Shark Company (the Mortgagee) case - Free Essay Example

Introduction Our client is Shark Company (the Mortgagee), who has a legal charge over a house owned by Sally Bean who is the sole registered proprietor. She purchased the property with her own funds a year ago and lives there with her husband (the spouse). The aim of the mortgage was to secure funding for a business venture, for her benefit. One of the terms of the mortgage was that no tenancies were to be created by Sally. She grants a tenancy to Anne Fogg (the tenant) of a portion of the property. Sally has marital difficulties and later moves out of the property and stops paying the mortgage. We need to consider the relevant case law and statutory sections in relation to the rights of mortgagees and mortgagors. The Law Shark and company have a legal charge over the house for a mortgage of pound;40,000.00. A mortgage constitutes a disposal. At the time of the mortgage, Sally was living in the house with her spouse. She subsequently contravened the mortgage by creating a tenancy. In addition, she has now stopped paying the mortgage. According to the terms of the mortgage, the principle sum would now fall due. The mortgagee would now look to enforce the terms of the mortgage and if necessary sell the property and recover the amount owed. To do this, they would need to secure vacant possession. There are two people in occupation namely the spouse and the tenant. Firstly, we need to consider the position of non owning spouses against purchasers (mortgages). This was set out in the case of National Provincial Bank Ltd v Ainsworth. 1 The House of Lords held in this case that a spouse who has no proprietary interest in the matrimonial home has no occupation rights that she can enforce agains t a purchaser. The effect of this case meant that a person could leave his wife and family and sell or mortgage the family home in which they lived and as a result leave his family homeless. This prompted the legislature to intervene, which has now resulted in the Family Law Act 1996 (FLA 1996), which at s30 confers so called Matrimonial Home Rights on a spouse who is not the owner of a matrimonial home. These include the right not to be evicted or excluded if already in occupation and a right, with the leave of the court, to enter and occupy if not already in occupation. S31 of the act states that these rights constitute a charge on the estate or interest of the other spouse. As the land in our problem is registered, this right should have be protected by an entry of a notice in the register as stated in FLA 1996, s31 (10) a. Furthermore, these rights cannot constitute an overriding interest in terms of FLA 1996, s31 (10) b. If the spouse in this instance protected hi s right to remain in occupation by entry of a notice in the register, then the mortgagee cannot enforce its rights and obtain vacant possession. If not, then the spouse has no rights to remain in actual occupation as the right cannot be an overriding interest. In addition, the spouse may be able to bind the mortgagee as a person in actual occupation of the property. The LRA 2002 provides that overriding interests will override registered dispositions. Matrimonial home rights, as described above, cannot be overriding interests, but the spouse may be protected by virtue of the rules relating to persons in actual occupation. LRA 2002, Schedule 3 Paragraph 2 concerns the interests belonging at the time of the disposition to a person in actual occupation. These interests will override the interests of the purchaser unless certain exceptions exist. One exception is where an inquiry was made to the occupier before the disposition and the occupier failed to disclose the right when he could reasonably have been expected to do so. Another exception is if the interest- (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and (ii) of which the person to whom the disposition is made does not have actual knowledge at that time, then the occupiers right will not override the purchasers right. The effect of the above provisions is that if one of the exceptions applies, even if the person is in actual occupation, then their interest will not be overriding. Generally however, if a person is in actual occupation, their interest will override a registered disposition. Now we need to consider the meaning of actual occupation. The fact of the occupation is what matters as was stated in Williams Glyns Bank Ltd v Boland. There must generally be a physical presence on the land. The nature and purpose of the property that is occupied is important. In Malory Enterprises Ltd v Cheshire Homes (UK) Ltd Malory Enterprises was developing land and it claimed an overriding interest it. It had maintained fences around the land and taken measures to exclude trespassers. The Court held that this was sufficient as there was a physical presence and permanence and continuity. The timing of actual occupation was considered in Abbey National Building Society v Cann and it is clear that the person must be in actual occupation at the time of the granting of the mortgage, for the mortgagee to be subject to her interest. This means that the tenant cannot be regarded as a person in actual occupation of property and cant be protected under this provision. The spouse was in actual occupation at the time of the mortgage, and the mortgagee will be subject to his interest. Advice to Shark and Co At the time of granting the mortgage, the spouse was in actual occupation. Unless Shark and Company acquired his consent to the mortgage and obtained his agreement to grant vacant possession, in the event of legal proceedings, they would be subject to his overriding interest. He doesnt have this interest because of matrimonial home rights, but rather as a result of his actual occupation. The tenant was not in occupation, when the mortgage was taken out, and so, her right would not bind Shark and Company.