Balancing Mortgagee and Mortgagor Rights

Question 1

In Cuckmere Brick Co Ltd v Mutual Finance Ltd, Salmon LJ noted that the mortgagee is not in the position of a trustee of the power of sale and that while the mortgagor has the duty to ensure that the true market value of the property is achieved, there is no fiduciary duty on the mortgagee to the mortgagor. This essay examines this statement of Salmon LJ with reference to the authorities post the Cuckmere decision in order to test whether there is consistence in the judicial approach in balancing the protection of the interests of the mortgagee and the mortgagor. The essay argues that judicial approach has been largely consistent in balancing the rights of the mortgagee to power of sale with the right of the mortgagor to redemption. Seeking a law dissertation help in understanding all these nuances and can offer clarity in navigating through all the complex legal concepts.

A mortgage is a contract that creates contractual rights and duties between the mortgagor and the mortgagee. Due to the nature of the subject matter being property, a mortgage also creates conflicting interests for the mortgagor and the mortgagee in the same property. This is the reason why the question of whether the interests of the mortgagor and mortgagee are balanced becomes important. The interests that are considered in this essay in the light of Salmon LJ judgment in Cuckmere are the mortgagee’s right to power of sale under Section 101 and 103 of the Law of Property Act 1925, and the mortgagor’s right to equity of redemption. The power of sale of the mortgagee arises under Section 101 when the mortgage money becomes due to the mortgagee. Under Section 103, default in payment of capital for three months after notice for payment can lead to the accrual of the power of sale, or where interest under the mortgage is in arrear and unpaid for two months after becoming due, or due to breach of some provision contained in the mortgage deed.

The points laid down by Salmon LJ in Cuckmere amount to the following. The mortgagee is not a trustee of the mortgagor and owes no fiduciary duty to the mortgagor. The mortgagee is not required to aggressively market the property or to delay until the market improves so that the mortgagor can get a better price. With regard to the point about aggressively marketing the property, the court reiterated in Bishop v Blake that there is no duty to aggressively market the property for realising the power of sale under Section 103. Furthermore, in Silven v RBS, the court reiterated the point that the mortgagee is not under a duty to delay the realisation of power of sale until market improves.

Despite these rulings in favour of the interest of the mortgagee, there are also attempts to balance the interests of the mortgagor by ensuring that the mortgagee acts fairly towards the mortgagor. The duty to act fairly includes the duty to ensure best price for the property so that the mortgagor does not lose the benefit of obtaining part of the proceeds of the sale. The mortgagor also has the right to appeal if they can show that a higher price for the property sold can be achieved for factors not considered by the mortgagee, such as, planning permissions that can increase the price of the property. In other words, the mortgagee is under a duty to take reasonable precautions for achieving the best market value. Once the power accrues, the mortgagee may determine the time of sale, for which it is irrelevant that when the best price can be achieved although the mortgagee is required to obtain the true market value of the property.

---

1. Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, [965].
2. Judith Bray, Unlocking Land Law (Oxon: Routledge 2016) 393.
3. Ibid.
4. Law of Property Act 1925, Section 101 (1) (i).
5. Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949, [965].
6. Bishop v Blake [2006] EWHC 831 (Ch).
7. Silven Properties v Royal Bank of Scotland plc [2004] 1 WLR 997.
8. Raja v Lloyds TSB Bank plc (2001) Lloyds Rep Bank 113; Palk and Another v Mortgage Services Funding Plc [1993] Ch 330.
9. Standard Chartered Bank v Walker [1982] 1 WLR 1410.
10. Meah v GE Money Home Finance Limited [2013] EWCH 20.
11. Oak Orchard Development Limited v Iseman [1987] OJ No. 361.

On the other hand, there are provisions related to the equity of redemption as the right of the mortgagor by which they can redeem the mortgage and also be protected against exploitation by the mortgagee. The right of redemption is in the nature of a contractual right, which cannot be restricted even under the terms of the contract, as any such terms that prevent the mortgagor from redeeming the mortgage or unduly postpones such redemption may be considered as ‘clogs and fetters on redemption’. After the Cuckmere judgment also, the position of the judiciary has remained consistent with the earlier approach that mortgagee not be allowed to introduce artificial stipulations that prevent the mortgagor from satisfying their obligations and reclaiming the property. The right to possession that can be used by the mortgagee prior to power of sale is restricted in cases where the mortgaged property is a residence, as per Section 36 of the Administration of Justice Act 1970. However, no such protection is provided to the mortgagee if the property is commercial in nature.

The provisions in the land law discussed above are related to the balancing of the interests of the mortgagor and the mortgagee. A mortgage being in the nature of contract that creates conflicting rights for two parties on the same property, such a balance is justified because a right to power of sale is an assurance of security for the for the mortgagee, while the right of redemption is a security for the mortgagor that if he is in a position to satisfy the debt and reclaim his property, he shall not be unduly prevented from doing so.

In the light of the statement made by Salmon LJ, the question is whether the post Cuckmere law has managed to consistently arrive at such balance between the rights of the mortgagee and the mortgagor. As the authorities discussed above indicate, such consistency is achieved by the courts by ensuring that while mortgagee is not a trustee for the mortgagor for exercising power of sale, there is a duty to achieve best market value and the right of redemption is safeguarded. Mortgagor’s interests are further safeguarded through the provisions of Section 36 of the Administration of Justice Act 1970 in case the mortgaged property is residential in nature.

---

12. Judith Bray, Unlocking Land Law (Oxon: Routledge 2016) 393.
13. Lewis v Frank Love Ltd (1961) 1 WLR 261.
14. Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1913] UKHL 1.
15. Jones v Morgan [2001] EWCA Civ 995, [50].
16. Palk v Mortgage Funding Services plc, [1993] 2 WLR 415.
17. N Gravells, Land Law: Text and Materials (London: Sweet and Maxwell 2012) 891.

Question 2

Kew Construction Ltd have sought advice related to their legal position vis a vis the lender who has given them loan as against a mortgage on a field belonging to Kew. Kew has been unable to repay the mortgage arrears and the lender has proposed exercising its power of sale under Section 103 of the Law of Property Act 1925. This essay considers the legal rights and duties of Kew vis a vis the lender and advices Kew as to these rights based on the legislation and relevant authorities.

A mortgagee’s power of sale arises under Section 101 read with the conditions given under Section 103 of the Law of Property Act 1925. Section 101 provides that mortgage must be by deed, under which the date set for redemption is given and has passed, and there are no specific terms that prevents the exercise of power pf sale. Section 103 provides that the power of sale becomes exercisable in case of borrower’s default in payment of capital for three months after notice, or in case of interest being unpaid for two months after becoming due, or in case of breach of provision contained in the mortgage deed. In this situation, Kew is not able to pay the mortgage arrears, although it is not clear if Kew was served a notice regarding the same by the lender. One of the conditions in Section 103 is that power of sale accrues if mortgagee is unable to pay arrears for 3 months after receiving notice from the lender. Therefore, the power of sale can arise only if such a notice has been made to Kew prior to the lender proposing power of sale.

Secondly, the right to redemption cannot be precluded from the mortgage deed. Therefore, another area that needs to be considered is the right to redemption. The equity of redemption as the right of the mortgagor by which they can redeem the mortgage. There can be no ‘clogs and fetters on redemption’ in the mortgage deed, and there can be no artificial stipulations that prevent the mortgagor from satisfying their obligations and reclaiming the property. Therefore, Kew is advised to refer the provisions of the mortgage deed to consider the exercise of right of redemption.

Even where the power of sale accrues and the mortgagor is not in a position to exercise the right of redemption, there is duty on the mortgagee to obtain the true market value of the property in a sale. This is to ensure that the mortgagor is not deprived of his right to claim proceeds of the sale that are over and above the amount due to the mortgagee. In such case, the mortgagee would have to advertise the qualities of the property that can augment the price, such as, planning permissions. This right was recently explained in Meah v GE Money, where the court held that the mortgagee in possession of the property must not put the property on the market without alluding to its development potential. In this case, Kew has planning permissions for the field for building 6 buildings, which can help it achieve a higher price if alluded to.



As the field is not a residential property, different law applies in case of the mortgagee claiming possession prior to exercising the power of sale. Residential property cannot be taken possession of by the mortgagee without court order as per the provisions of Section 36 of the Administration of Justice Act 1970. However, the same protection does not extend to commercial or non-residential property, which the mortgagee can take possession of without obtaining a court order. In this case, Kew’s mortgaged property is a field, which means that it is not residential and protection of Section 36 does not apply. The mortgagee can take possession of property without court order if the conditions under Section 103 of the Law of Property Act 1925 are applicable to the case. It may also be mentioned that the remedies of the mortgagee under the land law are cumulative in nature; this means that if the mortgagee is not able to obtain the full amount due to them, then other remedies can be taken to obtain the full amount. In such cases, the mortgagee can exercise personal action on the contract for repayment or obtain a personal judgment debt.

---

18. Lewis v Frank Love Ltd (1961) 1 WLR 261.
19. Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1913] UKHL 1.
20. Jones v Morgan [2001] EWCA Civ 995, [50].
21. Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949.
22. Standard Chartered Trust v Walker [1982] 3 All ER 938.
23. Meah v GE Money Home Finance Limited [2013] EWCH 20.
24. J MacKenzie and M Phillips, Textbook on Land Law (Oxford: Oxford University Press 2014) 460.
25. Ropaigealach v Barclays Bank, [2000] QB 263.

A question that can be considered here is whether it would be unfair to let the mortgagee sell the property. This may happen when the mortgagor has only been unable to pay a few months of arrears, but if given an opportunity can arrange for payment in a short period of time. In some cases, the courts have allowed more time to the mortgagor to make the payment of arrears in order to delay or avoid the sale of the property as it would be unfair for the court to do otherwise. In this case, Kew may approach the court to allow more time to make the payments of the arrears due. Another question is whether there are alternatives to the sale of the property, such as re-mortgage, which will allow the mortgagor to repay the amount due to the mortgagee without having to sell the property.

To conclude, Kew has some protections against the lender, which include right of redemption and the right to proceeds over and above the amount due in the event the power of sale is exercised. Kew can also ask for more time to make the payment as it is only a few arrears that have not been paid and Kew may be able to show that it would be unfair to them if the sale goes through when they could have been given an opportunity to pay the amount in a reasonable period of time. Kew also has the right to obtain the best market value for the property considering that the property has planning permissions that can help it achieve the best market value.

---

26. Alliance & Leicester v Slayford, [2000] EWCA Civ 257.
27. Judith-Anne MacKenzie and Aruna Nair, Textbook on Land Law (Oxford University Press 2016) 481.
28. National and Provincial Building Society v Lloyds (1996) 1 All ER 630.

Dig deeper into Assessing Land Fixtures with our selection of articles.

Legislation

Administration of Justice Act 1970

Law of Property Act 1925

Cases

Alliance & Leicester v Slayford, [2000] EWCA Civ 257.

Bishop v Blake [2006] EWHC 831 (Ch).

Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] Ch 949

Kreglinger v New Patagonia Meat & Cold Storage Co Ltd [1913] UKHL 1.

Jones v Morgan [2001] EWCA Civ 995.

Lewis v Frank Love Ltd (1961) 1 WLR 261.

Meah v GE Money Home Finance Limited [2013] EWCH 20.

National and Provincial Building Society v Lloyds (1996) 1 All ER 630.

Oak Orchard Development Limited v Iseman [1987] OJ No. 361.

Palk and Another v Mortgage Services Funding Plc [1993] Ch 330.

Raja v Lloyds TSB Bank plc (2001) Lloyds Rep Bank 113.

Ropaigealach v Barclays Bank, [2000] QB 263.

Silven Properties v Royal Bank of Scotland plc [2004] 1 WLR 997.

Standard Chartered Bank v Walker [1982] 1 WLR 1410.

Books

Bray J, Unlocking Land Law (Oxon: Routledge 2016).

Gravells N, Land Law: Text and Materials (London: Sweet and Maxwell 2012).

MacKenzie J and Nair A, Textbook on Land Law (Oxford University Press 2016).

MacKenzie J and Phillips M, Textbook on Land Law (Oxford: Oxford University Press 2014).