Real Estate Tip of the Week - The Trouble with Mortgages of Part

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Real Estate Tip of the Week: The Trouble with Mortgages of Part

Published 10 June 2019

It’s common for developers and other landowners to grant to their lenders mortgages of part of the property they own. There can be any number of practical situations in which to do so may seem commercially sensible at the time. But doing so can lead to difficulties if the mortgagee needs to realise its security – for example it may be left with property that is landlocked.

Dealing with this problem isn’t straightforward, because the law says that a landowner can’t grant itself rights over one part of its land to benefit another part. Lawyers therefore put in place arrangements to allow mortgagees to call for access rights and other easements if and when they need them. But this can lead to further complications if, for example, the land over which the mortgagee requires rights has been disposed of to a third party in the meantime.

The recent decision in Taurusbuild v McQue has come up with a novel solution – holding that a right of way and a right to park were granted to a mortgagee by implication under the rule in Wheeldon v Burrows and could then be transferred under section 62 of the Law of Property Act 1925. If readers think that reasoning sounds rather arcane and surprising, we can only agree. Our respectful view is that the Judge’s reasoning, while pragmatic, is quite bold. Our advice is only to grant mortgages of part when circumstances really require that to be done; and to recognise that to do it in a risk-free way, that does not incur stamp duty liability, will require a complex set of legal arrangements.

Authors

Michael Bothamley

Michael Bothamley

Bristol

+44 (0) 117 918 2055

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