The Mortgage Repossessions (Protection of Tenants etc) Act 2010 offers some protection to ‘unauthorised’ tenants on repossession of a mortgaged property.
However, unauthorised tenants are generally the least of a mortgagee’s worries. We examine when a tenancy will bind a mortgagee and how best to deal with each circumstance to obtain possession as quickly and as cost effectively as possible.
To Bind or Not to Bind
The term ‘unauthorised tenant’ should be self explanatory. An unauthorised tenancy will not bind a mortgagee. However, when a tenancy is considered ‘authorised’ it is more complex.
Mortgages contain a statutory power which may (and almost always is) excluded (typically owner occupier loans) or modified (typically buy to let) in the loan documents.
A tenancy created in breach of the loan terms is unauthorised and does not bind the lender; one in accordance with the power as modified, is ‘authorised’ and does bind the lender.
The most problematic form of ‘authorised’ tenancy however is generally one that pre dates the mortgage. Usually, even where the borrower can be shown to have made a fraudulent application, these will bind on the mortgagee as the lender is said to have taken his interest subject to the pre existing tenancy.
Until recently, unauthorised tenants received no protection from the Courts and could - would - be evicted with little or no notice. Whilst there has been a requirement to serve notice of proceedings on occupiers for some time there has not, until recently, been any requirement to serve notice of eviction on anyone other than the mortgagor.
The above Act remedies this and also allows unauthorised tenants to apply to the Court for the eviction to be delayed by up to 2 months to allow them to find alternative accommodation, either at the initial hearing, or prior to eviction.
The Act ostensibly requires the tenant to ask the lender to delay possession before making an application. However, in the first hearing on the application of the Act, (Bank of Scotland plc v Ashraf, 5 October 2010, unreported) the Court held that the various provisions should be read disjunctively and thus the tenant could make an application despite not having asked the lender beforehand.
This decision appears to go beyond the original intention of the Act. As a County Court decision, it will not bind subsequent judges and, at least until a higher Court rules on the point, tenants would be well advised to make the request in any event.
There is some debate also about whether the wording of the Act allows more than one 2 month stay to be ordered; the clear intention is that it should not. It will be interesting to see how that point is to be interpreted in future.
The key point for any lender when faced with a seemingly authorised tenancy is to examine how it allegedly came about very carefully. Often faced with an uncommunicative and unhelpful borrower, the lender may find it particularly difficult to overcome witness evidence claiming a tenancy that predates the loan.
In such circumstances, once a Possession Order against the borrower is in place, the lender should serve notice on the tenants, requiring any future rent to be paid to them. This puts the lender ‘in possession’ of the borrower’s estate and thus in the landlord’s shoes.
The landlord can then serve notice to determine the tenancy without prejudice to his contention that is does not bind him.
There is some debate as to whether fresh possession proceedings must then be issued against the tenants if the landlord wishes to rely on the Notice (which can often be the quickest way to possession). Our view, tested in Court on a number of occasions, is that fresh proceedings are unnecessary and the lender can return to court and seek an Order against the tenants in the original proceedings.
However, where a tenant claims an interest that predates the mortgage, the lender must closely examine the evidence and look for aspects that will undermine the tenant’s claim. In particular, where the mortgage was used to pay off an earlier loan, the lender should consider the dates carefully and, if possible, seek a right of subrogation into the loan which preceded the claimed date of the tenancy. This short-circuits the tenant’s claim without having to test their evidence in Court and, in dishonest claims, is not in our experience something that tenants will draft their evidence to overcome.
It remains to be seen whether in such circumstances the Courts will allow the, now unauthorised, tenant to apply for a 2 month stay of eviction. The wording of the Act above would appear to allow this although, given the intention of the Act was to deal with tenants facing surprise evictions and that, in these circumstances, the tenant will have known of the proceedings and pending eviction for several months, this cannot have been Parliament’s intention.
The key is always to examine the evidence with a critical eye in order to find the appropriate solution. There is no one size fits all approach to this type of case and the costs of getting it wrong can be high.
James Chadwick, Associate Solicitor
Tom Seabrook, Associate Solicitor