Charges of part and the dangers
We come across this situation quite often. A borrower wants to borrow money against his land. The land is vast, say for example, 5 acres. The main building is in the middle of this land and it is only that building that is to be mortgaged and perhaps the immediate garden.
Mr Borrower calls the lender and says he will only grant a charge over part of the land containing the building and immediate garden (the Security Property) and that he will retain the rest (the Retained Land). Perhaps he wants to be able to charge the rest to a different lender and raise further funds.
This creates a potential issue with easements. Unity of Seisin (or ownership) is when both dominant and servient land are in common ownership as in our example above. New easements cannot be created (i.e. granted to oneself) as they will not be valid.
Therefore, in our example, if the Security Property does not directly adjoin the public highway, in a default situation, the lender will have issues as the land is likely to be land-locked. I have not even mentioned potential issues with easements in relation to services.
The lender or the buyer from the lender, will then be forced to negotiate with the borrower for the grant of an easement over his land leading to the public highway to be completed simultaneously with the sale. Having just had the Security Property repossessed, I am guessing he may not be very approachable.
Some will suggest that the borrower can grant easements in favour of the lender within the legal charge. This however, simply amounts to a contractual obligation on the borrower to grant said easements if necessary. This will again be difficult to enforce if the borrower chooses to be unhelpful which one must assume will be the case.
Some have suggested that the lender can be granted Power of Attorney to enable it to grant easements over the Retained Land which is also riddled with potential issues (sale of the Retained Land, insolvency of the borrower etc.).
The two main solutions here would be either:
1. Charge the entire title. This is the simplest and safest option for the lender.
2. Arrange for either the Security Property or the Retained Land to be transferred to another party (for example, the borrower and his wife) whilst the other title remains in the name of the borrower. This will enable rights to be granted or reserved as applicable. The danger with this option however is if the land is then transferred back into the borrower’s sole name at some stage, Unity of Seisin will apply again to extinguish the rights.
This is a common problem for lenders and until the law is changed, the safest option when asked to charge only part of a title is to refuse and insist on charging the whole.