A Lender’s Power of Sale

The recent case of Skelwith v Armstrong [2015] EWHC allowed the High Court the opportunity to examine the meaning of the “owner’s powers” in relation to a registered charge consequently clarifying the position relating to a lender’s power of sale.

In this case, a partnership sold a golf club to a buyer, with part of the purchase price secured by a charge. This charge was held by a security agent on behalf of the partnership. The security agent was promptly registered as the lender at the Land Registry.

The buyer later failed to make the agreed payments and the security agent duly issued a formal demand for payment under the terms of the charge. At this time, the security agent transferred its interest in the charge to another company. The assignment of the charge from the security agent to the company was not registered at the Land Registry. The company immediately exercised its power as a lender to sell the golf club. The High Court was asked to consider whether the actions of the company represented a valid exercise of the power of sale, given that it was an unregistered lender.

The High Court’s decision highlighted the difference between the powers of a party with a legal interest in a legal charge and a party with the equitable benefit of a legal charge. The High Court held that the company could exercise “owner’s powers” by virtue of the assignment of the charge by the security agent, even before the assignment was registered. The meaning of “owner’s powers” was found to be quite extensive, crucially encompassing the power of sale.

In the judgement, the High Court clarified that a party with the benefit of equitable ownership of a charge can only exercise the power of sale if it is entitled to do so by statute. In this case, it was held that the company was entitled to exercise its power of sale on the basis that it was entitled to receive and give good discharge for the mortgage money. This decision was made on the basis that, by virtue of the assignment of the charge, the company as the equitable assignee had the substantive right to sue for the debt incurred by the buyer.

This case provides confirmation that an unregistered lender can still exercise a power of sale. The decision of the High Court in this case, although favourable for lenders, also serves as a useful reminder of the need to register the transfer of a charge at the Land Registry in a timely fashion because the rights of a holder of an equitable interest in a legal charge are not as extensive as those of a legal owner of the charge.

For further information regarding this topic or any other property matter, please contact Joanne McIvor – Senior Associate, or any member of the Property team at Edwin Coe.

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