Mortgage – Enforcement – Sale – Appellant taking out buy-to-let mortgage with respondent lender – Mortgage conditions entitling respondent to sell property or appoint receivers under Law of Property Act 1925 in event that appellant becoming unable by reason of mental incapacity to manage his affairs – Appellant falling into arrears and hospitalised for mental health problems – Respondent appointing receivers and later selling property as mortgagee in possession – Sections 140A and 140B of Consumer Credit Act 1974 – Whether appellant entitled to relief against respondent – Whether relationship between parties “unfair” by reason of mortgage conditions or manner in which respondent exercising its rights – Appeal dismissed
In November 2007, the respondent lend £319,860 to the appellant on a buy-to-let mortgage secured on a property in Ipswich. The mortgage conditions required the property to be let on an assured shorthold tenancy and, by clause 9.1.6, entitled the respondent to appoint receivers and exercise its power of sale in relation to the property not only if the appellant fell into arrears but also if he became “incapable by reason of mental incapacity of managing his affairs”.
From 2008, the appellant fell into arrears with the mortgage. In March 2012, he was compulsorily admitted to hospital with mental health problems under section 3 of the Mental Health Act 1983. He asked the respondent to send his post to the hospital.
In May 2012, the respondent received a letter from the consultant psychiatrist at the hospital, confirming that the appellant remained in hospital and unable to deal with his affairs but that he was making a good recovery and would probably be able to manage his affairs again in the near future. The respondent nonetheless sent a seven-day letter before action to the appellant at his home address, informing him of its intention to appoint a receiver of the rent from the property pursuant to condition 9.1.6. By that time, the property had become vacant. A receiver was duly appointed but was subsequently discharged and the respondent itself proceeded to sell the property as mortgagee in possession. A sale for £295,000 was completed in October 2012, leaving a shortfall on the mortgage account. By then, the appellant had left hospital.
The appellant brought proceedings against the respondent in which he challenged the validity of the appointment of the receivers and the propriety of the respondent’s actions in taking possession of the property. That claim was struck out on the application of the respondent under CPR 3.4(2)(a).
On appeal from that decision, the appellant contended that he was entitled to relief in relation to the mortgage under the sections 140A and 140B of the Consumer Credit Act 1974, on the grounds that the relationship between himself and the respondent was “unfair” by reason of: (i) the inclusion of clause 9.1.6 in the mortgage; and/or (ii) the way in which the respondent had exercised or enforced its rights in the light of its knowledge of the appellant’s mental disability.
Held: The appeal was dismissed.
(1) Looked at objectively, taking into account the essentially commercial nature of a buy-to-let mortgage and the interests of both parties to the relationship, it was not unfair for the respondent to include a power to appoint a receiver under the Law of Property Act 1925 in the event of the debtor becoming unable to manage his financial affairs. The lender would have no right to intervene in the tenancy of the mortgaged property in such circumstances unless there was an express power to do so. The appointment of a receiver to collect the rents and to manage the property, thereby maintaining the payment of the mortgage, was as much in the interests of the mortgagor as it was in the interests of the mortgagee. The fact that the power of sale had to become exercisable in order for a receiver to be appointed was simply a function of section 109(1) of the 1925 Act and could not, of itself, make the inclusion of such a power unfair. The same applied to the power to appoint a receiver in the event of a breach of one of the mortgage terms: Rahman v HSBC Bank plc [2012] EWHC 11 (Ch) applied. Those were commonplace provisions in any mortgage and the real focus, for the purposes of sections 140A and 140B of the Consumer Credit Act 1974, was likely to be on the way in which the power was ultimately exercised.
(2) The appellant had no valid grounds of challenge to the appointment of the Law of Property Act receiver. Although the respondent had failed to engage with the appellant in any meaningful sense prior to the appointment, and had sent the seven-day notice of appointment to his home address rather than to the hospital as promised, none of that had ultimately led to the loss of the property. There was no suggestion that the receiver had mismanaged the property. It was already vacant and apparently untenanted and the appellant did not suggest that it could or should have been re-let. Given that the receiver had been discharged, and the respondent itself had been responsible for the sale of the property as a mortgage in possession, the appointment of the receiver was not causally relevant to the loss and treatment of which the appellant complained. The claimed loss stemmed not from the appointment of the receiver but from the respondent’s exercise of its power of sale.
(3) There was nothing unfair in the action that the respondent had taken. The respondent had substantially complied with the guidance in the Good Practice Awareness Guidelines for Consumers with Mental Health Problems and Debt, as published by the Money Advice Liaison Group in 2009. It had followed a procedure to discover the extent of the appellant’s mental health problems, which had enabled it properly to assess his overall financial situation. Although it was not prepared to continue with the mortgage and demanded either its redemption or a sale, that was a commercially justifiable decision having regard to the history of the mortgage loan and the repeated history of arrears. The decision to sell was not taken until some time after the appellant had left hospital and become fit to re-take control of his financial affairs. The respondent’s evidence was that neither the sale, nor the earlier decision to appoint a receiver, was based simply on the late payments but was taken because the respondent’s security was in jeopardy and it had exhausted all available means of assisting the appellant. It would require an exceptional case before the court would conclude that a mortgagee whose power of sale had become exercisable due to the non-payment of the mortgage instalments was to be treated as having acted unfairly in deciding to realise its security. The advice issued by the Office of Fair Trading in its document on “Irresponsible Lending”, which advised lenders to treat borrowers in default with understanding and due consideration, did not mean that the lender had to ignore the history of the account or the ability of the borrower to maintain it in order in the future.
The appellant appeared in person; Peter Dodge (instructed by the legal department of Capital Home Loans Ltd) appeared for the respondent.
Sally Dobson, barrister
