Mortgage
In August 2017, Alex obtained a loan of £200,000 from Fred, a friend who owns the local
butcher’s shop. Alex was relieved to get the money from Fred because his poor credit rating
meant that five banks had refused to lend him the money. Alex used the loan to buy a seaside
guesthouse, The Dunes, and in return he granted Fred a legal charge over its registered title.
Alex agreed to make monthly repayments throughout the 45-year period of the mortgage and
also to the following terms:
a) Fred may vary the monthly interest from time to time whenever he decides and for
whatever reason.
b) Alex must buy all his organic sausages from Fred for the period of the mortgage and
five years after its redemption.
Within months, Alex’s business started to struggle financially. Fred therefore offered to pay
Alex £10,000 in return for an option to buy the carpark at the rear of The Dunes. In December
2017, Alex agreed and they executed a deed containing the option.
By August 2018, Alex had fallen into arrears with his monthly loan repayments. In September
2018, Fred wrote to him doubling the sum due for next monthly repayment and indicating
that he was considering taking possession of The Dunes in order to sell it.
Advise Alex:
a) Whether all or any of the terms of the mortgage and the option agreement with Fred
are enforceable; and
b) Whether Fred can take possession of the property and sell it.
In advising Alex, it is very clear on the facts that he has mortgaged The Dunes to his creditor,
Fred as a security for the loan. As such, Alex is the mortgagor and Fred is the mortgagee. As a
mortgagor, the law recognises that Alex has a sum of rights known as equity of redemption for
the duration of the mortgage. One of the key rights Alex has as a mortgagor is the right to
redeem, which is to pay off the debt along with the interest and cost, and get the property back.
The courts over the years have developed certain principles to make sure that the rights of the
mortgagor are protected, to prevent them from being exploited. There should be no clog and
fetter to the rights of mortgagors. Hence, any term in the mortgage agreement which is deemed
to be a clog and fetter to the rights of the mortgagors will be struck down as void by the courts.
Therefore, this paper will advise Alex whether the terms in his mortgage agreement and the
option agreement with Fred are valid or vice versa.
In August 2017, Alex obtained a loan of £200,000 from Fred, a friend who owns the local
butcher’s shop. Alex was relieved to get the money from Fred because his poor credit rating
meant that five banks had refused to lend him the money. Alex used the loan to buy a seaside
guesthouse, The Dunes, and in return he granted Fred a legal charge over its registered title.
Alex agreed to make monthly repayments throughout the 45-year period of the mortgage and
also to the following terms:
a) Fred may vary the monthly interest from time to time whenever he decides and for
whatever reason.
b) Alex must buy all his organic sausages from Fred for the period of the mortgage and
five years after its redemption.
Within months, Alex’s business started to struggle financially. Fred therefore offered to pay
Alex £10,000 in return for an option to buy the carpark at the rear of The Dunes. In December
2017, Alex agreed and they executed a deed containing the option.
By August 2018, Alex had fallen into arrears with his monthly loan repayments. In September
2018, Fred wrote to him doubling the sum due for next monthly repayment and indicating
that he was considering taking possession of The Dunes in order to sell it.
Advise Alex:
a) Whether all or any of the terms of the mortgage and the option agreement with Fred
are enforceable; and
b) Whether Fred can take possession of the property and sell it.
In advising Alex, it is very clear on the facts that he has mortgaged The Dunes to his creditor,
Fred as a security for the loan. As such, Alex is the mortgagor and Fred is the mortgagee. As a
mortgagor, the law recognises that Alex has a sum of rights known as equity of redemption for
the duration of the mortgage. One of the key rights Alex has as a mortgagor is the right to
redeem, which is to pay off the debt along with the interest and cost, and get the property back.
The courts over the years have developed certain principles to make sure that the rights of the
mortgagor are protected, to prevent them from being exploited. There should be no clog and
fetter to the rights of mortgagors. Hence, any term in the mortgage agreement which is deemed
to be a clog and fetter to the rights of the mortgagors will be struck down as void by the courts.
Therefore, this paper will advise Alex whether the terms in his mortgage agreement and the
option agreement with Fred are valid or vice versa.
