What is a Charging Order?
A charging order is a method of enforcing a judgment or an order obtained in the County Court or High Court. It operates in a similar manner to a mortgage and is, therefore, used where a judgment debtor (the person, business or organisation, who owes the money) owns a property. A charging order can, and should be, registered at the Land Registry. When the judgment debtor comes to sell the property the monies owed under the judgment are paid to the judgment creditor (the person who is owed the money) plus interest from the date of the charging order, assuming of course that there is sufficient equity in the property to enable payment to be made.
What are the advantages of a Charging Order?
The main advantage of a charging order is that if there is sufficient equity in the property the judgment creditor can be reassured by the fact that they will be paid when the property is sold. Another advantage is that interest will continue to accrue on the judgment sum until the property is sold.
It may be that at the time of the judgment there is insufficient equity in the property and the judgment debtor may not have sufficient funds to discharge the judgment. However, if in the period between the charging order being made and the sale of the property there has been a rise in property prices it may well be that there is sufficient equity in the property by the time the judgment debtor comes to sell it.
What are the disadvantages of a Charging Order?
A charging order does not give a judgment creditor the right to sell the property. Since the judgment creditor will generally not be paid the judgment sum until the property is sold the judgment creditor may have to wait for many years before they receive payment. For this reason charging orders are generally only applied for if a large sum of money is owed and the judgment debtor does not have any high value assets other than a property.
How to apply for a Charging Order
An application for a charging order is a 2 stage process. The first stage involves the making of an interim charging order and the second stage involves the making of a final charging order.
The first stage is essentially a paper exercise and is normally done without giving any notice to the judgment debtor. This stage involves the judgment creditor applying to the court for a charging order by completing form N379, which can be obtained from the court office or found on the Court Service’s website.
The application should contain the following information:
The name and address of the judgment debtor;
Details of the judgment or order which the judgment creditor wishes to enforce (it is good practice to exhibit a copy of the judgment or order to the application);
The amount of money owed to the judgment creditor under the judgment or order at the date of the application;
If the judgment debt is payable by instalments, the amount of any instalments which the judgment debtor has not paid;
Details of the judgment debtor’s interest in the property (“office copies” for the property in question will confirm the name of the owner of the property. These can be obtained from the Land Registry);
Identification of the property against which the charging order is sought (office copies can be used to provide the necessary identification);
The names and addresses of any other creditors of the judgment, if known (the office copies will confirm the names and addresses of mortgage lenders, creditors who have secured loans against the property and any other person who has a charging order against the property);
The names and addresses of the persons who need to be served with the interim charging order which will include the judgment debtor and any known creditors.
Generally the application should be made in the court which made the judgment or order which the judgment creditor seeks to enforce.
If the judgment creditor has obtained more than one judgment or order against the judgment debtor it is open to him to apply for a single charging order in respect of all of the judgments and/or orders.
Assuming that the application complies with the necessary formalities as set out above the judge should make an interim charging order.
Registering an Interim Charging Order
Once an interim charging order has been made it should be registered by the judgment creditor at the Land Registry. This is done by applying to the Land Registry for a unilateral notice to be placed on the property register. The application should be made on form UN1, which can be obtained from the Land Registry or found on their website. A fee is payable, details of which can be obtained from the Land Registry or found on their website.
Obtaining a final Charging Order
Once an interim charging order has been made a hearing will be fixed at which a judge will consider whether to make a final charging order.
At least 21 days before the hearing the judgment creditor should serve copies of the interim charging order, the application notice and any documents which accompanied the application (such as the office copies and a copy of the original judgment or order) on the judgment debtor and any other known creditors, for example mortgage lenders.
The judgment creditor should file with the court at least 2 days before the hearing or produce at the hearing itself, a certificate of service confirming that the judgment debtor and any other known creditors have been served with a copy of the interim charging order.
Objecting to an interim Charging Order
If the judgment debtor or another creditor objects to the court making a final charging order, they must provide the court and the judgment creditor with written evidence explaining why they object to a final charging order being made at least 7 days before the hearing. In practice mortgage lenders rarely raise any objections.
At the hearing the court will either make a final charging order, discharge the interim charging order, decide any issues in dispute where the judgment debtor or a creditor has raised an objection and if necessary, direct a trial at which such issues will be heard.
Steps which must be taken after the hearing
If a final charging order is made at the hearing the judgment creditor is required to serve a copy of the final charging order on all of the persons on whom the interim charging order was served.
The judgment creditor can register the final charging order with the land registry, although if the interim charging order was registered it is not considered necessary to register the final charging order as well. The reason for this is that the interim charging order provides notice of the existence of a charging order. It is worth noting that the cost of registering a final charging order cannot be recovered from the judgment debtor if the cost of registering an interim charging order has already been claimed.
Discharge or variation of a Charging Order
An application can be made by the judgment debtor or any one who has an interest in the property to discharge or vary a charging order. The application must be made at the court which made the charging order and must be served on all of the persons on whom the charging order was required to be served.