REF/2015/0297

PROPERTY CHAMBER LAND REGISTRATION
FIRST-TIER TRIBUNAL
LAND REGISTRATION ACT 2002

IN THE MATTER OF A REFERENCE FROM HM LAND REGISTRY
BETWEEN
PETER BONSU
APPLICANT
and

FLEX MORTGAGES LIMITED
RESPONDENT

Property Address: Flat 3, 435 New Cross Road, London SE14 6TA

Title Number: TGL291052

Before: Judge Owen Rhys

Sitting at:  10 Alfred Place London WC1E 7LR

On: 18th December 2015

Applicant representation:	In person
Respondent representation:	Mr Martin Young of Counsel instructed by Gowens Solicitors 

_____________________________________________________________________

DECISION
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1.	The Applicant is the registered proprietor of Flat 3, 435 New Cross Road, London SE14 6TA under title number TGL291052 (“the New Property”).  The Respondent is the assignee of the loan book of Flex Investments Limited (“Flex”) under the terms of a Deed of Assignment dated 18th June 2010 (“the Assignment”).  The Assignment was made pursuant to a Sale Agreement between the Administrators of Flex (1) and the Respondent (2) of the same date (“the Agreement”).  On 20th January 2011 the Respondent registered a Unilateral Notice in respect of a Charge dated 16th August 2006, the nature of which I shall explain in due course.  On 11th November 2014 the Applicant applied to the Land Registry in Form UN4 to cancel the Unilateral Notice.  The Respondent objected to the application, and the dispute was referred to the Tribunal on 24th April 2015.  

2.	The dispute arises in this way.  On 25th March 2006 Flex made an advance to the Applicant in the sum of £36,671.22.  This loan was secured by a mortgage over a property known as Flat B, 143 Mitcham Lane, Streatham, London SW16 (“the Mitcham Lane Property”).  This mortgage was created by a document in the same form as the deed dated 16th August 2006 which is described as “Loan Agreement and Mortgage” and made between Flex (1) and the Applicant (2) (“the 2006 Charge”).  By the 2006 Charge, Flex agreed to lend the Applicant the sum of £28,541.99 upon the security stipulated in clause 3 of the 2006 Charge.  Flex is defined as “we/us”, the Applicant is defined as “you”, and “the Property” is defined as “Ground Floor Flat, 435 New Cross Road, New Cross, London SE14 6TA” (which I shall refer to as “the Ground Floor Flat”).  Clause 3 is headed “The mortgage – Property and effect on contents”. The material parts of Clause 3 read as follows: 
“3.1	By this deed you charge the Property, and any rights you may have relating to it, to us with full title guarantee by way of legal mortgage to secure the amount of the Loan and interest on it and any costs which we charge under this mortgage and add to the account on which records of transactions between us is held (“the account”).  You agree that this mortgage is extended to cover any legal or equitable estate which you or any one of you owns now or acquires at any time in the future.  If any one of you is an occupier with no legal rights, by signing this deed you agree to give up your rights in our favour so that if we need to enforce this deed our rights to the Property will come ahead of any you may have. 
3.3	If we have to enforce this deed by taking possession of the Property you agree we may remove anything you own which you have left in the Property and, if you do not arrange to collect it, we may sell it and treat the money received as if it had been paid for the Property.  We and you agree that this term does not amount to a Bill of Sale and that any limit on our rights under this term which may be needed to prevent it from being a Bill of Sale shall be regarded as existing but without affecting the rest of this term.” 

3.	There is a dearth of information regarding the history of the loans.  However, it is common ground that both properties mortgaged to Flex in 2006 – the Mitcham Lane Property and the Ground Floor Flat – were sold (in 2008 according to Mr Bonsu), without repayment of the loans secured upon them.  The inference must be that these were sold by prior mortgagees, and the proceeds of sale were insufficient to satisfy the Flex indebtedness.  On 8th May 2007 the Applicant became the registered proprietor of the New Property. On 20th February 2008 Flex went into administration.  On 10th March 2010 the Respondent company was incorporated. By an agreement dated 18th June 2010 the Respondent agreed to purchase a number of assets from Flex’s Administrators, including the items described as the “Loan Portfolio”.  According to the redacted version of the Agreement that is in evidence, the Loan Portfolio included the charges on the Mitcham Road Property and the Ground Floor Flat.  The Loan Portfolio was transferred to the Respondent by way of the Assignment. On 20th January 2011 the Respondent registered the Unilateral Notice, stating that it protected the 2006 Charge – over the Ground Floor Flat.  Although in its Statement of Case the Respondent also refers to the charge over the Mitcham Lane Property, the Unilateral Notice does not refer to it and as far as I can see that property is not relevant to this dispute.

4.	The issues were refined during the course of the proceedings, and had become crystallised by the time of the hearing.  The Respondent’s case is straightforward.  It contends that it is entitled to an equitable charge over the New Property, arising out of clause 3.1 of the 2006 Charge over the Ground Floor Flat, and these words in particular: “You agree that this mortgage is extended to cover any legal or equitable estate which you or any one of you owns now or acquires at any time in the future.”  Mr Young, appearing for the Respondent, argues that these words create a fixed charge over the Applicant’s after-acquired property, and relies on the decision of David Richards J (as he then was) in Rayford Homes Ltd v Bank of Scotland plc and anor [2011] EWHC 1948 Ch.  The Applicant represented himself, and made an impressive effort to master the intricacies of this somewhat technical branch of the law.  In his skeleton argument, he put forward a number of arguments which have one overarching theme.  He contends that it is not possible for a lender to create a fixed charge over unidentified or unidentifiable property of a borrower which may be acquired at some unknown future date.  He characterises such an arrangement as, at best, a floating charge, and contends further than an individual cannot create a floating charge and relies on the Bills of Sale Act 1878. Although he had made certain allegations regarding the bona fides of the original lender (Flex) and at one time challenged the amounts due under the charges, he had withdrawn these points prior to the hearing and the matter proceeded as an argument on the law.

5.	In this case, and before it is necessary to explore the distinction between a fixed and floating charge, my primary task is to ascertain the ordinary meaning of the relevant words of clause 3.1 of the 2006 Charge. What is their effect?  Clause 3 is headed “The mortgage – Property and effect on contents”.  “Property” is not given any extended definition, to include other or after-acquired land – its only meaning is the Ground Floor Flat. The first sentence of clause 3.1 contains express words of charge by the borrower (the Applicant) over the specified property – “the Property”.  The second sentence contains an agreement that the mortgage is “extended to cover any legal or equitable estate which you ….. own[s] now or acquires at any time in the future.”   In my judgment, this is intended to operate as an “all estate” provision.  The “legal or equitable estate” referred to must relate to the mortgaged property (“the Property”) itself.  The clause is designed to subject to the 2006 Charge any lesser or different interest owned by the borrower in the Property.  If, therefore, at the date of execution, the borrower had a defective legal estate, but a valid equitable interest in the Property, that interest would automatically become subject to the charge.  Equally, if the borrower has a defective legal title at the date of the charge, but subsequently obtains a valid legal estate, this too would be subjected to the charge.  Any other construction is untenable.  First, because the clause does not identify the property in which the borrower has a present or future legal or equitable estate.  The only property referred to in clause 3 is the Property as defined.  Secondly, it would otherwise create or purport to create a mortgage not only over all after-acquired property, but over every single asset owned by the borrower at the date of the 2006 Charge.  This construction is quite contrary to commercial common sense.  

6.	In my judgment, the words “extended to cover” are not apt to create an immediate charge over unidentified property.  Such a charge could not be regarded as a usual or standard term of a normal mortgage, and if the lender wished to create such a charge, the words of charge would have to be express and entirely clear.  An example of the type of wording required may be found in the Rayford case, which is relied on by the Respondent as authority for the validity of a fixed charge over after-acquired property. These were the relevant provisions of the Debenture relied upon:	
“3.1 The Company charges to BoS as a continuing security and with full title guarantee for the payment or discharge of the Secured Liabilities:
3.1.1.	by way of legal mortgage all the freehold and leasehold property (including the property described in the Schedule) now vested in it whether or not the title to the property is registered at H.M. Land Registry together with all present and future buildings, fixtures (including trade and tenant’s fixtures), plant and machinery which are at any time on the property;
3.1.2.	by way of fixed charge:-
3.1.2.1	all future freehold and leasehold property belonging to the Company together with all buildings, fixtures (including trade and tenant’s fixtures), plant and machinery which are at any time on the property:
3.1.2.2	all present and future interests of the Company in or over land or the proceeds of sale of it and all present and future licences of the Company to enter upon or use land and the benefit of all other agreements relating to land to which it is or may become party or otherwise entitled and all fixtures (including trade and tenant’s fixtures), plant and machinery which are at any time on the property charged under this Debenture;….”
7.	Clause 3.6 of the debenture provided that the company would on demand in writing execute "a legal mortgage of any freehold or leasehold property of the Company which is not effectively charged by sub-clause 3.1.1 and of any freehold or leasehold property acquired by the Company after the date of this Debenture".  The Judge summarised the effect of these clauses as follows:  
24. 	Pausing there, the combined effect of the two debentures may, for relevant purposes, be summarised as follows.  First, as regards freehold and leasehold property, the bank had by the terms of its debenture a legal mortgage on all (if any) property vested in the company at the date of the debenture, a fixed charge on all future property and the benefit of a covenant by the company to execute a legal mortgage of any property acquired after the date of the debenture.  I will note here and return later to a submission by Mr Beltrami QC for the trustee that the fixed charge on future property and, to an extent, legal charges taken on individual properties took effect only as floating charges.

25.	.Second, the bank had fixed charges on a wide variety of other present and future assets.  Fixed charges on future assets take effect in equity, as specifically enforceable agreements to grant a fixed charge once the asset is acquired by the company.  They create effective security as against unsecured creditors and, in the absence of negative pledges of which the fixed chargee has notice, as against the holder of a floating charge.  Particular problems may arise as regards fixed charges on present and future book and other debts and bank balances, to which I refer below.

8.	These boilerplate provisions are contained in a detailed debenture over a property investment company’s assets and undertaking, and I accept that these are likely to be more detailed and comprehensive than those contained in a normal domestic mortgage.  However, they do provide a guide to the language and machinery required to give effect to a fixed charge of future-acquired property.  In particular, there must be clear words of charge over after-acquired property, and there is likely to be a covenant to execute legal mortgages over such property.  The opaqueness of the formulation in clause 3.1 of the 2006 Charge, and the lack of any associated obligation to execute mortgages over the borrower’s existing and after-acquired property, could not provide a greater contrast.  By the same token, the provisions of clause 3.3 of the 2006 Charge, permitting the lender to dispose of the borrower’s possessions at the Property, are clear and comprehensive. They even deal with the possibility of such a provision falling foul of the Bills of Sale Acts. 

9.	In summary, therefore, I find that clause 3 of the 2006 Charge creates a mortgage over the Ground Floor Flat (both as regards the legal estate and any equitable interest).  It does not purport to and does not in fact create a fixed or any other form of charge, legal or equitable, over any other property, whether held at the date of the 2006 Charge or subsequently acquired by the borrower.  Accordingly, it does not give rise to any interest in the New Property that would entitle the Respondent to enter a Unilateral Notice. It follows that I must direct the Chief Land Registrar to give effect to the Applicant’s application in Form UN4 dated 11th November 2014.

10.	In principle, the Applicant is entitled to his costs.  If he has incurred any recoverable costs, he should file (and serve on the Respondent) a Statement of Costs, with vouchers where appropriate, no later than Friday 12th February 2016.  The Respondent may file (and serve) any objections within 7 days, whereupon I shall make an order for costs.

Dated this 3rd day of February 2016

BY ORDER OF THE TRIBUNAL