Termination of Tenancies for Tenant Default - Law Commission

CP suggested, close down any potential claim by a former tenant to be reinstated
(in the unlikely event of the redemption of the mortgage).
Consultation
6.117 The vast majority of responses agreed that the most suitable form of relief for
mortgagees was a court order vesting the tenancy in them or granting them a
new tenancy. A popular alternative, which was not discussed in the CP, was for
the court to order sale of the tenancy and pay off the mortgage out of the
proceeds. 123
6.118 Consultation confirmed our view that the Marche “problem” might be more
imagined than real. The Bar Council felt that “it is not a problem which occurs
frequently in practice because those tenants whose leases have been forfeited
rarely have the means to acquire the necessary capital to redeem the mortgage”.
Moreover, Richard Coleman of Clifford Chance LLP doubted that landlords would
generally be too concerned to find that a tenant whose tenancy had been
terminated had, as a result of discharging his or her mortgage debt, recovered
possession of the property. It should also be noted that, in the normal course of
events, mortgagees are likely to want to sell any tenancy transferred or granted
to them by the court. The proceeds would be used to pay off the mortgage debt
(any surplus being held on trust for the mortgagor). Therefore, the period of time
during which the Marche “problem” might arise will be relatively short.
6.119 Many respondents felt that our analysis, that in these limited circumstances the
tenant would and should be denied the right to redeem the mortgage, was
sensible. 124 Others, however, strongly disagreed. Thomas Seymour felt that to
allow a mortgagee to acquire the tenancy free of the equity of redemption could
over-compensate him or her. Trevor Aldridge QC argued that once the
mortgagee has been paid in full, there is no justification for him or her having any
further interest in the matter. He added that “it may be true that the landlord
would not welcome the tenant back, but he earlier made the choice to let the
property to that tenant…and I can see no justification for re-writing the bargain”.
He also considered that adoption of the CP’s provisional proposals would risk
violating Article 1 of the First Protocol to the European Convention of Human
Rights (which protects a person’s right to peaceful enjoyment of their
possessions).
6.120 A number of consultees emphasised the potential utility in such circumstances of
a court-directed order for sale. The Judges of the Chancery Division wrote:
One solution might be to preclude the tenant from being entitled to
redeem, but at the same time to impose on the mortgagee a duty to
sell the lease within a reasonable time and to account to the tenant
for the proceeds of sale, less the amount of the principal, interest and
costs. Although this may be (in traditional terms) a clog on the equity
of redemption, we see no reason why the legislation should not
override equitable rules.
123 Orders for sale are discussed at para 5.48 and following.
124 The Law Society, English Partnerships and Peter Smith of the University of Reading.
130