Speak to our friendly staff directly  +44 (0)20 7242 2523

A leading set specialising in commercial, construction, insurance and property law

This document is from our archive and no action should be taken in reliance on it without specific legal advice.

Mortgage Repossessions and Tenants

On 1 October 2010 the Mortgage Repossessions (Protection of Tenants etc) Act 2010 will come into force and provide limited respite for tenants who find themselves threatened with the prospect of losing their home when a lender takes action against their borrower or landlord.

The Act applies to mortgage possession claims where a property which either includes or comprises residential premises is let on an ‘unauthorised’ tenancy, that is, a relevant tenancy which is precluded by the terms and conditions of the mortgage. Tenancies covered are protected or statutory tenancies (within the meaning of the Rent Act 1977) and assured tenancies (including non-assured shortholds under the Housing Act 1988 and, of course, from 1 October 2010 this will include tenancies with an annual rent of up to £100,000. ). The statutory definition of ‘dwelling-house’ in section 3 specifically provides that the Act applies to a part of a building used for residential purposes even where it is contained in commercial property.

In essence, the Act provides the court with the discretion to grant tenants a two month period in which to find alternative accommodation. Upon an application by the tenant, the court may upon making a possession order postpone the date of possession or, at a later hearing, stay or suspend the execution of the order for a period not exceeding two months where it is satisfied that the tenant has already asked the lender to give a written undertaking in similar terms. A stay or suspension cannot be granted where the original order was postponed under the Act.

The court may make its order conditional upon the tenant making payments to the lender. At first blush, it seems likely that the court will ordinarily require the tenant to pay the monies due as rent under the unauthorised tenancy agreement to the lender. However, where a postponed order has been made, the lender would not be a mortgagee in possession and such payments to the lender would not have the effect of discharging the tenant’s contractual liability for rent. (Contrast with the position where the landlord’s entitlement to rent ceases once the mortgagee serves a notice pursuant to section 98(1) of the Law of Property Act 1925 of his intention to take possession of the Property.)

Factors of which the court must consider include the circumstances of the tenant, whether any terms of the tenancy have been breached, the nature of any such breaches and the extent to which it would have been reasonable for the tenant to have avoided or remedied any such breaches.

Solicitors approached by tenants on receipt of a CPR rule 55.10 notice or s.2(4) notice (see below) will need to advise tenants of their right to make an application and the need to act quickly if they wish to delay a potential eviction. The Act presumably envisages that the tenant will have exhibited a copy of the tenancy agreement to the application and/or confirmed in supporting evidence whether the terms of the agreement have been complied with.

It should be noted that this Act only applies to unauthorised tenancies and does not affect the parties’ rights where the tenant wishes to assert that the tenancy is binding on the mortgagee.

Further Notice to Occupiers
The Act also introduces a mandatory hurdle before a warrant of possession can be executed. Section 2(2) states:

The order may be executed –
(a) only if the mortgagee gives notice at the property of any prescribed step taken for the purpose of executing the order, and
(b) only after the end of a prescribed period beginning with the day on which such notice is given.

Currently, the subordinate legislation, Dwelling Houses (Execution of Possession Orders by Mortgagees) Regulations 2010 (SI 2010/1809), means that a notice in a prescribed form must be served 14 days prior to any warrant being executed, which sets out the relevant contact details for the lender, should the tenant wish to exercise their rights under the Act. The Act does not prohibit any step being taken in the enforcement of the order for possession, so the lender can apply for the warrant and then serve the requisite notice. Indeed, the prescribed form (Schedule 4 of the Regulations) provides for exactly that scenario.

Solicitors acting for lenders will no doubt add the service of the section 2(4) notice to the growing procedural checklist for regaining possession. This follows the changes to CPR part 55 in October 2009 to include the service of a notice on the local housing department and provision of form N123 (mortgage pre-action protocol checklists) at the hearing, and, more recently in May 2010, the requirement to service notice of the proceedings to other registered charge holders (CPR rule 55.10(2)(c)).

Andy Creer

  1 - Pursuant to the Assured Tenancies (Amendment) (England) Order 2010, SI 2010/908