Mortgage – Legal charge over property securing loan by respondent to appellant – Parties agreeing loan amount and interest rate – Charge as executed omitting those details – Whether charge enforceable notwithstanding defect where parties reaching clear oral agreement on loan amount and interest rate – Whether breach of section 2 of Law of Property (Miscellaneous Provisions) Act 1989 or section 53 of Law of Property Act 1925 – Whether loan agreement unenforceable under Financial Services and Markets Act 2000 – Appeal dismissed
The appellant was the part-owner of a property development company that had taken out loans with the respondent company to finance the acquisition of properties. In 2005, the respondent lent £1m to the appellant, in his personal capacity, to enable him to purchase a property as his home. An agreement dated December 2005 specified the loan amount and an initial interest rate of 7.5% pa for a loan period of one year from the date of completion of the purchase, with the rate to be renegotiated in the event that the loan had not been repaid within that time. In March 2006, the appellant executed a legal charge over the property to secure the loan. This purported to identify the debt and the interest rate by reference to an “offer letter”, although no such letter had been prepared, and stipulated that the appellant would repay the debt at the end of March 2007. The charge was duly registered.
The appellant took a further loan of £25,000 from the respondent at an interest rate of 15% and also assumed personal responsibility for the repayment of a £90,000 loan to his company; both sums were agreed to be secured by the 2006 charge. It became apparent that that charge would not be redeemed by the end of March 2007, and the parties agreed interest rate increases of 10% from that date, rising to 12.5% from October 2007.
The appellant subsequently brought proceedings in which he disputed the enforceability of the loans. He contended that: (i) the 2006 charge was defective for not setting out all the relevant terms in writing, contrary to section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, or for contravening section 53 of the Law of Property Act 1925; and (ii) the main £1m loan breached the Financial Services and Markets Act 2000.
Dismissing the claim, the judge held that: (i) the appellant was bound by the oral agreement on the loan amount and interest rate on the ground of estoppel by convention, despite the defects in the 2006 charge; and (ii) although the respondent had breached section 19 of the 2000 Act in providing credit on the main loan, it was just and equitable, within section 28, to allow the agreement to be enforced. The appellant appealed.
Held: The appeal was dismissed.
(1) On the parties’ pleaded cases, it had been agreed that the main loan would be the £1m advanced to the appellant to enable him to purchase his property and that the rate of interest would be 7.5% pa. The error in the drafting of the 2006 charge had arisen as a result of a mistaken assumption by the solicitor acting for both parties that an offer letter had been prepared, and an oversight on the part of the parties when they came to sign the charge. The appellant was bound, as a result of estoppel by convention, by the oral agreement as to the size of the loan and the interest payable thereon and the judge had correctly so found. Moreover, the same result could have been reached by ordering rectification of the 2006 charge. The judge had also been entitled to find that the parties had agreed the subsequent interest rate increases.
Section 2 of the 1989 Act was not a bar to the enforceability of the charge. It was directed at tightening up the formalities required for contracts for the creation or sale of legal estates or interests in land and was not concerned with documents that actually created or transferred such estates or interests. Although a contract to transfer a freehold or a lease in the future, or a contract for a mortgage in the future, would fall within the reach of the section, an actual transfer, conveyance or assignment or a lease or an actual mortgage would not.
Although section 53 of the 1925 Act did apply to mortgages, it was less prescriptive than section 2 of the 1989 Act. It merely required the arrangement to be in a document, or in identical documents, signed by both parties and did not give rise to problems so far as estoppel or rectification were concerned.
(2) The judge had been entitled to find on the facts before him that section 19 of the 2000 Act had been contravened but that it was just and equitable to allow the agreement to be enforced.
David Christie (instructed by Morgan Hall) appeared for the appellant; Fred Philpott (instructed by Neumans LLP) appeared for the respondent.
Sally Dobson, barrister
