What is the meaning of the term “further advance” in relation to loan facilities secured by a mortgage?

“Tacking” describes the means by which a lender, with a charge securing an original advance, is able to use its charge to secure a further advance and obtain priority for that advance over any second or subsequent charges. Due to the potential prejudice that this can cause, the Land Registration Act 2002 imposes strict controls on tacking. Section 49(3) limits the priority of a registered charge to the original advance and any further advances that the lender is obliged, under the terms of the charge, to make.  Furthermore, any such obligation must be recorded on the register at the Land Registry. The issue in Urban Ventures Ltd v Administrators of Black Ant Company plc [2016] EWCA Civ 30 was whether a lender had made further advances that fell foul of these rules. The case concerned competing claims from lenders, who each held legal charges over properties owned by a company that had gone into administration. The original charge holder had applied to register an obligation to make further advances, but the charge did not actually include any such obligation – so the entry on the register was of no effect. After the claimant’s second legal charge was registered at the Land Registry, the company signed a series of new facility letters relating to the loan made by the original charge holder. Each of the letters, containing up-to-date versions of the lender’s standard terms, stated that it superseded the letters signed previously. No new money was advanced, but the amount of the facility was increased on each occasion to reflect unpaid interest. It seems that there was no directly relevant authority on the meaning of the term “further advances”. The claimant argued that each facility letter represented a new or further advance, which replaced the previous advance, and, because the original legal charge did not include any obligation to make further advances, the original charge holder was not entitled to deploy its first legal charge to gain priority over the claimant. The Court of Appeal rejected the claimant’s arguments. It ruled that the judge at first instance had been right to conclude that there had been no new advances pursuant to any of the facility letters. Lord Justice David Richards explained that an advance is a payment of money on terms that it will be repaid – in other words, a loan – and that continuing an existing loan, or leaving it outstanding, does not constitute the making of a new or further advance. No money had changed hands and the facility letters did not state that there was to be a deemed repayment and new advance. Did the unpaid interest, which was added to the account and capitalised in successive facility letters, represent further advances? The court ruled that they did not. The indebtedness secured by the first legal charge included interest and, in the absence of an express arrangement between the parties to that effect, the court could not see how unpaid interest could be, or could be treated as, a new or further advance. Consequently, the original charge holder retained its priority as first chargee in respect of its original advance.   Allyson Colby is a property law consultant