Mortgages often include an express power of sale. However, this is not strictly necessary since section 101 of the Law of Property Act 1925 confers a statutory power of sale on lenders.
The severity of the effect of these powers on homeowners was partially mitigated by section 36 of the Administration of Justice Act 1970. Section 36 enables the court to adjourn proceedings, delay the execution of a judgment or postpone the date for delivery of possession of a property if it is satisfied that the borrower will be able to repay any sums due under the mortgage, or rectify any default, within a reasonable period.
None the less, lenders need not obtain court orders before repossessing property: see Ropaigealach v Barclays Bank plc [1999] 4 All ER 235. In that case, the decision that section 36 applies only when lenders issue proceedings for possession and not when they proceed without the assistance of the court prompted calls for a change in the law to outlaw self-help remedies and require lenders to obtain court orders before repossessing borrowers’ homes. Others predicted that the decision was ripe for challenge following the enactment of the Human Rights Act 1998, which came into force on 2 October 2000.
The law has not changed, but these predictions have borne fruit. In Horsham Properties Group Ltd v Clark [2008] EWHC 2327 (Ch); [2008] PLSCS 265 the borrower argued that Ropaigealach should be re-examined in the light of Article 1 of the First Protocol of the European Convention on Human Rights (the right to peaceful enjoyment of possessions). The borrower, who remained in possession of her home despite its sale by her mortgagee, argued that she had been deprived of her property in breach of Article 1. In addition, since the sale had discharged her mortgage, she faced eviction by the new owner without the aid of section 36.
The judge accepted that legislation enacted by the state might deprive a person of possessions in breach of Article 1, but ruled that the borrower had lost her property because the lender had exercised contractual powers of sale conferred by the mortgage. However, had the lender invoked its statutory power of sale, there would have been no deprivation of possessions within the meaning of Article 1. Section 101 is, in effect, a form of conveyancing shorthand that serves, and does not override, the parties’ bargain. Consequently, Article 1 was not engaged.
Critics will say that it is anomalous to protect borrowers against eviction by court process but expose them to eviction by the use of self-help remedies. None the less, the judgment leaves a loophole in the law that may be exploited by lenders that choose not to observe the Council of Mortgage Lenders’ guidelines on arrears and possessions (which require lenders to obtain court orders or to secure vacant possession by agreement with borrowers). It will be interesting to see if the decision is appealed and, if so, with what result.
Allyson Colby is a property law consultant