Land Legislation - Case Study Example

Land Law Assignment The charge by way of legal mortgage in favor of Spike plc over Happy Valley seeks to confer a number of benefits to Spike plc, the mortgagee, to the detriment of Isabella, the mortgagor. Of eminent importance is Isabella’s equitable right of redemption, which exists as a sum of all her rights as residual legal owner (Re Sir Thomas Spencer Wells (1933)), and any provision that goes against it will be struck down by the courts. (i) This provision restricts Isabella’s right to redeem her property. Strictly speaking, any such right is disallowed since the mortgage is considered as a security for a loan, redeemable by payment of all monies owed which cannot be limited by any express agreement (Re Wells (1933)). The rule operates differently for commercial corporations operating at arm’s length, where redeemability may be lawfully postponed (Fairclough v Swan Brewery (1912)). However, 35 years is a long time and thus may be inferred by the courts as an unconscionable device to keep Isabella from redeeming. Therefore, it would be void. (ii) Isabella will seek to persuade the court to set aside the provision with regards to the high interest rate as it goes against the equity of redemption. The equity of redemption is a proprietary right in favor of the mortgagor (Isabella) which allows her to retain ownership in her property by paying off all the monies owed under the mortgage. A term stipulating a very high interest could be deemed repugnant since it may be interpreted by the courts as making illusory that right to redeem the property. Thus, in Cityland and Property (Holdings) v Dabrah, a high interest rate (57%) was struck down on account of it working against the equity of redemption. In that case, the high interest rate was deemed unconscionable. Over here the situation seems the same, as the interest rate is set at 3 times the standard rate as set by the Bank of England. So, for example, if the rate was set at 5% by the Bank of England, Isabella is being charged 15%. This is a high amount and may at first look unconscionable, according to the meaning proposed by Browne-Wilkinson J (Multiservice Bookbinding Ltv v Marden (1979)). The terms of the mortgage must also NOT be oppressive or too harsh. However, the courts have also routinely emphasized how equity only acts on the conscience and not to excuse the mortgagor from the implications of dealing in what is merely a bad bargain (Jones v Morgan (2001)). An informed mortgagor may have an even tougher time convincing the courts how a seemingly bad bargain was unconscionable as well, especially if legal advice was consulted before the charge was taken out (Jones v Morgan (2001)). Thus, Isabella’s position may be weakened by the fact that she consulted the services of Archie, her accountant, and acting on his advice mortgaged her property. Moreover, Spike plc can argue that the interest rate was set by consulting Isabella’s credit history and the prospects of her future venture. Since Isabella had already been rejected by other prospective mortgagees following the collapse of her last business ordeal, it can be easy to argue that the interest rate was set in light of Spike’s commercial interest. However, 3 times the regular Bank of England interest rate is a harsh amount if the standard rate was already running high. The facts are silent on the latter but assuming the standard rate was set at below 5%, the courts of equity would find it hard to intervene given Isabella’s credit history. If the standard was higher than 5%, resulting in a rate of 15% or higher for Isabella, it could be regarded as an impediment to Isabella’s equity of redemption and the provision may have to be struck down (Cityland and Property (Holdings) v Dabrah (1968)), or at the very least, re-negotiated. (iii) The term regarding Isabella to deal exclusively in Spike products at the sports complex is a collateral agreement of the mortgage. While equity has concretely established the paramount proprietary nature of the equity of redemption, it also worthwhile to notice that equity only seeks to counter provisions that seem to fetter the redeemability of land, and would allow those that do not affect that right, even if those provisions continue in effect longer than the date of redemption. A collateral agreement contained in a mortgage which seemingly confers preferential treatment at the hands of the mortgagee, such as Isabella only trading in Spike’s products, has to exist without fettering the equity of redemption (Bradly v Carrit (1903)). If it acts as a condition to the redeemability of land, thereby affecting the equity of redemption, the courts may be prompted to strike it down. This is because equity regards a mortgage purely as a security for a loan that ends when the money owed has been repaid. Since Bradly v Carrit, and even earlier (see Santley v Wilde (1899) and Biggs v Hoddinot (1898)), the courts have adopted a different approach in cases when the collateral advantage ceases to exist upon redemption of the mortgage so long as it does not contain terms that are unconscionable. The term within Isabella’s mortgage clearly stipulates that this advantage is to come to an end with the mortgage. Moreover, there are not any discernable unconscionable terms in the provision nor do they appear too harsh. Hence, it seems that the court would allow the collateral advantage to exist till Isabella clears her dues under the mortgage. (iv) In mortgage by way of legal charge, equity does not allow any option to purchase the property in question to the mortgagee as it is a right offensive to the paramount equity of redemption. This provision confers a right to purchase the property to the mortgagee within the first 20 years of the loan, which goes against the standard principles of the equity of redemption. There is no allowance for provisions that state that the property would become that of the mortgagee (Samuel v Jarrah Timber (1904)), or the mortgagee being granted an option to purchase (Jones v Morgan (2002)) even if they agree to pay the market price through consultation or (as in this case) arbitration. The provision clearly stipulates the grant of this right at any time, meaning it is completely at the discretion of Spike plc when it wishes to purchase. Hence, the term is too harsh and unconscionable and will not be allowed by the courts. Read More