Tenancies Can Be Worthless If Mortgage Lender Not Informed

A lease may not be worth the paper it is written on if the landlord’s mortgage lender does not consent to the tenancy. A recent ruling by the Court of Appeal opened the way for the eviction of a mother and her two children after it found that they had no more rights than common trespassers.

The woman had taken a five-year lease on a house which was subject to a £425,000 mortgage charge. The loan agreement contained the usual term prohibiting the borrower – the landlord – from granting a lease of the property without the lender’s consent. No such consent had been sought prior to the granting of the tenancy.

Unbeknown to the woman, the mortgage had been obtained by fraud so that the identity of the property’s legal owner could not be ascertained. The counterparty to her lease was a man who claimed to act on behalf of the unidentified landlord. Mortgage repayments were only sporadically made and the woman had taken to paying her rent directly to the lender to cover sums due and arrears.

The lender obtained a possession order in respect of the property and an order for its sale from the County Court on the basis that it had not been informed of the woman’s lease. It claimed that the lease was not binding upon it in that it post dated the registration of the mortgage.

In dismissing the woman’s appeal against that decision, the Court of Appeal rejected her plea that the lender had actual or constructive knowledge of the lease in that it had accepted the repayments that she had made. It was not arguable either that the lender had consented to treat the woman as its tenant or that it had waived its right to treat her as a trespasser.

The possession order was granted.