The fallout from the decision in JA Pye (
In Ashe v National Westminster Bank plc [2008] EWCA Civ 55; [2008] PLSCS 33, the Court of Appeal had to decide whether a borrower had barred a mortgage. The borrower granted the lender an “all moneys” charge, giving the lender an immediate right to possession of his property. He ceased to make payments under the mortgage and was declared bankrupt. The lender reminded the borrower that he remained liable for the debt, but failed to issue proceedings to enforce its security. Eventually, the borrower’s trustee in bankruptcy argued that the lender’s rights were statute-barred.
The lender argued that time did not start running until an occupier was in adverse possession of property. It claimed that the borrower was not in adverse possession of the property because he had remained in occupation with the implied permission of the lender. The Court of Appeal rejected the lender’s arguments. It held that the lender had acquired an immediate right to possession of the property when the legal charge was granted. The right was “refreshed” by each part-payment made to the lender. In this case, the lender’s rights of action had accrued more than 12 years previously, when the last part-payment was made. Consequently, the lender’s right to take possession of the property, and to realise its security to discharge the mortgage debt, was extinguished.
The court decided that there was no evidence that the borrower had applied for, or was positively given, express permission to remain in possession of the property after the legal charge had been granted, or after the last part-payment in respect of the mortgage debt had been made. The lender’s failure to enforce its legal rights did not mean that it had impliedly granted the borrower permission to remain in possession of the property. Nor was it necessary to imply any permission to explain the continued possession of the borrower; the borrower was in possession because he owned the property.
Lenders will be unpleasantly surprised by the decision that borrowers are in adverse possession of mortgaged property because the meaning given to “adverse possession” in Pye applies to actions for the recovery of land. Lenders will need to review their practices and procedures and the terms of their mortgages in the wake of this decision. In cases where the limitation period is due to expire, lenders can protect their position by obtaining part-payments or written acknowledgments of the mortgage debt before their security is extinguished.
Allyson Colby is a property law consultant