Mortgagee in Possession question

Purdia

Quick question - if a tenant has run up management service charge arrears and the property is subsequently repossessed by the lender (who happens to be a Local Authority). Who would you say should be held responsible for the management charge arrears up to the date of the Order for Repossession? The property will not be sold but taken back into social stock by the Local Authority. Property is registered to Local Authority on foot of the Court Order, so no "sale". Management Company argue that Local Authority is responsible as a "successor/assign" of the lessee. Covenant in the Lease clearly state that the Lessee is responsible for service charges. Does a mortgagee in possession overreach management service charges?
Any thoughts? No legal advice, just curious from a conveyancing point of law

nuac

??MOD
Interesting query, but hard to see how a reply is not tantamount to giving legal advice.
Have a look at the charter above, and see if there is a way of answering the query that does not amount to giving legal advice?
Will defer closing post until tomorrow a.m. so you can consider this

Purdia

Thank you for allowing me a second chance to re phrase my query

Purely on the basis of a hypothetical scenario and without any legal advice being sought, I am interested in a point of law regarding a Mortgagee in Possession "overreaching" charges on title and whether this extends to outstanding management service charge arrears run up by a dispossessed tenant. If a Property has been repossessed and registered on foot of a Court Order to the Lender of the property and there was no "sale" as such and the lender has paid the management service charges from the date of the court order only, who is the party responsible for the arrears of the management service charge? On the basis that the lender acquired ownership as a mortgagee in possession are they bound by the original lessee's covenants in the lease as the former lessee's "successor/assign" or does their status as mortgagee in possession "overreach" the charges in question. The hypothetical Lease pre-dates the 2009 Act.
Does the lender's status as mortgagee in possession "trump" the lessee's covenants in the original lease, or would the lender still be considered the lessee's "successor/assign" I think I am asking (purely out of interest because I'm a nerd!)

Again, purely hypothetical - not looking for legal advice, just interested to see what others think.

Thoie

If you think about the situation of a private landlord with a tenant in an apartment, the landlord is totally responsible for the annual management charge - the tenant has no relationship with with the management company. The landlord is leasing the apartment from the building (for 99 years, or 900 years, or whatever) - you never really "own" an apartment.

Now, the landlord could have something in their rental agreement that the tenant must pay the management fees, but at the end of the day it's the landlord's debt. If the tenant doesn't pay it, the landlord still owes the management company, and the landlord would have to chase the tenant for the money separately. In most cases the landlord just pays the charge themselves, and has that factored into the amount of rent they charge.

So in your scenario, I'd say the Local Authority is responsible for paying it, but the tenant owes the Local Authority that money (if that was the agreement). This is all assuming the tenant is renting from the Local Authority.

L1011

Thoie wrote: »

This is all assuming the tenant is renting from the Local Authority.

As I'm reading it, they weren't - they were buying off the LA under an LA mortgage.

Marcusm

Surely the mortgagee in possession still requires the OMC/freeholder/superior leaseholders consent to reregister ownership of the property, ie the mortgagor remains the registered owner and the OMC/freeholder/superior leaseholder still has the ability to apply for forfeiture of the mortgagor's lease and the OMC/freeholder/superior leaseholder still stands higher in the disbursement waterfall than the mortgagee, ie the OMC gets paid before the mortgage is discharged. I always understood this to be the case and the reason why, in exceptional circumstances, a mortgagee would discharge outstanding management charges to forestall forfeiture proceedings. It's very likely that a LA's legal department is less up to speed on this than a commercial lender l. Ultimately the mortgagee's charge is over the property of the mortgagor and in forfeiture proceedings the mortgagor's property is effectively net if it's obligations.

nuac

Ok, Now for Honours Students, suppose the house was bought under the LA Shared Ownership Scheme.

This rather clunky scheme provided that in purchases of LA houses half the equity was bought with the help of loan, usually from the LA.

The other half of the equity in the house was leased by the LA to the purchaser with an option to buy at a valuation plus an obligation to buy at the end of 25 years.

I cannot recall that management companies were required, but if they were it would be mad, Ted.

Sometimes the planning permission required a management company

Purdia

Thanks for your thoughts. Just to clarify (or perhaps not!) The Developer Company, Management Company and L.A. are all parties to the Lease on the one part and the local authority applicant is the lessee. The lessee has one share in the Management Company. The Local Authority's involvement has been to provide the funds for the applicant to purchase of the property.
It is a good conundrum!!

Marcusm

The local authority is therefore in the same position as any other lender except that it's solution is to retenant it. I still think a forfeiture application is the right course; provided the original leaseholder is in default of it's obligations I don't see that the possession proceedings trump this but then I'm no lawyer!

The Indecent Prancer

See the MUD act. You would have to read the lease and any other documentation at the time of transfer, and look on the register to see who is the owner before you could start to answer this.

Mr. Incognito

Purdia wrote: »

If a Property has been repossessed and registered on foot of a Court Order to the Lender of the property and there was no "sale" as such and the lender has paid the management service charges from the date of the court order only, who is the party responsible for the arrears of the management service charge?

Without the benefit of the documentation in general I would say the lender has stepped into the shoes of the previous owner. They are responsible for the previous owners arrears.

They have a right to chase the previous owner for the arrears as the person in occupation who was responsible at that time but they are now the de facto debtor.

Marcusm

Re Purdia's additional comment stated in Mr Incognito's: surely the court order grants possession and does not result in a change to the registered owner? I thought that a mortgagee in possession dealt in the property in that capacity (or appointed a receiver to do so) and did not become the registered owner.

The mortgagee is in possession the mortgagor's interest in the property and if that interest is forfeited, the mortgagee is entitled only to the net proceeds of a regrant of the lease. Certainly, and acknowledging that many indicidual provisions of the lease and the law are different, I have seen/participated in that route for the threat thereof) to enforce management fees in the UK previously.

Mr. Incognito

Marcusm wrote: »

Re Purdia's additional comment stated in Mr Incognito's: surely the court order grants possession and does not result in a change to the registered owner? I thought that a mortgagee in possession dealt in the property in that capacity (or appointed a receiver to do so) and did not become the registered owner.

The mortgagee is in possession the mortgagor's interest in the property and if that interest is forfeited, the mortgagee is entitled only to the net proceeds of a regrant of the lease. Certainly, and acknowledging that many indicidual provisions of the lease and the law are different, I have seen/participated in that route for the threat thereof) to enforce management fees in the UK previously.

They are not required to become the registered owner. They are the person in possession. If a person slips and falls whilst they possess- they are responsible, if a bill falls due, they are responsible. If that bill has arrears- they are responsible. They have a right to pursue the third party but you cannot seek to deny the obligations based on the technicality of you not being the registered owner.

You take the benefits and the burdens.

Marcusm

Mr. Incognito wrote: »

They are not required to become the registered owner. They are the person in possession. If a person slips and falls whilst they possess- they are responsible, if a bill falls due, they are responsible. If that bill has arrears- they are responsible. They have a right to pursue the third party but you cannot seek to deny the obligations based on the technicality of you not being the registered owner.

You take the benefits and the burdens.

This I can understand but the position posited here is one where the LA disagrees and proposes to let the property and, in part, avoid the issue. If such circumstances arose, my suggestion would be to threaten forfeiture (a sledgehammer they might not want to face) than a court action for payment of arrears (which their legal department might not be frightened of but prepared to fight).

4ensic15

Marcusm wrote: »

This I can understand but the position posited here is one where the LA disagrees and proposes to let the property and, in part, avoid the issue. If such circumstances arose, my suggestion would be to threaten forfeiture (a sledgehammer they might not want to face) than a court action for payment of arrears (which their legal department might not be frightened of but prepared to fight).

I fail to see how the LA joined in the deed without accepting the covenant to pay service charges. What other function do they have in joining in the deed?

Marcusm

4ensic15 wrote: »

I fail to see how the LA joined in the deed without accepting the covenant to pay service charges. What other function do they have in joining in the deed?

None of us has the documentation; it would not surprise me if, figment reference to a Developer Company, that this was a pre construction agreement for a lease rather than the actual lease. LA could very well be a party as financier.

Mr. Incognito

Marcusm wrote: »

None of us has the documentation; it would not surprise me if, figment reference to a Developer Company, that this was a pre construction agreement for a lease rather than the actual lease. LA could very well be a party as financier.

That's rather over my head. I dont understand what that means or what you are saying. "Figment"? Pre COnstruction Leases? This is going in all sorts of bizarre tangents.

I cannot see how any situation could arise where someone enters into possession based on whatever legal document that would not be responsible for the upkeep, maintenance, bills and service charges. Its a basic position.

Marcusm

Mr. Incognito wrote: »

That's rather over my head. I dont understand what that means or what you are saying. "Figment"? Pre COnstruction Leases? This is going in all sorts of bizarre tangents.

I cannot see how any situation could arise where someone enters into possession based on whatever legal document that would not be responsible for the upkeep, maintenance, bills and service charges. Its a basic position.

Up to an including the tiger times it was common for acquisitions of new properties to involve an acquisition of an interest in land (often document by an agreement to lease, with a scheduled specimen lease) and a construction contract - the apartment, duplex, house whatever not existing at the time the purchase was contracted. Where the land on which the property was being built, it might have also followed this format to allow stamp duty sub sale treatment. In those circumstances I would have seen references to "Developer Company" included in documentation.

In more simple outright arrangements, would not have expected either the financier (LA in this case) to be party to the documentation not the vendor being described as a developer.

I'm just pointing out that the LA which happens to be the financier and is now the mortgagee in possession is unlikely at this stage to have formally acquiesced to the lease covenants.. I fully agree that it should do so from taking possession. The OP's question is whethe such m-I-p is entitled to disclaim responsibility for previously accumulated liabilities.

I suspect they are more a burden on the title than a personal obligation. The m-I-P as far as I know never has to take title.

Mr. Incognito

Marcusm wrote: »

Up to an including the tiger times it was common for acquisitions of new properties to involve an acquisition of an interest in land (often document by an agreement to lease, with a scheduled specimen lease) and a construction contract - the apartment, duplex, house whatever not existing at the time the purchase was contracted. Where the land on which the property was being built, it might have also followed this format to allow stamp duty sub sale treatment. In those circumstances I would have seen references to "Developer Company" included in documentation.

In more simple outright arrangements, would not have expected either the financier (LA in this case) to be party to the documentation not the vendor being described as a developer.

I'm just pointing out that the LA which happens to be the financier and is now the mortgagee in possession is unlikely at this stage to have formally acquiesced to the lease covenants.. I fully agree that it should do so from taking possession. The OP's question is whethe such m-I-p is entitled to disclaim responsibility for previously accumulated liabilities.

I suspect they are more a burden on the title than a personal obligation. The m-I-P as far as I know never has to take title.

The Property is owned by the Local Authority.

They are not going to get into ridiculous pre-lease agreements to avoid Stamp duty etc. ( That loophole having been closed years ago)

I think you are just throwing complications that are not relevant and are not likely reading the facts.

Marcusm

Mr. Incognito wrote: »

The Property is owned by the Local Authority.

They are not going to get into ridiculous pre-lease agreements to avoid Stamp duty etc. ( That loophole having been closed years ago)

I think you are just throwing complications that are not relevant and are not likely reading the facts.

I have read the facts. The statement is that the LA is only the mortgagee, the suggestion of shared ownership or LA ownership has not been stated by anyone. As regards sub sale, given that we are dealing with an existing property which has gone through possession proceedings, I'd not be surprised if it as purchased 15-20 years ago.

nuac

Marcusm wrote: »

I have read the facts. The statement is that the LA is only the mortgagee, the suggestion of shared ownership or LA ownership has not been stated by anyone. As regards sub sale, given that we are dealing with an existing property which has gone through possession proceedings, I'd not be surprised if it as purchased 15-20 years ago.

i did suggest some time ago that the possibility of a Shared Ownership Scheme be added to this conundrum.

They were complex yokes, criticised by some eminent conveyancers. Like sharks, there are not that many of them about, but watch out kids