2000 right to repay through the Equity of Redemption.[6]

2000 words

 

Part
A

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A mortgage is a commercial contract
between the borrower and the lender, parties execute a mortgage by deed based
on terms and conditions. ‘A mortgage signifies the grant of a property interest
to the mortgagee with the provisions that the interest shall end upon repayment
of the secured debt1’.
The mortgagee obtains the right of a charge over the mortgaged property under
s.87(1) of the Law of property act (LPA) 19252 which creates a ‘hybrid
form of security where the lender’s interest is by way of charge but they are
placed in a position as if they were a mortgagee by demise’3.

 

Unequal
Bargaining Power

When the mortgagor repays the secured loan,
the property interest is then transferred from the lender to the borrower and
any terms of the contract which destroys this right is struck out by courts as being
inconsistent with the nature of the mortgage, hence protecting the mortgagor. However,
should a mortgagor default on payments, under s.85 of (LPA) 19254,  the mortgagee acquires both; the right of
possession and right of sale. This provides the mortgagee with a more
prevailing position in the contract and demonstrates the unequal bargaining
power between the lender and borrower, which the law effectively seeks to
overcome and offers protection to the mortgagor by imposing control over the
mortgage terms through the Equity of Redemption and fairness of terms.

 

The
Equity of Redemption

The lender, upon borrower’s ‘failure to
repay the loan in accordance with the contractual terms would be allowed to
assert the absolute nature of the conveyance’5. However, Equity
recognises that the borrower should be afforded a continuing right to repay
through the Equity of Redemption.6  There have been numerous cases where the
mortgagees have limited the mortgagors access to redemption by inserting unfair
provision, otherwise known as ‘clogs or fetters7’ in the contract. This is evident in the case of City land and property ltd v
Dabrah which included an express provision that if the mortgage was redeemed
within 6 years, the mortgagor was required to pay a premium greater in excess
of market investment rates for the time. The courts held that the premium
required to be paid by the mortgagor was ‘so large that it rendered the equity
of redemption nugatory’. Similarly in the case of Multiservice bookbinding v
Marden the courts discovered that the amount of interest was compounded so that
the mortgage couldn’t be redeemed within 10 years8. Both of
these cases illustrate the doctrine of ‘clogs and fetters’ on Redemption which
was struck down by courts in an attempt to protect the mortgagor from unfair
terms.

1 Elizabeth Cooke, Modern studies in property law, (Volume
3, Bloomsbury publishing 2005) 18

2 Law of Property
Act 1925, s.87

3 Elizabeth Cooke, Modern studies in property law, (Volume
3, Bloomsbury publishing 2005) 157 2 ref?

4 Law of Property
Act 1925, s.85 2 ref

5 Solomon Atkinson,
The Theory and Practice of Conveyancing.
(Vol 1. S. Sweet 1839) 501

6 Elizabeth Cooke, Modern studies in property law, (Volume
3, Bloomsbury publishing 2005) 19

7 A Berg, Clogs on The Equity of Redemption or
Chaining an Unruly Dog, (JBL2002) 335

8 Alastair Hudson, Equity and Trust, (Psychology Press 2005)
817