Property Law – Commercial Mortgages – Is the DJ Powerless…?

01 Jun 2003

By : PJ Kirby


What power, if any, does a court have to adjourn a claim by a mortgagee for possession or to suspend an order for possession where the premises mortgaged are commercial premises? Sitting as a deputy district judge I have been faced with this scenario on 3 occasions in the last two months.

If the mortgaged property does not include a dwelling-house then the court does not have any power under section 36 Administration of Justice Act 1970 to adjourn the proceedings or to suspend any possession order. It is often said (usually on behalf of mortgagees!) that at common law the mortgagee is entitled to possession before the ink is dry on the mortgage deed (Harman J. in Four-Maids Ltd. v Dudley Marshall (Properties) Ltd. [1957] Ch. 317). So if you are acting for a mortgagor of premises that do not include a dwelling house is there anything you can do to enable your client to have a bit more time to pay off the mortgage? Yes – although not a lot. Most lenders who have reached the point of commencing proceedings have already had their corporate patience exhausted but convincing evidence that a sale or re-mortgage is imminent may enable you to negotiate an adjournment with the lender.

However, if your powers of persuasion are unsuccessful it would appear that the court may have a residual jurisdiction to postpone the giving of possession to a lender for a very short period of time to allow the mortgagor to sell the property or to pay off the mortgage in full. That was the common law position prior to section 36 in relation to mortgages of dwelling houses, see Birmingham Citizens Permament Building Society v Caunt [1962] Ch 883, 912. The court will not have power, to adjourn or suspend, on condition that the mortgagor pays the normal monthly instalment and that the arrears are paid within a reasonable period of time. Such a power, which may be for as long as the remainder of the mortgage term, only exists in cases where the section 36 power is exercisable – Cheltenham and Gloucester Building Society v Norgan [1996] 1 WLR 343.

The only other basis on which the court could adjourn the proceedings would be pursuant to its case management powers either because one party was not present or because there was not time to deal with the matter or because further evidence was required.

What is the position where the property does include a dwelling-house but the same is not occupied by the mortgagor? The first point to remember is that section 36 can only be relied on in relation to instalment mortgages and mortgages where payment of the whole or part of the principal is deferred. There can be no question of section 36 being relied on in relation to say all money charges repayable on demand. Many commercial mortgages will be repayable on demand.

In Royal Bank of Scotland v Miller [2002] QB 255 the Court of Appeal was dealing with the mortgage of a nightclub with a flat above that had at times been occupied by the manager of the club and at other times by the mortgagor. The court held that:

  • the relevant date for deciding whether the property included a dwelling house was the date the mortgagor claimed possession.
  • it was not necessary that it be the mortgagee who occupied the dwelling house
  • if the residential occupation was contrary to the terms of the mortgage that did not preclude the application of section 36 but would amount to a default that had to be remedied within the meaning of section 36(1).

The important effect of this decision so far as commercial mortgages are concerned is that section 36 can be invoked so long as the premises include a dwelling house regardless of who occupies the dwelling-house. A mortgagor of a shopping development can therefore rely on section 36 if one of the shops has a flat above used as a dwelling house. Similarly the mortgagor of freeholds of blocks of flats can rely on section 36. Also it would appear that there is no reason why the mortgagor cannot be a company. How the court then exercises its discretion will no doubt depend on the facts and evidence available in the particular case but at least it will have had a discretion to exercise! So find a flat somewhere in the mortgaged property and you will give the DJ something to think about!


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