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Cite as: [2001] EWLC 271(7)
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PART VII CHARGES
INTRODUCTION
(1) the power of a registered proprietor to charge his or her land and the powers of any registered chargee;
(2) sub-charges and the powers of the sub-chargee;
(3) the priority of competing charges; and
(4) three miscellaneous matters, namely-
(a) the application of proceeds of sale;(b) consolidation; and(c) the power to give receipts where there are two or more proprietors of the registered charge.
We give particular weight to the priority of further advances, because this proved to be the most contentious issue that emerged in preparing Instructions for the Bill.
THE POWER TO CREATE CHARGES AND THE POWERS OF THE CHARGEE
Legal charges
The creation of charges and the powers of the chargee
7.2 Under the present law, a registered proprietor can by deed create a legal mortgage or charge[1] of registered land in any one of three ways-
(1) he or she may in the usual way create a charge expressed to be by way of legal mortgage;[2] (2) he or she may charge the registered land with the payment of money and this will take effect as a charge by way of legal mortgage, even though not expressed to do so;[3] or
(3) he or she may create a mortgage by demise or sub-demise but must do so expressly: the presumption is in favour of a charge by way of legal mortgage.
These three propositions state the combined effect of sections 25(1) and 27 of the Land Registration Act 1925. The reason for (2) is historical. Charges over registered land were introduced by the Land Transfer Act 1875.[4] They therefore pre-date by half a century the introduction of the charge expressed to be by way of legal mortgage in section 87 of the Law of Property Act 1925.[5] Mortgages by demise or sub-demise -(3) above -are in practice now obsolete because of the advantages offered by a charge. The main advantages of a charge are that-
(a) freeholds and leaseholds can be the subject of a single charge rather then separate demises or sub-demises;
(b) the grant of a charge over a lease is not thought to amount to a breach of the common-form covenant against subletting without the landlord's consent (such consent would be required to a mortgage by sub-demise); and
(c) the form of legal charge is short and simple.[6]
It should be noted that the mortgage by demise or sub-demise was as much a creation of the Law of Property Act 1925 as was the charge expressed to be by way of legal mortgage. The charge over registered land for the payment of money -(2) above -is in fact the form of permitted legal mortgage or charge that has the longest pedigree.[7]
7.3 As we have explained in Part IV of this Report, the Bill implements a recommendation in the Consultative Document[8] that it should not be possible to create mortgages by demise or sub-demise in relation to registered land.[9] Under the Bill, a registered proprietor can create a legal mortgage in one of two ways-
(1) by a charge expressed to be by way of legal mortgage;[10] or
(2) by a charge to secure the payment of money.[11]
There will be no practical difference between these two methods any more than there is now. This is because, on completion of the relevant registration requirements,[12] a charge has effect "if it would not otherwise do so, as a charge by deed by way of legal mortgage",[13] with the concomitant powers. Those powers are, of course, those conferred on a legal mortgagee by the Law of Property Act 1925 (unless modified or excluded by the terms of the charge) together with any additional powers that may be conferred by the charge.
7.4 It should be noted that, although under the Land Registration Act 1925 a charge may be in any form,[14] there is a general power in the Bill to prescribe by rules the form and content of any registrable disposition of a registered estate or charge.[15] It will therefore be possible for the Lord Chancellor to prescribe the form of any registered charge. Furthermore, in relation to any charge in electronic form, a form of electronic document will in practice have to be prescribed.[16]
The definition of "charge"
7.5 In the Consultative Document we considered whether the present definition of "registered charge" was wide enough.[17] In particular, we were concerned that it should clearly include both charges to secure the discharge of some obligation and statutory charges.[18] The Bill meets these concerns by providing a wide definition of "charge" to mean "any mortgage, charge or lien for securing money or money's worth".[19] This will necessarily encompass both charges to secure the discharge of some obligation[20] and statutory charges.[21]
Powers of chargees and the need for a deed
7.6 Section 101 of the Law of Property Act 1925 confers a number of important powers on a mortgagee "where the mortgage is made by deed", including the power to sell and to appoint a receiver. In the Consultative Document,[22] we suggested that, even in advance of the introduction of electronic conveyancing, a deed should not be necessary for the creation of a registered charge but that the chargee should nonetheless have the powers conferred by section 101. Although that proposal was supported by most of those who responded, it has not been necessary to include any such provision in the Bill. There are two main factors that persuaded us of this. First, it is anticipated that one of the first types of disposition of registered land that it will be possible to effect in electronic form will be a charge over registered land. Secondly, under the Bill, electronic documents are made in the same way, whether they are required by law to be made by deed or merely in writing.[23] There seems little point in dispensing with the requirement of a deed in what is likely to be the comparatively short interim period between the implementation of the Bill and the time when all registered charges are effected electronically.
Dispositions made by chargees and the protection of disponees
7.7 As we have explained in Part IV of this Report,[24] it is intended that, if there are limitations of some kind on a registered proprietor's powers of disposition, that fact should be apparent from the register, usually from the entry of a restriction.[25] Clause 52(1) implements this objective in relation to dispositions by the proprietor of a registered charge. Under that Clause, subject to any entry in the register to the contrary, the registered proprietor of a charge is taken to have, in relation to the property subject to the charge, the powers of disposition conferred by law on a legal mortgagee.[26] The purpose of the Clause is to protect any disponee in the case where, for example, the chargee purports to exercise a power of disposition (typically a sale or the grant of a lease) in circumstances where either it had no such power at all[27] or that power had not become exercisable.[28] In the absence of some entry on the register (such as a restriction), the disponee's title cannot be questioned.[29] However, this will not affect the lawfulness of the disposition.[30] It is open to the chargor to pursue any other remedies he or she may have, such as the right to sue the chargee for damages for an irregular exercise of the latter's powers.[31]
(1) First, although the Law of Property Act 1925 contains provisions that are intended to protect a buyer of land when the mortgagee's power of sale has arisen,[32] there are judicial statements that suggest that this protection will not avail a buyer who becomes aware of "any facts showing that the power of sale is not exercisable, or that there is some impropriety in the sale".[33] A disponee's title will not be impeachable on that ground under the Bill.
(2) Secondly, even if a chargee's power of disposition has not arisen at all -as where the legal date for redemption has been postponed for many years[34] -a disponee will obtain a good title in the absence of anything on the register to indicate some limitation on those powers. The rule that would otherwise apply is that the chargee could only transfer its charge. It could not sell the land free of the chargor's equity of redemption.[35] The legal date for redemption will commonly be six months after the date of the charge. However, it is not anticipated that chargors will feel it necessary to enter a restriction on the register to protect themselves from a possible improper disposition by the chargee in that short period. The risk of such a disposition is minimal, particularly where the chargor remains in possession. However, if the legal date for redemption were postponed for a substantial period, the entry of a restriction might then be considered an appropriate safeguard.[36] Similarly, if (say) the chargee's leasing powers were excluded, a restriction should be entered on the register to record this fact.
Equitable charges
7.9 The Bill has nothing specific to say about equitable charges. A registered proprietor may create them to the extent permitted by the general law under his or her owner's powers.[37] They may also arise in other ways, as where a creditor obtains a charging order over the land of a registered proprietor.[38]
7.10 The fact that the Bill says nothing about such charges is important for one specific reason. In the Consultative Document,[39] we recommended that the statutory power[40] to create a lien over registered land by depositing the land certificate as security should be abolished. Our reasoning was as follows. Such charges operated by analogy with the mortgage by deposit of title deeds in unregistered land. However, in United Bank of Kuwait Plc v Sahib,[41] the Court of Appeal held that the basis for mortgages by deposit of title deeds was the doctrine of part performance that had been abolished by the Law of Property (Miscellaneous Provisions) Act 1989.[42] Such mortgages were only valid if they complied with the formal requirements for contracts laid down in that Act. That decision rendered obsolete the power to create a lien by the deposit of a land certificate. All but one of those who responded to our recommendation in the Consultative Document to abolish such liens agreed with it. The Bill therefore contains nothing replicating the power.[43]
SUB-CHARGES AND THE POWERS OF THE SUB-CHARGEE
7.11 A sub-mortgage is a mortgage of a mortgage.[44] The effect of Clause 23(2) and (3) of the Bill is that there is only one way in which a registered chargee can create a legal sub-charge, namely the method specified in Clause 23(2)(b).[45] The chargee is thereby empowered "to charge at law with the payment of money indebtedness secured by the registered charge". In other words, what is actually charged is the indebtedness secured by the registered charge. This power, which is unique to registered land, is derived from the present provisions of the Land Registration Rules 1925 as to the creation of sub-charges.[46] A sub-chargee can, of course, further sub-charge the indebtedness which its sub-charge secures.
7.12 Under the Bill, the registered proprietor of a sub-charge[47] has, in relation to the property subject to the principal charge or to any intermediate charge, the same powers as the sub-chargor.[48] This is also the position under the present law.[49]
PRIORITIES
Priority of registered charges
(1) the rule giving special effect to registered dispositions in relation to priority, explained in Part V of this Report,[50] should apply except as stated in (2);
(2) where there is more than one registered charge, the proprietors of those charges should always be permitted to agree between themselves that the order of priority should be different from that which would arise from the application of the principle set out in (1);[51] and
(3) the priority of competing registered charges should in any event be apparent from the register as it is now. [52]
7.14 The effect of (1), so far as is relevant here, is that on registration, a registered chargee will only take subject to a prior charge if it is either a registered charge or the subject of a notice on the register.[53] If, for example-
(1) A contracts to lend money to B on the security of a charge over B's registered land and protects that estate contract by the entry of a notice on the register;
(2) B then charges the land to C, who registers her charge;
(3) pursuant to the earlier contract, B executes the charge in favour of A which is completed by registration;
A's registered charge ought to take priority over C's, even though C's was registered before A's. A's charge gives effect to a contract that was binding on C.[54] However, notwithstanding that outcome, it follows from the principle stated in paragraph 7.13(2) above, that A and C should be free to agree that C's charge should in fact take priority over A's if they so wish.[55]
7.15 The Bill achieves the objectives set out in paragraph 7.13 by providing that registered charges on the same registered estate are to be taken to rank as between themselves in the order shown in the register.[56] The detail of how such priority should be shown in the register as well as how applications for registration of the priority of registered charges between themselves is left to be stipulated in rules.[57] Those rules must, however, reflect the legal rules set out above in paragraph 7.13(1) and (2). It should be noted that there are some statutory charges which can override prior charges. The Bill makes special provision for these and this is explained below.[58]
Registered sub-charges
7.16 The rules as to the priority of competing registered sub-charges are the same as those for competing registered charges. The rule giving special effect to registered dispositions of a registered charge in relation to priority[59] will apply, but it will be open to the sub-chargees to vary that priority by agreement. The principles applicable to the recording of that priority on the register are the same as those explained above in paragraph 7.15. [60]
Equitable charges
7.17 The Bill contains no specific provisions as to the priority of equitable charges. They are subject to the basic rule, explained in Part V, by which the priority of an interest affecting a registered estate or charge is not affected by a disposition of the estate or charge.[61] It follows that the priority of competing equitable charges will be determined by the date of their respective creations. As we explain in Part XIII, following the introduction of electronic conveyancing, rules will be made which will have the effect that most interests in registered land will not be capable of being created except by simultaneously registering them.[62] When that happens, the register will in fact be conclusive as to the priority of competing equitable charges. This is because the date of registration and the date of creation of a charge will necessarily coincide. This improvement is likely to be a particular advantage in relation to competing equitable charges, where issues of priority are not infrequent.
Tacking and further advances Present law and practice
7.19 The fundamental rule in relation to tacking at common law is that a first mortgagee, whose mortgage covers both what is due and further advances, cannot claim priority for those further advances over the mortgage of a second mortgagee, of whose mortgage he has notice when he made the further advances.[63] As regards unregistered land, the Law of Property Act 1925 lays down the only permitted circumstances in which a right to make further advances ranks in priority to a subsequent mortgagee.[64] Except in these circumstances the right to tack further advances has been abolished.[65] These provisions do not apply to registered land,[66] and the Land Registration Act 1925 makes express provision in relation to tacking.[67] However, it does not abolish the common law rules. The ironic result is that the fundamental notice-based rule set out above continues to apply to registered land.[68] Furthermore, as we discovered from our inquiries, most chargees of registered land still operate on the basis of the common law rule (as they are entitled to do) rather than in accordance with the provisions of the Land Registration Act 1925.[69]
7.22 It sometimes happens that a lender not only agrees to permit further borrowing by the borrower (as with an overdraft arrangement) but is contractually obliged to lend money to the borrower. For example, a bank might undertake to advance money in a series of instalments, secured on the borrower's land, to finance (say) some development. Section 30(3) of the Land Registration Act 1925 provides that— Where the proprietor of a charge is under an obligation, noted on the register, to make a further advance,[70] a subsequent registered charge shall take effect subject to any further advance made pursuant to the obligation. There is one drawback with this provision. It appears only to protect Lender 1 against a subsequent registered charge and not, say, a later equitable charge.[71]
7.23 As we have indicated above,[72] these provisions are not much employed. Although at the time of the Consultative Document, we suspected this was the case, we were uncertain as to exactly what practice lenders were employing in relation to further advances secured on registered land. Our proposals in the Consultative Document were restricted to some suggestions for improvements in the drafting of the provisions.[73] In preparing Instructions for the present Bill, we explored some more radical options in relation to further advances. To test these, we had very informative and constructive discussions with representatives of the lending industry,[74] whose extensive and generous assistance we gratefully acknowledge.
7.24 They were able to inform us as to their current practice, which is generally as follows. Where there is a prior charge, Lender 2 sends written notice of its charge to Lender 1, and Lender 1 then treats that notice as determinative of priority. After receipt of that notice, Lender 1 will treat any further advances made by itself as subject to the charge of Lender 2, unless it is under an obligation to make that further advance. In this way, even if Lender 2 fails to submit its charge to HM Land Registry for registration,[75] it secures priority over any further advance by Lender 1.
7.25 It will be noted that it is Lender 2 -and not HM Land Registry under the provisions of section 30(1) of the Land Registration Act 1925[76] -that serves notice on Lender 1. The legal basis for the current practice would therefore appear to be the old common law principles on tacking further advances, which, as we have indicated, still apply to registered land.[77] There are sound practical reasons why lenders prefer to rely on the common law rather than on section 30(1) of the Land Registration Act 1925. As we have explained, under section 30(1), only the registrar can serve notice on the proprietor of the charge for securing further advances. This means that second chargees have no control over the date on which the statutory notice is issued by the registrar. In practice, HM Land Registry can only send a notice to Lender 1 when it has approved the making of the entry of the second charge on the register. There are cases when this approval cannot be given for some considerable time. Whilst this may arise from shortcomings in the application for registration of the second charge, there are also cases where Lender 2 is in no way to blame for the delay. We have therefore concluded that little purpose would be served by the retention of section 30(1) of the Land Registration Act 1925 and that it seems preferable to give statutory form to the practice of lenders.
(1) they create proprietary rights and if so, of what kind;[78] and
(2) they are open to challenge on the grounds of their anti-competitive nature.[79]
7.27 It became apparent from our discussions with representatives of the lending industry that they were expecting us to resolve the conflict of opinion over the validity and effect of such agreements in the Bill. However, not only would this be inappropriate,[80] but it would lie outside the scope of a Land Registration Bill. The position of the Law Commission and HM Land Registry on this issue must be one of scrupulous neutrality as between the primary and secondary lenders. It will remain the practice of HM Land Registry to accept applications for the entry of restrictions in relation to such agreements unless and until their validity is successfully challenged in the courts. As regards the Bill, we consider that we should adopt a similarly neutral approach to the tacking of further advances.
The provisions of the Bill
7.28 Clause 49 sets out four circumstances in which the proprietor of a registered charge may secure further advances so that they have priority over any subsequent charge of whatever kind.[81] No other means are permitted.[82] Of these four circumstances, only the last is novel.
FURTHER ADVANCES MADE WITH THE AGREEMENT OF SUBSEQUENT CHARGEES
7.29 First, the proprietor of a registered charge may make further advances on the security of its charge that will rank in priority to subsequent charges if the subsequent chargees agree.[83] That does no more than reflect the general rule that the priority of charges can always be adjusted by agreement between the parties.[84]
FURTHER ADVANCES WHERE THE PRIOR CHARGEE HAS NOT RECEIVED NOTICE OF THE SUBSEQUENT CHARGE
7.30 We have explained above that the present practice under section 30(1) of the Land Registration Act 1925, by which the registrar serves notice of the second charge on Lender 1, is not much used and is, in any event, unsatisfactory.[85] It is not therefore replicated in the Bill. Instead the Bill gives statutory effect to the present practice of lenders, that is based on the common law. It provides that the proprietor of a registered charge may make further advances on the security of its charge that will rank in priority to a subsequent charge if he has not received from Lender 2 notice of the creation of that subsequent charge.[86] The Bill also provides that notice of this kind is to be treated as received at the time when, in accordance with rules, it ought to have been received.[87] This means that provision can be made as to when notice served by (for example) first class post, by fax or by e-mail is to be taken to be received.[88] There will of course be no payment of indemnity if notice is not in fact received and a further advance is made in ignorance of the second charge. This is the position under the present law when Lender 2 notifies Lender 1 of its charge.[89] It is anticipated that, when electronic conveyancing is introduced, it may be possible for Lender 2 to notify Lender 1 simultaneously with the execution of the charge and its registration.
WHERE THERE IS AN OBLIGATION TO MAKE A FURTHER ADVANCE
7.31 Thirdly, the proprietor of a registered charge may make further advances on the security of its charge that will rank in priority to a subsequent charge if the advance was made in pursuance of an obligation and that obligation was entered in the register at the time of the creation of the subsequent charge in accordance with rules.[90] This replicates the effect of section 30(3) of the Land Registration Act 1925, except that it applies in respect of any subsequent charge and not merely a registered charge.[91]
FURTHER ADVANCES UP TO A MAXIMUM AMOUNT
7.32 The fourth means by which further advances may be secured is new.[92] The proprietor of a registered charge may make further advances on the security of its charge that will rank in priority to a subsequent charge if the parties to the charge have agreed a maximum amount for which the charge is security and, at the time of the creation of the subsequent charge, the agreement was entered in the register in accordance with rules.[93]
7.34 The maximum sum is necessarily an inclusive sum that must include all principal, interests and costs due under the mortgage. It will not include the costs of enforcing the security which are additional but which the mortgagee is entitled nonetheless to deduct from the proceeds of sale.[94] Once the maximum sum was reached, in order to secure any advances above that ceiling, the parties would either have to create a new charge or increase the maximum sum for which the charge was security. If a further charge had been created and registered in the interim, it would necessarily take priority over the new charge or for the additional sums secured under the original charge.
7.35 The justification for having a charge that secures a maximum security sum is that any intending Lender 2 will know from the amount of the security sum what the maximum liability of the borrower will be under the charge (apart from the costs of enforcement, the likely magnitude of which lenders can generally assess). This enables Lender 2 to make a better evaluation as to whether the property is good security for the proposed second charge. This form of charge will therefore be advantageous to secondary lenders. Representatives of the primary lenders have objected to this new form of charge.[95] They point to the difficulty of fixing a maximum sum in advance to cover (for example) a charge to secure an overdrawn current account. Lenders would tend to fix the maximum sum at a much higher level than the likely borrowings might appear to warrant to be sure that they were adequately secured. However, while acknowledging these difficulties, there might be forms of lending for which this form of charge is ideal. An example might be where a development is to be funded by a series of agreed advances secured on the land to be developed. In such a case it might well be possible to calculate the maximum potential liabilities with some accuracy at the outset. We understand that this form of securing further advances is used in certain other countries, such as Sweden. We would stress that this fourth method of securing further advances is no more than an option. No lender is forced to adopt it and it has the considerable merit of simplicity.
7.36 There may be types of secured lending for which this new form of registered charge should not be available at all, or only subject to specified conditions.[96] Provision can be made to this effect by rules made under the Bill.[97]
Statutory charges
7.37 There are numerous charges that are imposed on land by statute. For the most part, no special rules are required to deal with the priority of such charges over registered land as against other charges. They are subject to the normal rules of priority inter se[98] and as to further advances that we have explained in this Part. In two cases, however, special provision is required. We explain these below.[99]
Types of statutory charge
(1) those which make express provision as to the priority of the charge in relation to any other charges, namely-
(a) those which provide that the statutory charge is to have priority over existing charges (though in practice this is not often insisted upon);[100] and
(b) those which state that the charge is to take subject to certain specified prior charges or have a particular priority;[101] and
(2) those which say nothing at all about such priority.[102]
By far the most important form of statutory charges in terms of the numbers that are made are charging orders,[103] which come within (2).
Overriding statutory charges
7.40 First, on the registration of a statutory charge that overrides an existing charge that is entered on the register or is protected by a restriction[104] or caution,[105] the registrar is under a duty to give notice about the creation of that charge to such persons as rules provide[106] -who will, of course, be those having some form of charge or sub-charge over the registered land. This is an important new duty and will, it is hoped, meet a concern that has been expressed to us by the lending industry. Secondly, indemnity is payable for any loss suffered as a result of a failure by the registrar to perform this duty. [107]
7.41 The effect of overriding statutory charges is by no means certain. In particular, it is unclear whether such charges do in fact take priority over existing charges.[108] This is recognised by the Land Registration Rules 1925, which deliberately leave the matter for determination on an ad hoc basis.[109] The resolution of these uncertainties necessarily lies outside the scope of the present Bill and restricts what can be done in relation to them. It is therefore likely that rules made under the Bill will follow the present model and will adopt a similar ad hoc approach, at least until such time as the status of such charges receives judicial clarification.
Charges which are local land charges
7.42 Local land charges take effect as overriding interests and are, therefore, binding on any disponee of registered land.[110] Such charges are normally registered in the local land charges register kept by the relevant local authority. Some local land charges are charges on land to secure the payment of money. These include—
(1) a charge by a street works authority for the cost of executing street works;[111] and
(2) a charge to recover expenses incurred by a local authority because of noncompliance with a repair notice.[112]
Although such charges are binding on disponees as overriding interests, they are not presently enforceable as charges unless registered as registered charges.[113] In the Consultative Document, we recommended that this rule should continue,[114] and most of those who responded on the point agreed. As we have explained above, the proprietor of a registered charge has the powers of a legal mortgagee.[115] In principle, under a land registration system, it is desirable that, if any person has dispositive powers over registered land, that fact should be apparent on the face of the register.[116] The Bill therefore provides that a charge over registered land which is a local land charge may only be realised if the title to the charge is registered.[117]
MISCELLANEOUS
Application of proceeds of sale
(1) any incumbrance having priority over his charge;
(2) the costs of the sale; and
(3) the moneys due to him under the charge.[118]
The residue is held in trust for and must be paid to "the person entitled to the mortgaged property"[119] which may, of course, be a subsequent chargee. Where title is unregistered, it is clear that the mortgagee holds the surplus on trust for any subsequent mortgagee of whose mortgage it has notice, actual, constructive or imputed.[120] Puisne mortgages of unregistered land, although legal, are registrable as land charges.[121] As the registration of a land charge constitutes actual notice of that charge,[122] a mortgagee of unregistered land having a surplus in his hands will in practice search the land charges register to ascertain if there are any subsequent chargees. The position in relation to registered land is not presently so clear. Registration does not constitute notice and the chargee should presumably pay any surplus to the chargor unless it has been notified of the existence of a subsequent charge.[123] As we have explained,[124] one the goals of the Bill is to try to make the register as complete a record of title as possible. It is consistent with that goal that a chargee should look to the register to ascertain whether there are any other chargees before it pays over any surplus after sale to the chargor, particularly as a search of the register is a quick, simple and cheap procedure. The Bill therefore provides that as regards the chargee's duties in relation to the proceeds of sale of registered land, "a person shall be taken to have notice of anything in the register".[125] The chargee must, therefore, search the register before paying over any surplus in its hands.
Consolidation
7.44 Consolidation has been described as "the right of a person in whom two or more mortgages are vested to refuse to allow one mortgage to be redeemed unless the other or others are also redeemed".[126] The standard mortgage terms of many lending institutions make provision by which the chargor shall not be entitled to redeem a charge without at the same time redeeming every other security on any other property for the time being charged to the chargee.
7.45 Consolidation in relation to registered land is presently dealt with by rule 154 of the Land Registration Rules 1925. That provides a procedure by which the right to consolidate will, in certain circumstances, be noted against the titles affected.[127] Under the Bill, there is a rule-making power to make provision about entry in the register of a right of consolidation in relation to a registered charge.[128]
Power to give receipts
(1) the registered proprietors;
(2) the survivor or survivors of the registered proprietors; or
(3) the personal representatives of the last survivor of the registered proprietors.
This Clause replicates in rather simpler terms the effect of section 32 of the Land Registration Act 1925.[129]
Ü Þ
Note 1 “A mortgage is a conveyance of property subject to a right of redemption, whereas a charge conveys nothing and merely gives the chargee certain rights over the property as security for the loan”: Megarry & Wade’s Law of Real Property (6th ed 2000), 19-005. [Back] Note 2 Cf Law of Property Act 1925, s 87(1). [Back] Note 3 See Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166, 171. [Back] Note 4 “The charge of registered land under the Land Transfer Acts did not necessarily involve any conveyance of an estate, but merely conferred powers of realisation by entry, foreclosure or sale”: Brickdale & Stewart-Wallace’s Land Registration Act, 1925 (4th ed 1939), p 118. [Back] Note 5 The reform of the manner in which unregistered land could be mortgaged by Law of Property Act 1925, ss 85-87 was a “compromise... whereby the two systems [that is the unregistered and the registered systems] have been harmonised with one another”: Brickdale & Stewart-Wallace’s Land Registration Act, 1925 (4th ed 1939), p 118. [Back] Note 6 See Megarry & Wade’s Law of Real Property (6th ed 2000), 19-034. See too Law Com No 254, para 9.4. [Back] Note 7 We make this point because, in response to the Consultative Document, the Bar Council expressed the view that the mortgage by demise or sub-demise was “still the paradigm”. However, this overlooks the charge of registered land created by the Land Transfer Act 1875. [Back] Note 8 Law Com No 254, para 9.5. [Back] Note 9 See above, paras 4.6, 4.7. [Back] Note 10 Cl 23(1)(a). See above, para 4.6. [Back] Note 11 Cl 23(1)(b). See above, para 4.6. For the necessary consequential amendments to Law of Property Act 1925, ss 85 and 86, see Schedule 11, para 2(6), (7). [Back] Note 12 The registered chargee must be registered as the proprietor of the charge and the charge must be entered in the register in relation to the registered estate on which it is a charge: see Cl 59(2). [Back] Note 14 Subject to certain conditions: see s 25(2). [Back] Note 16 See below, para 13.12. [Back] Note 17 See Law Com No 254, paras 9.2-9.3. [Back] Note 18 Such as one to pay a share of the profits of a business, as in Santley v Wilde [1899] 2 Ch 474. [Back] Note 19 Cl 129. A “registered charge” is, therefore, a “a charge to the title which is registered under this Act”:ibid. [Back] Note 20 In relation to such charges, it is the financial liability arising from non-performance of the obligation that is secured. [Back] Note 21 It may be noted that, in Part 5 of the Bill, “Charges”, there are two provisions that specifically concern statutory charges: see Cls 50, 55. These are explained below at paras 7.40, 7.42 respectively. [Back] Note 22 Law Com No 254, para 9.6. [Back] Note 23 See Cl 91; below, para 13.11. [Back] Note 24 See above, para 4.4; and Cl 23. [Back] Note 25 Or cautions that were lodged prior to the coming into force of the Bill. [Back] Note 26 It should be emphasised that Cl 52(1) does not define the powers of a chargee (such powers follow from Cl 51, above, para 7.3, and from the fact that a charge is or, if in electronic form is deemed to be, made by deed), but merely protects disponees of charged property, as the marginal note suggests. [Back] Note 27 As where the mortgagee’s power of leasing under Law of Property Act 1925, s 99(2), had been excluded, but no restriction had been entered on the register to reflect this. [Back] Note 28 Some of the powers conferred on a mortgagee by Law of Property Act 1925, s 101, become exercisable only “when the mortgage money has become due” -that is, after the legal date for redemption. [Back] Note 31 Law of Property Act 1925, s 104(2). There may be remedies against the disponee, perhaps for wrongful interference with a contract, as where he or she deliberately induced the chargor to sell to him or her when there was no ground for exercising the power of sale. [Back] Note 32 See s 104(2), (3). [Back] Note 33 Lord Waring v London and Manchester Assurance Co Ltd [1935] Ch 310, 318, per Crossman J. [Back] Note 34 As in Twentieth Century Banking Corporation v Wilkinson [1977] Ch 99. [Back] Note 35 See Megarry & Wade’s Law of Real Property (6th ed 2000), 19-059. [Back] Note 36 In such a case, the chargee can always seek a sale before the date for redemption by an application to the court under Law of Property Act 1925, s 91 [Back] Note 37 Cl 23; above, para 4.6. [Back] Note 38 Such a charge takes effect as “an equitable charge created by the debtor by writing under his hand”: Charging Orders Act 1979, s 3(4). [Back] Note 39 Law Com No 254, paras 9.8-9.11. [Back] Note 40 Found in Land Registration Act 1925, s 66. [Back] Note 41 [1997] Ch 107; explained in Law Com No 254, para 9.9. [Back] Note 43 The role of land certificates under Land Registration Act 1925 is very significantly reduced under the Bill: see above, paras 6.23, 6.54; below, paras 9.88-9.91. [Back] Note 44 E L G Tyler, Fisher & Lightwood’s Law of Mortgage (10th ed 1988), p 272. [Back] Note 45 Cf the definition of “sub-charge” in Cl 129(1). [Back] Note 46 See r 163(1) which provides that “The proprietor of a charge or incumbrance may at any time charge the mortgage debt with the payment of money in the same manner as the proprietor of land can charge the land; and such charges are in these rules referred to as sub-charges”. This does of course echo the power of a proprietor of a registered estate to charge that estate with the payment of money at law which is, again, unique to registered land: see above, para 7.2. [Back] Note 47 The registered sub-chargee must be registered as the proprietor of the sub-charge and the sub-charge must be entered in the register: see Cl 59(3). [Back] Note 49 See Land Registration Rules 1925, r 163(2). [Back] Note 50 See Cl 29; above, para 5.6. [Back] Note 51 In the absence of a contractual agreement between the chargor and chargee, the former has no right to insist on the order as to which successive mortgage debts are satisfied. It is therefore open to chargees to alter the priorities inter se without the chargor’s consent: Cheah v Equiticorp Finance Group Ltd [1992] 1 AC 472. [Back] Note 52 See Land Registration Act 1925, s 29, under which in the absence of any entry to the contrary on the register, the priority of registered charges is determined not by the order in which they are created but by the order in which they are registered. [Back] Note 53 Cl 29(2)(a)(i). [Back] Note 54 This is the same result as occurred in the analogous case with unregistered land: see Williams v Burlington Investments Ltd (1977) 121 SJ 424 (HL). We consider that the same result would probably be reached in registered land under the present law (because of the power to make an entry to the contrary under Land Registration Act 1925, s 29), though one very experienced respondent to the Consultative Document (who had been involved in the Burlington case) thought otherwise. The Bill places the matter beyond doubt. [Back] Note 55 When electronic conveyancing is introduced, such agreements may have no effect unless registered: see Cl 93(6); below, para 13.83. [Back] Note 57 Cl 48(2). The rules will be land registration rules and will be required to be laid before Parliament only. see Cls 125, 129(1). [Back] Note 59 See Cl 30; above, para 5.6. [Back] Note 60 Cl 48 applies to the ranking of both registered charges on the same estate and registered charges on the same registered charge. [Back] Note 61 Cl 28; above, para 5.5. [Back] Note 62 See Cl 93; below, paras 13.74 and following. [Back] Note 63 Hopkinson v Rolt (1861) 9 HLC 514; 11 ER 829. [Back] Note 64 Law of Property Act 1925, s 94(1) lists three: (a) by arrangement with subsequent mortgagees; (b) where the prior mortgagee had no notice of any subsequent mortgages at the time when the further advances were made by him; and (c) regardless of notice, where the mortgage imposes an obligation on the prior mortgagee to make such further advances. [Back] Note 65 It is abolished by Law of Property Act 1925, s 94(3). [Back] Note 66 Law of Property Act 1925, s 94(4). [Back] Note 67 Section 30, explained below, paras 7.20 and following. [Back] Note 68 As we have explained above, in paragraphs 5.16 and following, notice is normally irrelevant to the priority of interest in registered land. [Back] Note 69 See below, para 7.25. [Back] Note 70 For the noting of the obligation, see Land Registration Rules 1925, r 139A. [Back] Note 71 See Law Com No 254, para 7.9, referring to Transfer of Land -Land Mortgages (1991) Law Com No 204, para 9.5. [Back] Note 73 Law Com No 254, paras 7.7-7.9. [Back] Note 74 We particularly wish to record our thanks to Fiona Hoyle and Sharanjit Dosanjh of the Council of Mortgage Lenders, John Thirlwell of the British Bankers’ Association, Hilary Plattern of the Finance & Leasing Association, Stephen Garratt-Frost of HSBC Holdings Plc, and David Bowden of The Woolwich. We also received helpful information from others in the lending industry. [Back] Note 75 Whether as a registered charge (if legal) or by way of the entry of a notice (if equitable). [Back] Note 76 See above, para 7.20. [Back] Note 77 See above, para 7.19. [Back] Note 78 There are circumstances in which it could be material whether any right created by such an agreement is proprietary or not, as where a second charge is created in ignorance of the restriction and is then not registered because of it. There is an argument that such an agreement might create a restrictive covenant by analogy with a tying covenant. It is wellestablished that a tying covenant by (for example) a mortgagor-publican not to buy beer other than from his or her mortgagee-brewer is a restrictive covenant capable of binding third parties: see John Brothers Abergarw Brewery Co v Holmes [1900] 1 Ch 188; Regent Oil Co Ltd v Gregory (Hatch End) Ltd [1966] Ch 402, 433. However, against this, there is a respectable argument that a covenant not to borrow without consent is not a restrictive covenant because it does not restrict the user of the land but merely its disposition. [Back] Note 79 At first sight they would appear to be. However, we should record that we have received correspondence in which the contrary was strongly argued. [Back] Note 80 It would not be a measure for the reform of property law as such and would undoubtedly raise difficult competitiveness issues that lie outside our expertise. [Back] Note 81 For the meaning of “charge” under the Bill, see Cl 129(1); above, para 7.5. [Back] Note 84 See above, para 7.13(2). Cf Law of Property Act 1925, s 94(1)(a), which expressly so provides in relation to unregistered land. When electronic conveyancing is introduced, such agreements may have no effect unless registered: see Cl 93(6); below, para 13.83. [Back] Note 88 Cf Schedule 10, para 5; below, para 17.9, which provides that the form, content and service of notices which fall to be given under the Bill are a matter for rules, and makes provision about matters such as when service is to be regarded as having taken place. [Back] Note 89 Under Land Registration Act 1925, s 30(2), it is only where the registrar fails to serve notice under s 30(1) or the notice is lost in the post, that there is any liability to pay indemnity to Lender 1, if it suffers loss in consequence. [Back] Note 91 See above, para 7.28. For this shortcoming in Land Registration Act 1925, s 30(3), see above, para 7.22. [Back] Note 92 Although we know of no authority in point, we have assumed that the result that it achieves cannot be achieved under the present law. [Back] Note 94 Cf Law of Property Act 1925, s 105 (the mortgagee is entitled to apply the proceeds of sale in payment of costs, charges and expenses properly incurred as incident to the sale or attempted sale). [Back] Note 95 The representatives of the secondary lending industry took the opposite view. [Back] Note 96 One possible example -and it should be emphasised that this is only a possible example given by way of illustration -might be a regulated agreement secured by a land mortgage under the Consumer Credit Act 1974. [Back] Note 98 Some statutory charges can be registered as registered charges. As such they are subject to the rules of priority explained above, paras 7.13 and following. Other charges are subject to the usual rule of priority that is determined by the date of their creation: see above, para 7.17. [Back] Note 99 See paras 7.39 and 7.42 respectively. [Back] Note 100 The only two examples of which we are aware are Legal Aid Act 1988, s 16(6), and Access to Justice Act 1999, s 10(7) (which, when it is brought into force, will replace s 16(6) of the 1988 Act). [Back] Note 101 Such as Housing Act 1985, ss 36, 156; Agricultural Holdings Act 1986, s 87(6); Housing Act 1988, Schedule 11, para 2; Housing Act 1996, s 12. [Back] Note 102 Such as Landlord and Tenant Act 1927, Schedule 1; Health and Social Services and Social Security Adjudications Act 1983, s 22; Housing Act 1985, Schedule 10, para 7; Environmental Protection Act 1990, s 78P; Housing Grants, Construction and Regeneration Act 1996, s 88. [Back] Note 103 Whether made under the Charging Orders Act 1979, or under other statutes that impose charging orders, such as Solicitors Act 1974, s 73; Highways Act 1980, s 212; Criminal Justice Act 1988, s 78; Child Support Act 1991, s 36; Local Government (Finance) Act 1992, Schedule 4, para 11; Drug Trafficking Act 1994, s 27. [Back] Note 104 As in the case of a charging order over a beneficial interest under a trust of land affecting the property: see Cl 42(1)(c), (4); above, para 6.43. [Back] Note 105 Although cautions are prospectively abolished by the Bill, existing cautions will remain on the register: see Schedule12, para 2(3). [Back] Note 107 Schedule 8, para 1(1)(h); see below, para 10.38. [Back] Note 108 If they do, questions may arise as to their compatibility with Article 1 of the First Protocol of the European Convention on Human Rights (protection of property). For Article 1 of the First Protocol, see below, para 8.89. [Back] Note 109 See rr 157, 158. Under r 158, the issue of priority is to be resolved by the registrar “if and when it becomes important”. In Brickdale & Stewart-Wallace’s Land Registration Act, 1925 (4th ed 1939), p 404, it is stated in relation to r 158, that “the reason for thus postponing the question of priority appears to be that the charges referred to are often of comparatively small importance, and are nearly always terminable, while the questions arising on the construction of the statutes present considerable difficulty”. The same is true 62 years later. [Back] Note 110 See Schedule 3, para 6; below, paras 8.29, 8.48. [Back] Note 111 Highways Act 1980, s 212. [Back] Note 112 Housing Act 1985, s 193; Schedule 10. [Back] Note 113 See Land Registration Act 1925, s 70(1)(i). [Back] Note 114 Law Com No 254, para 5.83. [Back] Note 116 See Law Com No 254, para 5.82. [Back] Note 117 Cl 55. See above, para 4.29. [Back] Note 118 Law of Property Act 1925, s 105. [Back] Note 119 Ibid. Interpreted literally, this would mean the buyer. The phrase does, of course, mean the person who was entitled to the mortgaged property immediately before it was sold. See Megarry & Wade’s Law of Real Property (6th edition 2000), 19-063, n 49. [Back] Note 120 See, eg, West London Commercial Bank v Reliance Permanent Building Society (1885) 29 ChD 954. [Back] Note 121 Land Charges Act 1972, s 2(4)(i) (Class C(i) land charges). [Back] Note 122 Law of Property Act 1925, s 198(1). [Back] Note 123 See Megarry & Wade’s Law of Real Property (6th edition 2000), 19-064. [Back] Note 124 See above, para 1.5. [Back] Note 126 Megarry & Wade’s Law of Real Property (6th edition 2000), 19-096. [Back] Note 127 This presently requires the production to the registrar of the charge certificates of the titles affected. Charge certificates are abolished under the Bill: see below, para 9.89. [Back] Note 128 Cl 57. The rules will be land registration rules and will be required to be laid before Parliament only. see Cls 125, 129(1). [Back] Note 129 There is a good deal of learning behind Land Registration Act 1925, s 32, but it is unnecessary for present purposes to explain it [Back]
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