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New Act poses challenges for lenders

02 Dec 2010

The Mortgagee Repossessions (Protection of Tenants etc) Act 2010 came into force on 1st October 2010. The product of a Private Members Bill and the “wash-up” process in Parliament, it has within weeks posed challenges for lenders and their lawyers alike.

The broad thrust of the Act is to enable unauthorised tenants to postpone the date on which possession is given by a period of up to two months. Clearly this does not apply to cases in which the lender has consented to the lease, in which event an LPA Receiver may be appointed if the lender decides that this course of action is the best to preserve its security.

However, putting the Act into practice raises many issues:

  • Does the wording of section 1 (2) mean that a tenant, applying at the hearing of a Possession Order, is entitled to an Order for Possession for 2 months or does it imply the right to a suspension of 2 months more than the usual 28-day suspension that would be granted by the Court?
  • If the former interpretation is correct then tenants would be well advised to apply once the lender applies for a Warrant for Possession, as this will maximise the period of time the tenants will remain in the property.
  • What is the effect on costs if the lender refuses to give the undertaking not to enforce the Order for a period of 2 months or to suspend the Possession Order for a similar period? Will the Courts award costs against the lender for acting unreasonably, even though the Act does not oblige the lender to give the undertaking?
  • In assessing whether to grant the undertaking, how will the lender know whether there has been a breach of the tenancy agreement?

On first glance sections 1 (6) and 1 (7) are of assistance to the Lender. However, there is a practical problem in applying the payments of rent to the mortgage account (as the tenant will probably not know the account details) and more seriously the responsibilities for apparatus at the property presumably remains with the landlord even though the rent is effectively being intercepted by the lender. This may further reduce the borrowers interest in discharging their statutory liabilities.

There is some debate surrounding the minimum period of time that can elapse between the giving of the prescribed notice under the Act and its execution at an eviction appointment. The Possession Order can only be executed at the end of the period of 14 days beginning on the day that the notice was given. An argument can be made that such period should allow for service in which event a prudent lender would voluntarily cancel and reschedule any eviction which is set to take place within 16 days. Evictions which proceed but which are non-compliant may well render lenders liable in damages to their borrowers.

The wider impact of the legislation will probably be felt because Courts will begin to accept a 2-month suspension period for all tenants, thereby elongating the time frame in which lenders will ultimately obtain possession. Whilst this may be offset to an extent by the application of rent to the mortgage account, there will undoubtedly be tenants who fail to fulfil payment promises and the net result will be that lenders will have to build further potential delays into their processes and recovery models.

For further information contact Phil Broadhurst on 0191 232 8345 or email Phil.Broadhurst@hay-kilner.co.uk