Roberts and others v Lawton and others

Lease – Rentcharge – Mortgage by demise – Appellants holding long rentcharge leases of respondents’ properties granted by third party company pursuant to section 121(4) of the Law of Property Act 1925 – Appellants applying to register leases at Land Registry – Respondents objecting to applications – First-tier Tribunal striking out proceedings and directing Land Registrar to cancel applications on ground that leases were mortgages by demise – Appellants appealing – Whether  third appellant becoming entitled to grant leases as a result of the non-payment of rentcharges pursuant to section 121 – Appeal allowed The third appellant was in the business of buying and managing rentcharges and owned rentcharges in respect of properties owned by the respondents. A rentcharge was a property right which could be bought and sold. It was therefore entitled not only to a minuscule income from each of the properties concerned but also to the price of redemption of the rentcharges where property owners decided to bring them to an end. In the case of the properties belonging to each of the respondents, the rentcharge was in arrears early in 2013 in sums that ranged from about £6 to about £15. The third appellant therefore granted a rentcharge lease of each property to its directors, the first and second appellants, as its trustees, and they sought to register the leases. The leases were granted for a term of 99 years. Once registered the existence of the leases would make each property unsaleable even if the tenant chose not to take possession. The practice of the first and second appellants was to surrender the lease once the arrears and its costs had been paid off. Once the lease was in existence it amounted to a stranglehold on the property owner whose freehold was worthless in the presence of the lease. The appellants made a series of applications to register their title to long leases of the properties at the Land Registry on the basis that the third appellant had become entitled, pursuant to section 121 of the Law of Property Act 1925, to grant those leases as a result of the non-payment of the rentcharge. The respondent owners of the properties objected to the applications. They were referred to the First-tier Tribunal (FTT) which made an order striking out the proceedings and directing that the Chief Land Registrar cancel the applications to register the leases on the ground that they were mortgages by demise and unable to be registered. The appellants appealed. Held: The appeal was allowed. (1) A mortgage was a security right. When money was lent to finance the purchase of land the lender took a mortgage of the land to secure the loan. If the loan was not repaid the security could be realised to repay the loan; the mortgagee had power to take possession of the land and sell it so as first to repay the loan and then to return the balance if any to the borrower. A security right was there to protect the lender in the event that things went wrong. It was not something put in place when matters had already gone wrong. The legal definition of a mortgage in section 205(xvi) of the 1925 Act included any charge or lien on any property for securing money or money’s worth. So a mortgage could still take the form of a lease if it made provision for the lease to come to an end when the loan was repaid (cessor on redemption). (2) The rentcharge lease, once granted, continued in existence even when the arrears had been repaid unless it was surrendered voluntarily. There was no provision in the Rentcharges Act 1977 for a rentcharge lease granted pursuant to section 121(4) of the 1925 Act to come to an end when the arrears were cleared. The lease, once granted, was a permanent arrangement for the payment of the rentcharge “to raise and pay the annual sum and all arrears thereof due or to become due”. It could be sold to raise money for that purpose, and once sold it would continue in the hands of the purchaser lessees. There was therefore no provision for a rentcharge lease to come to an end once the rentcharge had been redeemed. (The Rentcharges Act 1977 prevented the creation of any new rentcharges and those that remained in existence, as in the present case, were to be extinguished in 2037.) (3) Furthermore, a rentcharge lease functioned as a remedy, not as a security right. The rentcharge itself was the security for the liability, and the creation of the rentcharge lease was the realisation of that security; the rentcharge lease could be created once things had gone wrong and its function was to put things right. It was not a mortgage by demise for that general reason, as well as for the technical reason that it was not subject to a provision for cesser on redemption. Accordingly, the leases were capable of registration. Per curiam:  The real source of discomfort was the fact that the passage of time and the effects of inflation meant that the grant of a rentcharge lease in these cases was a wholly disproportionate remedy. Section 121(4) of the 1925 Act was no doubt an efficient and useful provision when drafted, but inflation had made it toxic. The remedy, draconian as it was, was out of all proportion to the wrong. It was understandable that the extinguishing of existing rentcharges was deferred to 2037, but it was unfortunate that the opportunity was not taken to reform the remedies available to the rentcharge holder in the meantime. The parties appeared in person and by written submissions. Eileen O’Grady, barrister Click here to read transcript: Roberts and others v Lawton and others