Mortgage – Buy-to-let – Equitable estoppel – Claimant company providing mortgages to company operated by defendants – Company falling into arrears with mortgage payments – Claimant demanding loan repayments – Whether previous assurance regarding arrears estopping claimant from demanding repayment – Claim allowed
The provided mortgage funds to professional investor landlords in the buy-to-let market. The defendants, initially as a partnership and then through companies, operated a substantial business purchasing and letting residential properties, especially to university students. The business was primarily financed by mortgage loans from the claimant. By 2007, around 200 properties had been acquired and, at the peak of the borrowings, the overall debt to the claimant was around £32m, later reduced to £27m.
The claimant commenced proceedings relating to guarantees and mortgage loans made to the defendants, claiming more than £6.8m following formal demands for two months’ arrears of mortgage payments in respect of specified loans. The defendants contented that the claimant was estopped from making a demand since it had promised not to enforce its legal rights under the mortgages and guarantees unless the arrears amounted to three months.
Held: The claim was allowed.
The defendants were not entitled to rely on equitable estoppel. It could not be said that the claimant had provided assurance not to enforce its legal rights unless the defendants were three months in arrears. The contemporary documentation did not support such an assurance and it was unclear when and in what circumstances such promise had been given.
The alleged assurance was inconsistent with the probabilities. The claimant had been pressing the defendants to rectify the position with regard to all their accounts and its company policy had been to threaten enforcement where any account had become more than two months in arrears. There had been no reason to accord the defendants greater flexibility.
The most that could be said was that the claimant had made it clear that if the arrears exceeded three months, enforcement would occur. That was different from an undertaking not to take enforcement action if the arrears were less than three months.
Even if unequivocal assurances had been given, it remained unclear on what basis the defendants asserted an alteration of position as a result of relying on it. It was common ground that any promise was merely suspensive.
It was noteworthy the defendants had not challenged or complained of the steps that the claimant had taken, which further undermined any case that reliance had been placed on a promise not to enforce with regard to the accounts as they then stood.
The mere fact that the mortgages were payable on demand was not unfair. Such terms were common in the industry and it had not been suggested that the demand was prompted by an improper motive or had been the consequence of an arbitrary decision. The defendants’ personal and corporate buy-to-let business was in trouble. In a falling market, disposals of property were being used to fund outgoings. The claimant’s intervention by way of demand could not be categorised as unfair.
Hugh Jackson (instructed by Gordons LLP, of Leeds) appeared for the claimant; Lisa Linklater (instructed by 3 Volution LLP) appeared for the defendants.
Eileen O’Grady, barrister
