Variation of mortgage - consent requirements

Unless the variation of mortgage only reduces the amount secured, the stated priority limit or the rate of interest, section 101(4) of the Act provides that the mortgagee of any subsequent mortgage and any submortgagee must consent to a variation of a prior mortgage. This includes encumbrancees.

Section 5 of the Act defines a mortgage as “a charge over an estate or interest in land created by a mortgagor under [the] Act a purpose of which is to secure the performance of an obligation to pay money, whether or not—

  (i) the charge also secures the performance of other obligations; or

  (ii) any obligation secured by the charge is unconditional or conditional on the failure of another person to perform it.”

The definition also includes a rentcharge or an annuity.

As an existing registered encumbrance will include an obligation to pay money, whether or not it secures other obligations, the encumbrance will fall within the definition of a mortgage under the Act.

This carries over the previous provisions of the Land Transfer Act 1952, which specifically included an encumbrance in the definition of mortgage set out in section 2 of that Act.

Therefore, the consent of any existing encumbrancee, as a mortgagee, will be required for a variation of mortgage unless any of the exceptions set out in section 101(4) apply.

Certifications

Landonline provides the following additional certification(s) for the conveyancing professional to check where there is another mortgage or encumbrance:

1. I certify that the Encumbrancee under Encumbrance 123456.7 has consented to this transaction and I hold that consent.
2. The Mortgage or Encumbrance does not affect the estate or interest affected by the new instrument.
3. The existing Mortgage or Encumbrance is being discharged in a prior dealing or the same dealing.

If the conveyancing professional checks the first option, they must either hold the consent of the encumbrancee or the existing encumbrance must contain a specific advanced consent clause providing expressly for a variation of mortgage.

An advance consent clause enables specific following events to be registered without the need to obtain consent directly from the encumbrancee. However, an advanced consent must be an explicit consent. An example of an explicit advanced consent clause is “The Encumbrancee hereby consents to the registration of any of the following instruments executed by the Encumbrancer in respect of the Property: (list of the specific type of instruments)”.

If a certification is made based on a consent clause in an encumbrance, the conveyancing professional must retain a copy of the encumbrance instrument as evidence of consent.

An example where a conveyancing professional would select the second certification option above would be where an encumbrance or mortgage only affects the benefited (dominant) land of an easement being registered.

Failure to use the appropriate e-certification or obtain encumbrancee or mortgagee consent may result in a dealing being rejected or a compliance review failure.