Rights of the mortgagee

Rights to title deeds or charge certificate

Under ss 85(1) and 86(1) of the Law of Property Act 1925 (LPA 1925), the mortgagee of a property has a right to hold its title deeds, as is a mortgagee under a charge by way of legal mortgage under s 87(1)). This prevents the creation by the mortgagor of later interests in the property without the knowledge of the mortgagee.

The mortgagor may sometimes need to see the deeds; for example, he may need to check them to settle a dispute about the boundary line of the property. This is provided for under LPA 1925, s 96(1), which gives the mortgagor the right to inspect the deeds and make copies, as long as this is done at a reasonable time and any costs incurred by the mortgagee are paid.

Section 27(2)(f), of the Land Registration Act 2002 (LRA 2002), provides that the grant of a legal charge is a disposition that is required to be completed by registration. On the application being made, the registrar will enter the charge in the register as the proprietor of the charge.

Power of possession and sale

Under s 101 of LPA 1925, a legal mortgagee has a power of sale of the mortgaged property, subject to the conditions outlined in s 103 of LPA 1925. This provides that a mortgagee cannot exercise their power of sale unless and until:

  • notice requiring payment of the mortgage money has been served on the mortgagor or one of two or more mortgagors, and default has been made in payment of the mortgage money, or of part thereof, for three months after such service; or
  • some interest under the mortgage is in arrear and unpaid for two months after becoming due; or
  • there has been a breach of some provision contained in the mortgage deed or LPA 1925 and on the part of the mortgagor other than and besides a covenant for payment of the mortgage money or interest thereon.

Further protection is provided to the mortgager under the s 36 of the Administration of Justice Act 1970, which provides that where the mortgagor is likely to be able within a reasonable period of time to pay any sums due under the mortgage the court may:

  • adjourn the proceedings
  • stay or suspend execution of the judgment or order, or
  • postpone the date for delivery of possession, for such a period as the court thinks reasonable.

The taking of possession is only usually done as a preliminary to the remedy of sale and is not otherwise generally exercised. However, lenders will sometimes seek possession of a property to let it. This can cause problems for a mortgagor because the interest under the mortgage will continue to mount. In Palk v Mortgage Service Funding plc[1993] Ch 330, the Court of Appeal said that where sale was preferable in the mortgagor’s interests, a sale would be ordered instead.

The taking of possession must be exercised peaceably and this may necessitate an application to the court, although if peaceable re-entry is possible without resort to the court this is acceptable.

Right to lease

Unless the mortgage deed forbids it, a mortgagee in possession has the right to grant new leases of the mortgaged property under LPA 1925, s 99(2). Under s 99(6), the lease must be at the best rent obtainable having regard to all the circumstance. A mortgagee must not grant a lease on terms which would be adverse on the mortgagor’s level of debt without incurring a liability to the mortgagor (see White v City of London Brewery Co (1889)).

Insuring at the mortgagor’s expense

Normally, the mortgagee will wish to ensure the property is properly insured, since any damage can diminish the value of the mortgagee’s security. Accordingly, most mortgages include express terms concerning the maintenance of insurance. If there is no express agreement, LPA 1925, s 101(1)(ii), implies into every mortgage made by deed a term allowing the mortgagee to insure the property against loss or damage by fire. The premiums paid become a charge on the property in addition to the mortgage advance. The amount of the insurance and the mode of application of any sums arising from the policy are regulated by LPA 1925, s108.