Interim Decision in this case dated 3 March 2014, where he stated as follows:

 

25.   Rentcharges are of ancient origin, but became popular in Victorian and Edwardian times as a means of purchasing property. They still continue to be of legal effect in certain parts of the country, especially in the areas of Bristol, Bath and Manchester. They have been long used as a substitute for capital payments on the sale of land. The formula adopted was that the seller would accept a reduced capital sum as the purchase price of land, or no capital sum at all, but in substitution for that sum, or in addition to a reduced sum, the seller would require a periodic payment in the nature of a rentcharge secured over the property with powers of enforcement granted to the rentcharge owner if the money is not paid. It should be emphasised that the concept of a rentcharge must be distinguished from the concept of a rent service found in the relationship of landlord and tenant with which it is often confused.

 

26.   Following the recommendations of the Law Commission, (Law Com No. 68) the Rentcharges Act 1977 (“the 1977 Act”) made provision for the abolition of those rentcharges which were inconvenient unpopular and anomalous, whilst exempting those which were considered to remain of use. Section 2(3) of the 1977 Act, as enacted, provides that the section does not prohibit the further creation of rentcharges such as estate rentcharges (as defined by the 1977 Act). Existing rentcharges such as the Rentcharge in question continue to remain enforceable until extinguished, but no new such rentcharges whether legal or equitable can be created, except for those exempted by statute.

 

27.   For a rentcharge to be a legal interest it must take effect in possession and be created in fee simple or for a term of years absolute (see section 1(2)(b) of the 1925 Act). A rentcharge so created is an incorporeal hereditament and consequently constitutes real property. It is therefore fully alienable. A deed is necessary for the creation of a legal rentcharge by an inter vivos instrument. Accordingly, the owner of a rentcharge in possession issuing out of or charged on land which is either perpetual or for a term of years absolute, and which subsists as a legal estate, may apply to have his title to the rentcharge registered under the 2002 Act. The rentcharge will be noted in the Charges Register against the title to the estate affected by it.

 

28.   However, section 3 of the 1977 Act provides that every existing rentcharge (subject to certain exceptions) shall be extinguished at the expiry of 60 years beginning with the enactment of the Act, namely 22 ^nd July 1977, or with the date on which the rentcharge became first payable, whichever is the later. In the present case in principle (and subject to the provisions contained in section 3(2) of the 1977 Act) the Rentcharge will therefore be extinguished on 22 ^nd July 2037. It therefore will only remain enforceable for a further 23 years or so, unless it has been extinguished in some other way. On the basis that the Rentcharge would be extinguished as a matter of law the approximate amortised amount due and owing between 29 ^th September 2013 and 22 ^nd July 2037 is therefore about £63. It is to be noted that the although the Rentcharge itself will be extinguished on 22 ^nd July 2037 the oddity is that the Lease granted to the Trustees in principle will continue as it was created for the term of 99 years from 28 ^th March 2012. This gives rise to the question as to whether the creation of the Lease could be construed as a sham transaction.

 

29.   One method of extinguishment of the Rentcharge which Mr Keegan could have pursued is to have sought a statutory extinguishment pursuant to the 1977 Act by making an application to the Secretary of States for redemption pursuant to the redemption provisions contained in sections 8 to 10. He does not seem to have pursued this, and it may be from what he has stated that he considered that this was no longer open to him once the Lease had been granted.

 

Remedies for recovery of sums due under a rentcharge

30.   There are four remedies available for the recovery of a rentcharge provided by section 121 of the 1925 Act. For present purposes the remedy pursued by Morgoed Estates is the provision contained in section 121(4) which provides as follows:-

 

1.       “In the like case the person entitled to the annual sum, whether taking possession or not, may also by deed demise the land charged, or any part thereof, to a trustee for a term of years, with or without impeachment of waste, on trust, by all or any of the means hereinafter mentioned, or by any other reasonable means, to raise and pay the annual sum and all arrears thereof due or to become due, and all costs and expenses occasioned by non-payment of the annual sum, or incurred in compelling or obtaining payment thereof, or otherwise relating thereto, including the costs of the preparation and execution of the deed of demise, and the costs of the execution of the trusts of that deed:

 

2.       Provided that this subsection shall not authorise the creation of a legal term of years absolute after the commencement of this Act, save where the annual sum is a rentcharge held for a legal estate.

 

3.       The surplus, if any, of the money raised, or of the income received, under the trusts of the deed shall be paid to the person for the time being entitled to the land therein comprised in reversion immediately expectant on the term thereby created.

 

4.       The means by which such annual sum, arrears, costs, and expenses may be raised includes –

 

(b) the creation of a legal mortgage or a sale (effected by assignment or sub demise) of the term created in the land charged or any part thereof,

(c) the receipt of the income of the land comprised in the term.”

 

31.   It is provided by sub-section (5) that the section applies only if and so far a contrary intention is expressed in the instrument creating the rentcharge. No such contrary intention is expressed in the 1903 Indenture in that this deed is silent on the point.

 

32.   The reference to in the “like case” refers to the provisions contained in sub-section (3) which provides as follows:-

 

                                                              i.       “If at any time the annual sum or any part thereof is unpaid for forty days next after the time appointed for any payment in respect thereof, then, although no legal demand has been made for payment thereof, the person entitled to receive the annual sum may enter into possession of and hold the land charged or any part thereof, and take the income thereof, until thereby or otherwise the annual sum and all arrears thereof due at the time of his entry, or afterwards becoming due during his continuance in possession, and all costs and expenses occasioned by non-payment of the annual sum, are fully paid; and such possession when taken shall be without impeachment of waste.”

 

28. Section 9(1)(e) of LPA 1925 provides that “every conveyance made under any power reserved or conferred by this Act, which is made or executed for the purpose of vesting, conveying, or creating a legal estate, shall operate to convey or create the legal estate disposed of in like manner as if the same had been a conveyance executed by the estate owner of the legal estate to which the order, declaration, vesting instrument, or conveyance relates.” It follows that the lease created by Morgoed operated to create the legal estate as if it had been executed by Mr. Keegan.

 

29. Section 3 of the Land Registration Act 2002 (LRA 2002) provides when title to an unregistered legal estate may be registered. Section 3(1) states that it applies to an unregistered legal estate which is an estate in land. Section 3(2) provides that “Subject to the following provisions, a person may apply to the registrar to be registered as the proprietor of an unregistered legal estate to which this section applies if (a) the estate is vested in him, or (b) he is entitled to require the estate to be vested in him.” Section 3(5) provides that “A person may not make an application under subsection 2(a) in respect of a leasehold estate vested in him as mortgagee where there is a subsisting right of redemption.”

 

30. There are then provisions for compulsory registration of title in section 4 of LRA 2002. Section 4(1) provides that the requirement of registration applies on the occurrence of any of the following events……. (c) the grant out of a qualifying estate of an estate in land – (i) for a term of years absolute of more than seven years from the date of the grant, and (ii) for valuable or other consideration, by way of gift, or in pursuance of an order of any court”. Section 4(5) provides that “Subsection (1)(c) does not apply to the grant of an estate to a person as mortgagee.”

 

31. There is no definition of mortgage or mortgagee in the 2002 Act but section 132 defines ‘charge’ as meaning “any mortgage charge or lien for securing money or money’s worth”. It also defines ‘legal mortgage’ as having the same meaning as in LPA 1925.

 

32. Section 205 of LPA 1925 includes the following definition of ‘mortgage’, unless the context otherwise requires:

 

“ (xvi) “ Mortgage ” includes any charge or lien on any property for securing money or money’s worth; “ legal mortgage ” means a mortgage by demise or subdemise or a charge by way of legal mortgage and “legal mortgagee” has a corresponding meaning; “ mortgage money ” means money or money’s worth secured by a mortgage; “ mortgagor ” includes any person from time to time deriving title under the original mortgagor or entitled to redeem a mortgage according to his estate interest or right in the mortgaged property; “ mortgagee ” includes a chargee by way of legal mortgage and any person from time to time deriving title under the original mortgagee; and “ mortgagee in possession ” is, for the purposes of this Act, a mortgagee who, in right of the mortgage, has entered into and is in possession of the mortgaged property; and “right of redemption” includes an option to repurchase only if the option in effect creates a right of redemption”

 

33. ‘Legal mortgage’ means therefore, unless the context otherwise requires, a mortgage (including a charge or lien on any property for securing money or money’s worth) by demise or subdemise or a charge by way of legal mortgage. ‘Mortgagee’, under LPA 1925, s. 205, includes (again unless the context otherwise requires) a chargee by way of legal mortgage and and any person from time to time deriving title under the original mortgagee but there is no definition of the original mortgagee.

 

34. The definition of ‘mortgage’ in s.205(xvi) is of what is included in a mortgage. It is not comprehensive. A classic definition of ‘mortgage’ is that it “is a conveyance of land or assignment of chattels as a security for the payment of a debt or the discharge of some other obligation for which it is given” (per Lindley LJ in Santley v Wilde, [1899] 2 Ch 474, CA). Mortgages in 1903 were regularly given by a demise for a term of years absolute subject to a proviso for cesser on redemption. Such mortgages continued after 1925 in relation to unregistered land (see s.85 of LPA 1925) and the special provisions as to such mortgages to which I have already referred were made to provide that such leases could not be registered as leases in relation to registered land.

 

35. The present lease is specifically a demise to secure payment of the rentcharge, as it accurately describes itself. By virtue of s.9(1)(e) of LPA 1925 it operates as if it was a lease created by Mr. Keegan.

 

The nature and status of the lease

36. There is no doubt that the rentcharge exists and that it was assigned to Morgoed. I am also satisfied that notice of it was given to Mr. Keegan by the letter addressed to the owner in March 2003 on the basis of my finding that it was probably received by him even though I accept that he probably binned it as junk mail without opening it.

 

37. There is also no doubt that Mr. Keegan did not pay the rentcharge due from March 2003 onwards for several years even after being contacted again by Morgoed. The reason for that, was the unreasonable conduct of Mr. Roberts in refusing to send him a copy of the notice of assignment to show that Morgoed was indeed entitled to the rentcharge. He was, however, under a duty to pay the £2.75 a year to the person entitled whether demanded or not. The power to demise the property for a term of years under section 121 of LPA 1925 had therefore arisen despite the fact that the amount overdue was trivial.

 

38. The Applicants’ lease is for a term of years expiring well after July 2037 when the rentcharge would be extinguished. This appears to have caused some concern to Principal Judge Cousins, who questioned whether this was permissible. I can see no reason in principle why such a lease could not extend beyond the end of the period for which the rentcharge exists. Otherwise, in a different case where the amount of the rentcharge was substantial, arrears could arise close to the end of the period of the rentcharge, which could not be secured by a very short lease terminating perhaps a month or two later. In any event, the rentcharge here was indefinite under the 1903 Indenture, and its period was only shortened by the Rentcharge Act 1977. That Act contained no provision shortening the period for which leases could be created under section 121 of LPA 1925 and I see no basis to imply such a provision.

 

39. Neither can I see any reason to condemn the rentcharge as a sham, another possibility raised by Principal Judge Cousins. It was exactly what it purported to be and was created in circumstances in which the right to create it had been given by section 121 of LPA 1925. To create it when the arrears arose because of Mr. Roberts’ unreasonable conduct and in circumstances in which the arrears, even including the £60 costs claimed, were under £80, without first providing to Mr. Keegan the evidence he had sought of the assignment of the rentcharge, was patently unreasonable. This has an impact on the costs recoverable both by Morgoed and by the Trustees, but it does not affect the right to create the lease.

 

40. The lease is, however, plainly security for the payment of the rentcharge and any costs properly recoverable from Mr. Keegan under the terms of the rentcharge or the lease. It is plain, and is not contested by the Applicants that if Mr. Keegan paid the arrears and either £2.75 a year until 2037 or the amount needed to redeem the rentcharge either by agreement or pursuant to a redemption certificate issued under the Rentcharges Act 1977, plus any legitimate recoverable costs, either the lease would terminate or it would be held on trust for Mr. Keegan or his successors in title absolutely. Since the hearing Mr. Keegan has provided the tribunal with a copy of a redemption certificate from the Secretary of State in the sum of £40.42.

 

41. Had this lease been granted by Mr. Keegan to Morgoed to secure payment of what was due under the rentcharge, it would plainly have been a mortgage. It is, in my judgment, nonetheless a mortgage because it is granted to the Trustees, whether these happened to be Morgoed’s directors or anybody else, to secure payment of the same sums. Any other approach would seem to leave it open to anybody to circumvent the laws as to mortgages by taking security by means of such a lease in the names of nominees of the creditor rather than using a conventional charge.

 

42. Further, there is, as a result of the Rentcharge Act 1977 a right of redemption by paying all sums due including what is required to redeem the rentcharge. The position may perhaps have been different prior to that Act coming into force, as the rentcharge would have continued to be payable indefinitely.

 

43. Mr. Jonathan Roberts, the Applicants’ solicitor, has argued that the Trustees powers under section 121 of LPA 1925 go far beyond those in a mortgage. I disagree. The powers appear to me to be on a par with those typically contained in a mortgage by demise, the only difference being that instead of the mortgagees being the creditor, they are the creditor’s nominees. He has also contended that a rentcharge is sui generis (a thing of itself) and not a mortgage. That is right, but a lease created to provide security for the payment of the rentcharge can still only be registered by the lessees, who are mortgagees, if there is no subsisting right of redemption. That is no longer the case, if it ever was, following the coming into force of the Rentcharges Act 1977.

 

44. In my judgment, therefore, the lease is held by the Trustees as mortgagees and there is a subsisting right of redemption. It follows that it is not registrable as a lease and can only be protected on the register by a notice.

 

45. I will therefore direct the Chief Land Registrar to cancel the application to register it as a lease, but this leaves open the question whether I should in doing so exercise my power under rule 40(3) of the Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 to enter a notice on the register in relation to the lease or to give any direction to the Chief Land Registrar to reject any application by any of the Applicants in relation to the lease or rentcharge unless specified conditions are met.

 

46. It is clear that clauses in mortgages permitting the recovery by mortgagees of costs incurred by them will not normally be construed as permitting the recovery of costs unreasonably incurred ( Gomba Holdings v Minories Finance [[1993] Ch 171, CA; Co-operative Bank v Phillips [2014] EWHC 2862 (Ch). It seems to me that that the provisions in the rentcharge and in section 121 of LPA 1925 must be similarly construed.

 

47. For the reasons which I have given, it appears to me that the costs, if any, incurred by Morgoed in creating the lease were not reasonably incurred, nor were the costs incurred by the Trustees. While it was reasonable for Morgoed to take steps, and incur limited costs in ascertaining the identity of Mr. Keegan, this was required as a result of the failure of Miss Moorse to take reasonable steps to keep proper records. The costs of remedying Miss Moorse’s failure ought not to be charged to Mr. Keegan. It was also unreasonable for the Applicants to refuse to mediate this dispute despite Mr. Keegan making plain his willingness to do so. Costs incurred following a failure to mediate when the matter could have been resolved by a reasonable approach to the mediation by the Applicants are not costs which have been reasonably incurred.

 

48. Very small amounts are now due to Morgoed and these, together with redemption costs, are likely to be reduced or extinguished if set against an award of costs in favour of Mr.Keegan in these proceedings. Even if they are not, Mr. Keegan is likely to discharge what remains. In those circumstances, it does not appear to me that I should exercise my discretion to direct the Chief Land Registrar to enter a notice in respect of this rentcharge.

 

49. I note that a rectification application appears to have been made by Mr. Keegan and a file opened (REC/2013/0041). However, Mr. Keegan’s application is only for the rejection of the Applicants’ application. He was entitled to seek that in these proceedings and it does not appear to me that the rectification proceedings, such as they are, take matters any further or that any special order needs to be made in respect of them.

 

Costs

50. In the circumstances, my provisional view is that Mr. Keegan is entitled to an order for his costs. This would not extend to any additional costs in the rectification proceedings, which got nowhere and were unnecessary, but it is difficult to see what extra costs were involved. As the reference was one originally made to the Adjudicator to the Land Registry my jurisdiction as to costs does not extend beyond making an order which could have been made under the old rules which applied to proceedings before the Adjudicator. I cannot therefore make any award for the considerable personal time taken by Mr. Keegan in these proceedings. He is entitled, however, if an award of costs is made in his favour, to recover all expenses incurred by him in these proceedings, including solicitors’ costs, costs of travel to two hearings, accommodation costs incurred in relation to them, and postage and copying charges.

 

51. Mr. Keegan has already submitted a claim for costs to the tribunal and included a copy of a statement from his solicitors’ in respect of a bill of £713.40. He has also indicated that he has incurred counsel’s fees of £480 inclusive of VAT and should provide a copy of the solicitors’ bill for counsel’s fees, together with a list of other expenses such as travelling expenses and accommodation costs, if any, for the two hearings he has attended. The accompanying order includes directions as to Mr. Keegan’s claim and any responses from the Applicants.

 

 

By Order of the tribunal

 

 

1 October 2014