MORTGAGE REPOSSESSION and LEASES
Where a mortgaged property is subject to a lease and the lender seeks to exercise a power of sale, the lender will need to know whether the lease will be binding on the lender.
If the lease was granted after the mortgage, then the matter is governed by section 99 of the Law of Property Act 1925. This gives a borrower who is in possession of the mortgaged property a power to grant leases that will bind the lender, provided the lease meets certain criteria. Being unpopular with lenders, they almost in all cases, remove this power altogether or make a requirement for the lender’s prior consent by a provision in the mortgage deed. As a result of this, if the borrower grants a lease without the consent of the lender, and the lender wishes to sell, the lender can obtain a court order for possession and the tenant will have no rights against the lender and will have to leave.
The Law of Property Act 1925 provides for whether the lender can sell without being bound by a lease that was granted prior to the creation of the mortgage. For example, a lease for a term of seven years or less is an unregistered interest that will override a disposition of the land.
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