Land Law

Land Law Ten years ago Ali and Ben bought Valiant Villa for £300,000 and became the registered freeholders, securing a mortgage of £125,000 against the property with Ripoff Finance Plc (‘Ripoff’). Ali and Ben made the monthly repayments from their joint income, through their joint bank account. In 2011 Ali, who is a model scout and agent, was approached by Cait Miss to represent her. Cait Miss was a very high-profile model, with campaigns for Bilberry, Louise Vitten and Channel. In order to become Cait’s agent, Ali needed to fund her travel commitments, portfolio work and provide her with personal assistants, which all came at a cost. Ali estimated the running cost of a client of this nature to be close to £110,000 and decided to release some security in Valiant Villa to cover the costs. Ben had always been a bit dismissive of Ali’s work, often encouraging her to find a ‘real job’, so she did not want to share this news with him. She asked her accountant, Devi, to talk Ben through the mortgage forms but made it clear that her business was reliant upon his co-operation. Ben signed the forms, thinking it was some form of mortgage repackaging, and they were returned to the bank, who released the funds. Unfortunately six months ago Cait Miss was at the centre of a drug scandal and can no longer work in the industry: Ali’s reputation as her agent is shattered. Ali has no revenue to cover the repayments and Cait’s contracts have been terminated for breach of a morality clause. Ripoff now seek repossession of Valiant Villa but Ben is unaware that he has actually signed a second mortgage and is very surprised Advise Ben as to how the bank could have a legal right to repossess and sell his home, and then advise him whether he could rely upon the defence of undue influence in order to prevent this repossession. The issues arising in the scenario relate to the rights of Ripoff, Ben and Ali, the law on undue influence and the associated policy considerations that underpin the law on mortgages. The heart of the solution is centred on whether Ripoff can successfully gain possession and ultimately exercise its power of sale. To begin with, consideration must be placed on Ripoff Finance’s position in law and then whether such remedies Dixon M ‘ Modern Land Law’ (7th Edn, Routledge 2010) pp. 409 -422 are available to them. Ripoffs Ripoff Financeability to repossess and sell the property will hinge on whether they acquired an equitable or legal mortgage. Being the registered freeholders of Valiant Villa, Ben and Ali have a legal estate under s.1 of the Law of Property Act (LPA) 1925: a fee simple absolute in possession. As owners of a legal estate, Ben and Ali are capable of granting a legal interest under s.1 (2) of the LPA Law of Property Act 1925, and in particular, a legal mortgage. Ripoff would have had to create its interest by deed subject to the formalities in the LPA 1925 Law of Property Act 1925 s.52 and register it as a charge under the Land Registration Act 2002 (LRA) for it to take effect Jackson N ‘ Gateway to Land Law’ (1st Edn Sweet & Maxwell 2012) pp. 691 and in order to rely on the remedies afforded to the legal mortgagee Thomas M ‘Property Law 2010-2011’(18th Edn OUP 2010) pp. 78 - 80. Based on the facts of the case, it is unclear whether Ripoff adhered to the formalities for their two mortgages For £125,000 and £110,000 respectively; however, it seems likely that they did, if we consider that they were willing to loan an additional £110,000 to Ben and Ali. Failure to have met these requirements would render Rip-off’s interest into an equitable one Davys M ‘ Land Law’ (8th Edn Palgrave Macmillan 2013) pp. 8. The somewhat limited remedies available in the realm of equity Clarke S & Greer S ‘Land Law: Directions’ (2nd Edn, OUP 2010) pp. 412 and the difficulties that lay in enforcing them highlight the significance of this. If Ripoff obtained a legal interest in Valiant Villa in exchange for the second loan of £110,000, it could exercise its rights given that Ali cannot cover her repayments Jackson N ‘ Gateway to Land Law’ (1st Edn Sweet & Maxwell 2012) pp. 697 Law of Property Act 1925, s101, s103. The mortgagee has a common law right to go into possession ‘before the ink is dry’ as Harman J exclaimed in Four Maids Four – Maids Ltd v Dudley Marshall (properties) Ltd [197] Ch. 317 . The policy considerations Peaceful occupation and residential security v safe investment employed when regulating the law on mortgages, however, render this adage a practical impossibility. In modern times, the mortgagee would need to obtain a court order to gain possession of the house, particularly if Ben and Ali are still in occupation of the residential premises Criminal Law Act 1977, s.6 (1). Ripoffs right to repossess may be hampered by the protection available to the borrower, under s.36 AJA Administration of Justice Act 1970. Ultimately, the court has the discretion to issue, suspend or postpone an order to repossess depending on whether certain criteria are met Clarke S & Greer S ‘Land Law: Directions’ (2nd Edn, OUP 2010) pp 394 - 398. Under usual circumstances, the mortgagee gaining possession of the property is a prelude to exercising its power of sale. The case of Horsham Horsham Properties Group v Clark [2008] EWHC 2327 (Ch.) is the exception where in Horsham, the mortgagees, sold the property to a third party before possession in a way which was deemed a legal exercise of their rights Dixon M ‘ Modern Land Law’ (7th Edn, Routledge 2010). Technically, Rip-off could attempt to recoup their money in this way, however, the pre –action protocol for possessions based on mortgage arrears Introduced November 2008 and the practices endorsed by the Council of Mortgage Lenders encourage methods of possession and sale which do not undermine the mortgagor’s rights, particularly under s.36 of the AJA Administration of Justice Act 1970. Once in possession, the mortgagee can use the statutory power of sale Law of Property Act 1925, provided that the legal date of redemption has passed Clarke S & Greer S ‘Land Law: Directions’ (2nd Edn, OUP 2010). The power of sale must arise and according to s.101 (1)(i) LPA Law of Property Act 1925 s.101, this is when the mortgage money is ‘due’. Once arisen, the power is exercisable if one of the three conditions mentioned in s.103 Law of Property Act 1925 are met. In the scenario, the money seems to be due because it appears that Ali has missed several months’ payment and in all likelihood, has defaulted. It is unclear, however, whether notice was served on Ali requiring payment or whether there was a breach of some term of the mortgage other than the requirement to pay the mortgage money or interest. Consequently, Rip-off may be able to rely on condition (ii) Thomas M ‘Property Law 2010-2011’(18th Edn OUP 2010) pp 80, where interest under the mortgage is in arrears and unpaid for two months after becoming due. This is because presumably Ali has owed mortgage repayments for five or six months since Cait Miss’ fall of grace. If, however, Rip-off can show that any or indeed all of these conditions are met, their power of sale will become exercisable. The exercise of the power of sale would be subject to a few responsibilities and duties. These are beyond the scope of advising Ben at this time, however, are discussed well by Jackson Jackson N ‘ Gateway to Land Law’(1st Edn Sweet & Maxwell 2012) and Dixon Dixon M ‘ Modern Land Law’ (7th Edn, Routledge 2010). Ripoff Finance could be prevented from repossessing and selling Valiant Villa, if the courts make a finding that Ben entered into the agreement based on undue influence. There is no true definition of undue influence, however, the courts have developed guidelines which help to determine whether such influence exists Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44 and was exerted on the victim in the case McFarlane B , Hopkins N & Nied S , ‘Land Law : Texts , Cases and Materials’( 2nd Edn OUP 2012) pp.1089 - 1090. The onus, however, would be on Ben to show that either, there was actual undue influence, or, the relevant factors that lead to a presumption of such influence were present. Additionally, it must be shown that Ripoff had constructive notice, or were ‘put on inquiry’, of Ben’s interest during the course of the transaction and thus, were ‘tainted’ by the influence. In the somewhat formulaic approach imposed by the courts, the first hurdle to overcome here, would be to ascertain whether such influence was evident or whether the presumption of such existed. In terms of the former, actual undue influence is a question of fact and must be readily discernible from the facts of the case. Ben must have entered into the contract under the guise of informed and true consent Steeples v Lea (1998) Stevens v Leeder (2005). In the scenario, he signed the forms after discussions with Devi, Ali’s accountant, thinking it was some form of mortgage repackaging. This suggests that he was misadvised, perhaps negligently, in terms of the true nature of what he was signing: a second mortgage. As Dixon Dixon M ‘ Modern Land Law’ (7th Edn, Routledge 2010) pp 429 suggests, on a point on which both Gray & Gray Gray K & Gray S.F ,’ Elements of Land Law’ (5th Edn OUP 2009)pp 740 and Jackson are in concert, the influence must be ‘actual’ and ‘undue’, culminating in the stripping of Ben making a choice out of his own free will. In a case where actual influence is not established, however, a finding of the presumption of such influence may still be found. The main criteria required for the presumption of undue influence to be inferred, stem from the juggernaut The dominant authority on undue influence, Royal Bank of Scotland plc. v. Etridge (No.2) [2002]. Firstly, Ben would need to establish that he had a relationship of trust and confidence Turkey v Awadh (2005) with Ali. In the scenario, they Ben and Ali made monthly repayments for their first mortgage from their joint income, in their joint account. This does suggest that there was a level of trust and confidence although no hint of ascendancy Thompson v Foy (2009) or dominance. It then must be shown that the transaction is one which ‘called for explanation’ Popowski v. Popowski (2004): a transaction which would have been unusual in the context of the relationship. If Ben and Ali jointly and knowingly Monthly repayments from joint income granted Ripoff the first mortgage, then a subsequent transaction where Ben does not knowingly consent to second mortgage is likely to be deemed, a transaction which ‘calls for explanation’. If established, the burden would shift to Ali to explain the transaction. Failure to do so would lead to the conclusion that there was undue influence. The old criteria of ‘manifest disadvantage’ required in O’Brien Barclays Bank v O’Brien [1993] 3 is still a useful evidential test used to establish undue influence. This holds true, as, in the scenario, Ben received no real benefit from the second loan. Finally, for Ben to rely on the defence, he must show that the bank had actual or constructive notice of the transaction. A bank or lending institution will be held to have constructive notice where a partner stands as a surety for their significant other’s debts Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44. This bestows a duty on the lender, requiring them to take steps to ascertain whether informed consent to the transaction was given and whether the surety understood the risks involved. Mujid Mujih, E.C., ‘Over Ten Years After Royal Bank of Scotland Plc v Etridge (No.2): Is the Law on Undue Influence in Guarantee Cases any Clearer?’ (2013) I.C.C.L.R. 57 provides an accurate depiction and analysis of the ‘core minimum Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44’ expected from institutions that are ‘put on inquiry’, particularly, in the light of cases decided post – Etridge. In the scenario, Ben does not truly consent to the second mortgage and this is highlighted by his surprise when Ripoff begin to seek repossession. It is arguable that the ‘core minimum’ has not been met here and this is likely to leave Ripoff in a vulnerable position. All in all, doubt must be cast in regards to Ripoff Finance’s position. It’s right to repossess and sell Valiant Villa hinges on whether Ben can rely on the defence of undue influence. On the facts, it appears likely that he can. The factors that lead to a presumption of undue influence seem to be present here and if Ali cannot explain the transaction, the defence will be established. This transaction does put Ripoff on inquiry. In the scenario, is has failed to take the steps that would have prevented them from being ‘tainted’ by the undue influence. A finding of undue influence would render it unable to enforce its security against Ben. Ripoff, however, might still be able to recover some money from Ali if it decides to exhaust its other remedies Foreclosure Appointment of a receiver s.14 of Trust of Land and Appointment of Trustees Act 1996, particularly, if it acquired a legal interest. The scenario above indicates the dynamic and responsive nature of property law, in balancing competing rights, responsibilities and home interests. Discuss the competing rights and responsibilities evident in the problem scenario above and consider whether the existence of an interest in the family home affects the potential outcome for Ben. When regulating the law on mortgages, the courts seek to balance the interests of the borrower against the needs of lenders who use the mortgage as an instrument of safe investment. During and before the contract for the mortgage, the mortgagor and mortgagee have the main responsibilities of redeeming the mortgage and releasing the property after redemption Sexton R ‘ Land Law’ ( 2nd Edn OUP 2006) pp 409 - 416, respectively. The law here is heavily influenced by policy considerations and the assertion of the quote First line of assignment question Part B seems to take the position that the courts are regulating of the law well. Firstly, when deciding whether this assertion The Law of Property is dynamic and responsive is accurate, consideration must be placed on the party’s interests, the rights and the responsibilities that lay therein. In the scenario above (a), Ben and Ali have legal estate: a fee simple absolute in possession Law of Property Act 1925 s.1. The Law would have required them to create their estate by deed Law of Property Act 1925 s.52 and register it in the Land Register in order to take effect and protect their estate in registered land. Conversely, as the lenders/mortgagors, Ripoff would have needed to create their mortgage by deed and register it as a charge under the Land Charges Register under s27 (2) f. Failure to do so would render Ripoff’s interest into an equitable one Needs to meet s.2 of the Law of Property (Miscellaneous Provisions) Act 1989 and would leave them in a vulnerable state. These interests and estates evident in the scenario are what the courts would seek to balance. In this fictional scenario, Ripoff, Ali and Ben would have had certain rights and responsibilities that would have been part of their contract. The true nature of land law, in current times 2010 - 2014, would depend on whether each of them is fair in the context of the agreement. Ripoff Finance would have the main right to recover their investment Mortgagee Right and a responsibility to release the property once it has been redeemed Davys M ‘ Land Law’ (8th Edn Palgrave Macmillan 2013)pp 89. When the mortgagor grants an interest to the lender, he confers onto them a security for the loan. It then becomes the responsibility of the mortgagor to redeem the mortgage used to help purchase the property and any interest due Davys M ‘ Land Law’ (8th Edn Palgrave Macmillan 2013)pp 88 - 90. In terms of redemption, the lender has a responsibility not to interfere with the borrower’s right to redeem the mortgage; there must be no clogs or fetters Rainey P & Walsh M & Harrison P and Dovar D ‘ Megarry’s manual of the law of real property’ (9th Edn 2014)pp 452 - 455 in the agreement. For Ripoff, a mortgage is intended to be an instrument of safe investment. As a matter of policy, it is the responsibility of the courts to ensure that a fair balance is struck in order for lenders to continue lending. Ben and Ali, as the mortgagors, have the right to redeem the mortgage and enjoy peaceful possession. Their main responsibility in the contract would be to repay Ripoffs Ripoff Finance loan with any interest due. There are many other secondary rights and responsibilities that would come into play, however. The extent of their rights would depend also on factors such as their true position in co-ownership and their marital status Matrimonial Causes Act 1973. In any case, Ben and Ali would both have had a responsibility to maintain their house. As Radin Radin, M.J, ‘Property and Personhood’ 34 Stan. L.Rev.957 p 3 - 4 suggests, the property should be treated as an extension of the owner and the owner has a duty to maintain their property. In the context of land law, her concept of ‘personhood’ is accurate here and is mirrored in society by common adages such as ‘an Englishman’s home is his castle’. The extent to which one should persevere to protect one’s property does weigh into the equation; however, certain limits have been imposed in criminal law, such R v Martin [2002] 2 WLR 1. The rights and responsibilities outlined above illustrate the complexity in property law. From a conceptual point of view, however, it is arguable that the law is dynamic, as Gray suggests Gray K ‘Property in Thin Air’ CLJ 50(2) 1991. The evolution of Land Law is evident with the developments that came from Law of Property 1925 and Land Registration 2002. The legal profession’s position, in the age of information, which we live in, is even attempting to move forward with a push for e-coveyancing Land Registration for the 21st Century: A Conveyancing Revolution. Wave and wave Land Law Legislation , 1925 - 2002 of new legislation and the development of common law principles seem to be a response to the needs of society in a certain era E.g. Housing Act 1980. In light of this, Gray’s assertion Gray K ‘Property in Thin Air’ CLJ 50(2) 1991 , pp41 is accurate to a certain extent, however, consideration must be placed on the fact that his view was expressed a decade before the enactment of the Land Registration Act 2002. Further still, decided cases Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44 show that it is likely such an idea, in current times, is more than merely conceptual. To discover, however, whether a balance is being struck between the interests the legislation create can only be ascertained by examining what methods of protecting these interests are afforded to the respective parties and the real world-balancing act that judges must perform. As the scenario suggests, Ben and Ali are the mortgagors and Ripoff are the mortgagees. Ben and Ali initially have a legal estate before granting an interest to Ripoff. The law on mortgages provides the mortgagor with the equity of redemption A bundle of rights in Equity and a few other rights under the Administration of Justice Act 1970 (s36); however, the mortgagee has a host of legal rights Mackenzie J-A & Phillips M ‘ Textbook on Land Law’ (14th Edn OUP 2012) p 457 they can employ to recoup their investment, particularly if they gained a legal interest. They include, the right to repossess and sell, the right to sue on a covenant and foreclosure. Even if these require a few criteria to be satisfied for them to be employed, this infers that perhaps the balance of power is with the lender. This is particularly so as the mortgagors rights are mainly relegated to the realm of equity. The findings of the Ministry of Justice Mortgage and Landlord Possession Statistics Quarterly , England and Wales ( July –Sept 2014) , statistics bulletin pp2 suggest that there has been a fall of more than 62% in the number of mortgage repossession claims since a peak of 142,741 in 2008. This shows that in the economic recession of that time where countless people lost their jobs and presumably defaulted on their mortgages, the mortgagee was in a much stronger position. This is worrying, particularly in the light of the decision in Horsham, Horsham Properties Group v Clark [2008] EWHC 2327 (Ch.)discussed in Part A. There has been an attempt to level this perceived imbalance between the lender and borrower. Schemes and bodies The Council on Mortgage Lenders, The Mortgage Rescue Scheme and the Pre-Action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in Respect of Residential Property, were set up to help parties to conduct the course of the mortgage in a just and proportionate way and to a certain extent, help mortgagors in financial difficulties. These, among others, help to balance the competing rights that are evident in the scenario. The importance of finding such balance lay in the consequences of one not being achieved. If banks and/or lending institutions are not assured that the investment is safe, it is likely they would stop lending and less people will have appropriate accommodation. Conversely, if the balance shifts towards the lender, more people will be wary of taking loans to purchase property or even fund small businesses. In this sense, the position of the borrower almost amounts to a Catch-22 Coined by the works of Joseph Heller, which is unfortunate. This is a grey area in land law that is in need of reform and recent cases AIB Group (uk) PLC v Personal Representative of Jones Aiken [2012]highlight the somewhat ambivalent position that the courts have adopted in relation to this aspect. In Part A, if Ripoff turned out to have a legal interest, the potential outcome for Ben could materialise in different ways. If undue influence was not established, Ripoff would have been able to start a mortgage repossession action. If Ben was still in employment, however, he could attempt to engage s.36 Administration of Justice Act 1970 if he could pay, or help Ali pay, the amount due in a reasonable period. Additionally, the schemes and bodies discussed above would aid Ben in his attempt. Providing that Ben cannot supply the money, it is likely Ripoff would be in a strong position to recoup their investment. Where Ripoff gained an equitable interest under the LP (MP)A 1989 s.2 Law of Property ( Miscellaneous Provisions) Act 1989, they may be able to recoup their investment in contract law. As discussed in Part A and B, however, the remedies available in equity are relatively mediocre and challenging to enforce. To conclude, it is apparent that there is an imbalance between the lender and the borrower. The author Of the quote in the assignment question is accurate in his assertion that property law is dynamic and responsive, however, only to a certain extent. In the scenario, there is a possibility that Ben could lose his property through no real fault of his own. Scenarios like this give weight to the idea that stricter methods should be used to enforce the ‘core minimum’ suggested by Lord Nicholls. Additionally, greater rights should be awarded to the mortgagor, perhaps in statutory form; there is a clear basis Balancing the competing interests for reform. In light of this, the responsiveness is debatable, at least in the sphere of mortgage law. ` Bibliography Case Law Abbey National Bank plc v Stringer [2006] EWCA Civ 38 Alliance and Leicester plc v Slayford [2001] All ER 1 Ashe v National Westminster Bank [2008] 1 WLR 710 (Ch) Barclays Bank v O’Brien [1993] 3 Bristol & West B.S. v Ellis [1996] 73 P & CR 15 Burbank Securities v Way (2008) Cheltenham and Gloucester Building Society v Norgan (1996) 1 WLR 343 City of London Building Society v Flegg [1988] AC 54 (HL) Fairclough v Swan Brewery Co. Ltd [1912] AC 565 First National Bank v Syed [1991] 2 ALL ER 250 Four Maids Ltd v Dudley Marshall Properties [1957] Ch 317 Halifax plc v Popeck (2009) Halifax Building Society v Clark [1973] Hewett v First Plus Financial Group plc [2010] 2 P & CR 22 (CA) Horsham Properties Group v Clark [2008] EWHC 2327 (Ch.) 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D Legislation Law of Property Act 1925 Administration of Justice Act 1970 Administration of Justice Act 1973 Land Registration Act 2002 Law of Property (Miscellaneous Provisions) Act 1989 Trust of Land and Appointment of Trustees Act 1996 Criminal Law Act 1977 European Convention on Human Rights and Fundamental Freedoms 1951 Financial Services and Markets Act 2000 Mortgage Repossessions (Protection of Tenants) Act 2010 Matrimonial Causes Act 1973 Protection from Eviction Act 1977 Rules of Court Pre-action Protocol for Possession Claims based on Mortgage or Home Repossessions Proposed Reforms/ Law Commission The Home Repossession (Protection) Bill 2008 – 2009 Law Commission Report Number 204 of 1991 Ministry of Justice Mortgages: Power of Sale & Residential property: Consultation Paper – 29/12/09 Land Registration for the 21st Century: A Conveyancing Revolution 2001 Texts Dixon M ‘ Modern Land Law’ (7th Edn, Routledge 2010) Clarke S & Greer S ‘Land Law: Directions’ (2nd Edn, OUP 2010) Mackenzie J-A & Phillips M ‘ Textbook on Land Law’ (14th Edn OUP 2012) Davys M ‘ Land Law’ (8th Edn Palgrave Macmillan 2013) Jackson N ‘ Gateway to Land Law’ (1st Edn Sweet & Maxwell 2012) Thomas M ‘Property Law 2010-2011’(18th Edn OUP 2010) Sexton R ‘ Land Law’ ( 2nd Edn OUP 2006) Rainey P & Walsh M & Harrison P and Dovar D ‘ Megarry’s manual of the law of real property’ (9th Edn 2014) Articles Clements, L.M., ‘ Residential mortgages and the Administration of the Justice Acts 1970 and 1973; a case for reform’ [1999] 3 Web JCLI Greer S., ‘ Watching the Clock’ (2008) 158 NLJ 7317 Pawlowski, M. and Greer S.J. , ‘ Constructive notice and independent legal advice : a study in leading institution practice’ [2001] 65 Conv 229 Omar, P.J., ‘ A delicate balance of interests: the power of sale & duty to maximise asset values’ 2005 Brown, ‘The Consumer Credit Act 2006: Real Additional Mortgagor Protection?’ (2007) 71 Conv 316 McMurty, ‘ Mortgage Default & Repossession: Procedure and Policy in the Post – Norgan Era’ (2007) 58 NILQ 194 Thompson, ‘ The Cumulative Range of a Mortgagee’s Remedies’ [2002] Conv 53 Mujih, E.C., ‘Over Ten Years After Royal Bank of Scotland Plc v Etridge (No.2): Is the Law on Undue Influence in Guarantee Cases any Clearer?’ (2013) I.C.C.L.R. 57 Radin, M.J, ‘Property and Personhood’ 34 Stan. 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