Redemption

Redemption

This part looks at the process of redeeming a mortgage
Information Sheet

What does this involve?

Redemption simply means the process by which a mortgage is discharged upon payment of all sums due (see Re Wallis (1890) LR 25 QBD 176 per Fry LJ at 181) and the performance of any other obligations which may legitimately be required (see Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch) per Morgan J at [46]).


The principles involved in redemption, like many others in mortgage law, have tended to become complicated, not least because of the largely historic concepts of the mortgagor’s legal or contractual right to redeem and his equitable right to redeem, and the distinction between the mortgagor’s equitable right to redeem and his equity of redemption (for a detailed analysis see Fisher & Lightwood’s Law of Mortgage, 15th Edition, Chapter 47). In practice, most institutional mortgage deeds no longer stipulate a redemption date, but may stipulate terms upon which the mortgagor may, at any time, redeem the mortgage.


Clogs on the equity of redemption and collateral advantages

There is no rule in equity which precludes a lender from stipulating for any collateral advantage (additional benefit), provided that the stipulation is not (1) unfair or unconscionable, (2) in the nature of a penalty clogging the equity of redemption or (3) inconsistent with or repugnant to the right to redeem (Kreglinger v New Patagonia Meat and Cold Storage Co Ltd [1914] AC 25 at p 61, confirmed in Jones v Morgan [2001] EWCA Civ 995 per Lord Phillips MR at [92] and Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch) per Morgan J at [47]).


Historically these rules have often been described, collectively, as ‘clogs on the equity of redemption’, meaning an objectionable restriction on the rights of the borrower who has mortgaged his property as security for the debt (Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544 per Jonathan Parker LJ at [1] and see the analysis of the authorities at [42] etc), although it may be questioned how far this expression continues to serve any useful purpose (it does not assist in identifying the detail of the relevant rules, see Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch) per Morgan J at [46]  and has been described as an appendix to the law which no longer serves a useful purpose and should be excised: Jones v Morgan [2001] EWCA Civ 995 per Lord Phillips MR at [86]. The Law Commission has also proposed the abolition of the equitable jurisdiction to set aside any provision of a mortgage which constitutes a clog or fetter on the equity of redemption: Law Commission – Transfer of Land - Land Mortgages (Law Com. No. 204) (1991).

 

The rules of equity apply where the stipulation forms part of the contract of mortgage (ie. it forms part of a mortgage or security interest) not where it forms part of a separate transaction. The court will look at the substance of the transaction (see the analysis by Morgan J in Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch) per Morgan J at [50] etc and Warnborough Ltd v Garmite Ltd [2003] EWCA Civ 1544).

 

Whether a stipulation is unfair or unconscionable does not simply depend on whether it is unreasonable, but whether it has been imposed in a ‘morally reprehensible’ manner (Cityland and Property (Holdings) Ltd v Dabrah [1968] Ch 166 and Multiservice Bookbinding Ltd v Marden [1979] Ch 84 – see the analysis in Brighton & Hove City Council v Audus [2009] EWHC 340 (Ch)  at [48] etc). The court will consider all the circumstances of the case including the nature and terms of the collateral advantage, the nature of the loan (whether commercial or private), whether there was equality of bargaining power, and whether the borrower obtained independent legal advice.


Repayment charges

A common issue is whether a lender is entitled to more than simply, principal, interest and any costs on redemption, and whether for example it may impose other charges or fees, whether on early repayment or otherwise. Save for the regulatory restrictions applying to regulated mortgage contracts in respect of the imposition of early repayment charges (MCOB 12.3)  or other excessive charges (MCOB 12.5), the recoverability of any sum is likely to depend on the application of the same principles discussed above, although an early repayment penalty in a mortgage with a consumer may also be susceptible to challenge as an unfair term under the Consumer Rights Act 2015 (see e.g. Evans v Cherry Tree Finance Ltd [2008] EWCA Civ 331, which concerned the application of similar provisions in the Unfair Terms in Consumer Contracts Regulations 1999 in respect of a substantial early redemption penalty). In practice, it is not uncommon to charge industry standard redemption fees.  

Notice, tender and payment

In practice, the mechanics for redemption rarely give rise to problems. In the common case where the mortgage does not stipulate a legal or contractual redemption date, then subject to the terms of the contract of mortgage, a mortgagor is simply required to give notice of intention to redeem. He can then expect to be given a redemption statement calculated to a particular date, and is required to tender the full amount due by that date. Where the mortgage still stipulates a legal or contractual date for redemption, the mortgagor has historically been required to pay six months’ interest in lieu of notice (see Fisher & Lightwood’s Law of Mortgage, 15th Edition, para 47.34. It is doubtful whether this is still permissible). The position may be different if the mortgagee has commenced enforcement proceedings, in which case the mortgagor may then be at liberty to dispense with notice and simply pay the balance due on redemption.

 A valid tender of the full amount due on redemption may be achieved in a number of different ways (for a review of the principles, see Shearer v Spring Capital Ltd [2013] EWHC 3148 (Ch) at [122] etc) but essentially requires the mortgagor to make an unconditional offer to pay the full amount and set the money aside in some way (Cukorova Finance International Ltd v Alfa Telecom Turkey Ltd [2016] AC 923 per Lord Neuberger at [132]).

Where proceedings have been commenced, either by the mortgagee for enforcement, or the mortgagor for redemption, it may be appropriate to pay the redemption monies into court. At common law, in a debt action, payment into court of the sums tendered is an essential requirement for the defence of tender before action (CPR 37.2). In equity, interest ceases to run on the mortgage debt from the date of tender. In addition, a mortgagee who refuses to accept a tender of the full amount due may be at risk as to costs of any subsequent redemption action. 

Can you lose the right to redeem?

A mortgagor’s right to redeem may be lost in a number of ways (see Fisher & Lightwood’s Law of Mortgage, 15th Edition, para 47.81 etc), most commonly at the point at which a mortgagee enters into a contract for the sale of the mortgaged property when exercising its power of sale (the equity of redemption is effectively suspended on exchange of contracts, and extinguished upon completion: Property & Bloodstock Ltd v Emerton [1968] Ch 94; National & Provincial Building Society v Ahmed [1995] 2 EGLR 127). Until then, and notwithstanding default by the mortgagor, it remains open to him to give notice to redeem and tender full payment.

Practice and procedure

The claim will be for redemption upon such terms as the court may direct (which will depend on the particular issues in the case), and insofar as the redemption figure is in issue, should include a claim for an account. The claim may also include an application for an order for sale .

The county court has all the jurisdiction of the High Court to hear and determine proceedings for redemption of any mortgage where the amount owing in respect of the mortgage does not exceed the county court limit (County Courts Act 1984, s 23(c). The county court limit is £350,000 – County Court Jurisdiction Order 2014, SI 2014/503, Art 3). The parties may agree by a memorandum signed by them that the county court has jurisdiction, notwithstanding the limit of jurisdiction: County Courts Act 1984, s 24(2)(g)  otherwise the proceedings may be commenced in the Business and Property Courts and assigned to the Property, Trusts and Probate List (ChD), either in London or one of the District Registries (For practice and procedure in the Business and Property Courts, including listing arrangements, see the Chancery Guide, and the Advisory Note: The Business and Property Courts of England and Wales).

The choice between commencing proceedings pursuant to CPR Part 7 or Part 8 will largely depend on the reasons for the redemption proceedings, bearing in mind that unless a rule or practice direction requires otherwise, a claimant may use the Part 8 procedure where he seeks the court’s decision on a question which is unlikely to involve a substantial dispute of fact (which will rarely be the case in a redemption action unless there is a substantive dispute which may properly require statements of case, disclosure and oral evidence at trial. A defendant who wishes to contend that the Part 8 procedure should not be used must state his reasons when he files his Acknowledgement of Service: CPR 8.8(1). The court will then consider the appropriate procedure and may direct it to continue as if commenced by Part 7 when it gives case management directions: CPR 8.1(3)). Since the claim does not include a possession claim brought by a mortgagee, CPR 55 does not apply. No other special rules or provisions apply to redemption actions.

 Where the claim is commenced by Part 8 Claim Form, the contents of the Claim Form must comply with CPR 8.2 and the claimant must file any written evidence on which he intends to rely when he files his Claim Form and this must be served on the defendant with the Claim Form (CPR 8.5(1), (2)). A claimant mortgagor’s evidence will invariably require him to comment on, and exhibit (1) all relevant documents comprising the contract of mortgage; (2) all relevant documents, correspondence and communications concerning the proposed redemption; (3) the redemption statement (if available); and (4) proof of tender. A defendant who wishes to rely on written evidence must file it when he files his Acknowledgement of Service and at the same time serve a copy on the other parties (CPR 8.5(3), (4)). A claimant may, within 14 days after service of the defendant’s evidence on him, file further written evidence in reply and at the same time serve a copy on the other parties (CPR 8.5(5), (6)). No written evidence may be relied on at the hearing unless (a) it has been served in accordance with rule 8.5, or the court gives permission (CPR 8.6(1)). The parties may agree in writing for an extension of time for serving and filing evidence under rule 8.5(3) or 8.5(5) (CPR PD 8A, para 7.5). Subject thereto, a party may apply to the court for an extension of time to serve and file written evidence under rule 8.5 or for permission to serve and file additional evidence under rule 8.6 (CPR PD 8A, para 7.4). A CPR Part 8 Claim will proceed to a hearing on paper only, unless the court requires, or permits, a party to give oral evidence at the hearing (CPR 8.6(2)).

All persons with the right to redeem, and all persons interested in the security, must be joined in the proceedings.

Form of order

A standard form of order for redemption will contain directions for the taking of a redemption account (if required) and subject to the account being certified, will direct payment of the amount found due, and for delivery up and discharge of the security, usually with a proviso for dismissal in the event of default in payment .

Discharge

Subject to any particular agreement between the parties, or the terms of any order for redemption, the mortgagee’s duty is to discharge the mortgage. The usual practice for a paper discharge of a registered charge is for the mortgagee to apply to HM Land Registry by Form AP1 to register a discharge in Form DS1 (Land Registration Rules 2003, r 114). An application to cancel a noted charge is in Form CN1. An application to cancel a charge protected by a unilateral notice in Form UN2. Corporate mortgagees who have registered to access HM Land Registry’s Business e-services will also be able to send an electronic discharge of a registered charge direct to HMLR or lodge an e-DS1 (Land Registration Rules 2003, r 115. See HM Land Registry Practice Guide 31: discharge of charges, and HM Land Registry’s Lender Services. The use of lender services via the portal or Business Gateway is governed by a memorandum of understanding). The former practice of transmitting an electronic notification of discharge (END) was discontinued on 3rd January 2010.

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