Rights of the mortgagor

The mortgagor’s right to redeem

The primary right enjoyed by the mortgagor is the right to redeem the mortgage on repayment of the loan and payment of any interest provided for by the charge.

Right to redeem at law

At law the right to redeem is a matter of contract: the mortgagor can redeem on the date or dates and in the manner provided for in the mortgage. Thus, should the agreement provide that the mortgage should be redeemed on a particular date; the mortgagor has, at law, a right to redeem on that day only. The legal rule does not allow him to insist on redeeming the mortgage either before or after the contractual date. At common law, if he did not pay on the contractual date, the mortgagor at one time forfeited the land to the mortgagee and could still be sued in contract for the repayment of the debt. Accordingly the legal right to redeem was, and is, very limited.

Right to redeem in equity

Fortunately, equity took a very different view of the situation, particularly as there were examples of mortgagees absenting themselves so that it became impossible for the mortgagor to repay on the contractual date. As the purpose of the agreement was merely to provide the mortgagee with security for the loan, equity took view that, as long as the advance and any interest was paid, the mortgagee should not be able to object to redemption. Originally equity intervened only in cases of fraud by the mortgagee but soon came to recognise a general right to redeem in all cases (Salt v Marquess of Northampton [1892] AC 1).  Thus, equity allows the mortgagor to redeem even after the date fixed by the mortgage agreement for repayment has passed. Of course, since this right is enforceable in equity only, it is subject to the general principle that equitable remedies are discretionary in nature and all the equitable maxims (particularly the ‘clean hands’ doctrine) will apply. Furthermore, in deciding whether redemption is possible, equity will look at the substance of the agreement, not its form. Accordingly, a mortgage which is drafted to look like an outright transfer of the property, rather than the creation of an interest by way of security, will still be subject to the equitable right to redeem, if the facts are such as to indicate that only a grant by way of security was intended.

Instalment mortgages

The modern mortgage is more likely to provide for repayment by instalments, spread over a number of years. However, it usually will contain a provision that if the mortgagor defaults on the payment of one instalment the whole sum will become due. In law, the mortgagor will then have to redeem the mortgage or lose his property forever, but equity will moderate the rigour of this in the way already described.

The equity of redemption

In equity the mortgagor is described as owning the ‘equity of redemption.’ This must be distinguished from the equitable right to redeem. The equity of redemption is the mortgagor’s equitable interest in the property and it consists of the sum total of the mortgagor’s rights in relation to the land (including, inter alia, the right to redeem). The equity of redemption is therefore an interest in land and can be dealt with like any other equitable interest.

Right to grant leases

Having already granted a lease or sublease, the mortgagor would be unable, on general principles, to grant further leases of the same property which could bind himself and his mortgagee. Any further lease he did create would operate as a lease of the reversion, and would not give the tenant any right to possession of the land which he could assert against the mortgagee. However, this caused difficulty, particularly n the case of large estates, where the mortgagor remained in possession of the land and continued to manage it, needing to grant new leases to, for example, tenant farmers and estate workers. The mortgagor is therefore given a statutory power by LPA 1925, s. 99: where he is still in possession of the land he may create both leases and contracts for leases which will be binding on the mortgagee. Section 99 sets out a number of detailed requirements for the form and content of such leases.

Right to sue

In some cases the rights of the mortgagor to sue in relation to land might be hampered by the fact that his estate is subject to the rights of the mortgagee. Any such problems are remedied by LPA 1925, s. 98, which allows a mortgagor in possession, who has not been notified that the mortgagee intends to take possession, to sue in a number of situations in which there might otherwise be difficulties. Generally, therefore, the mortgagor is free to bring any necessary action in relation to the land.

It should be noted that the mortgagor has power under LPA 1925, s. 100, to accept surrenders of leases as well. This may be done, however, only in order to replace the surrender lease with a fresh lease and new lease must be made within one month of the termination of the old.