Local Authority In Possession after Order of Sale

An Order of Sale was authorised by the Court. The Council are, 'in possession'.  Can the Council be considered a, 'mortgagee in possession" and therefore an exeption applies for an Empty Dwelling Management Order application?

 

The ownership has changed through a family transer since the Council gained possession. I'm wondering if we could offer the new registered proprietor an opportunity to enter  into an Empty Dwelling Mangement Order by agreement that would pay off the debts owed to the Council and renovate the property for letting?

Forums: 
Enforced Sale

Carson

Housing (Empty Dwelling Management Orders) (Prescribed Exceptions and Requirements) (England) Order 2006 (2006 No 367)

3 Prescribed exceptions

For the purposes of section 134(1)(b) of the Act a dwelling falls within a prescribed exception if—

(i)    it is mortgaged, where the mortgagee, in right of the mortgage, has entered into and is in possession of the dwelling;

You don't mention whether the property has a sole owner or there are joint owners, which will go to the point of charging their legal interest or equitable interest

A charge imposed by a charging order takes effect as an equitable charge (section 3(4) of the Charging Orders Act 1979) either:

  • on the legal estate
  • on a beneficial interest under a trust of land

A charging order that charges the legal estate may be protected by the entry of a notice (section 32 of the and Registration Act 2002). A charging order that charges a beneficial interest under a trust of land cannot be protected by way of notice but can be protected by the entry of a restriction (section 33(a)(i) of the Land Registration Act 2002 precludes the entry of a notice in respect of an interest under a trust of land).

I have taken the view that there is a sole owner and you have charged their legal estate.

The question is whether an equitable charge can be defined as a mortgage.

A mortgage involves the transfer of the title to an asset as security for a liability.

There are therefore two elements of a mortgage:

• In the first place, title to an asset must be transferred to the creditor or to someone on his behalf. If it is legal title which is transferred, the mortgage is a legal mortgage. If beneficial title is transferred, it is an equitable mortgage. Either way, the creditor obtains a proprietary interest which remains effective in the insolvency of the debtor. It is not necessary for the creditor to take possession of the asset.

• The second element is that the transfer must be by way of security. The creditor is not intended to have the absolute entitlement to the asset concerned. It has been transferred to secure a liability and, once that liability has been discharged, the debtor is entitled to have the asset re-transferred to him. This right, which is itself a proprietary interest, is generally referred to as an ‘equity of redemption’.

A charge is less easy to define. In distinction from a mortgage, the creditor does not obtain either legal or beneficial title to the charged asset. But what he does obtain is an equitable proprietary interest in the asset by way of security

So you may be able to argue a technical distinction between a mortgagee and a charge for the purpose of the exemptions.

It would be for the Tribunal to determine whether the exemptions apply and could advance this argument with the consent of the owner

You could ask for a case management initially to deal with this point of law.

The Order of Sale, I would need to  see the exact wording  but for the exemption to apply, it states that the mortgagee has entered into and is in possession of the dwelling;

This would suggest that you have physically gained access to the property, which probably is not the case.

I bet you wished you hadn’t asked the question

So in summary

It may be possible to argue that the exemption does not apply but it is not clear cut – plenty of grey area.

I am surprised that they were able to transfer the property after the Council had secured the final charging order.

This would indicate that they may have been trying to avoid liability and therefore goes to the character of the parties.

Would it be better to pursue the Order of Sale and deal with fresh owners?

There is nothing wrong with entering into a voluntary agreement to manage the property on their behalf, doe not have to be a formal EDMO.

You could provide funding for any works via a Loan (legal mortgage) or even pursue statutory notices and do works in default, putting the debt on a statutory basis. Their willingness to consider these options will give you an indication of their character. Do they want a solution or do they want to frustrate etc.

Remember you cannot have an HA 2004 Improvement Notice running the same time as an EDMO, need to do Works in default then pursue an EDMO.

So hope that helps or perhaps not?

As always you should make enquiries with your own legal services and follow their advice.

Regards

Andrew Lavender

www.htlc.co.uk

Glad I asked to get such a comprehensive answer. The Council have entered and taken possession. The transfer was allowed at the same hearing  where the Order of Sale was confirmed (it was challenged - I dont have the detail of the hearing). The Order of Sale is proceeding - just considering all possible options.

Many thanks

 

If the Council has taken possession then I would say that an EDMO is a non starter.

While the LA in possession may not strictly conform to the definition of the relevant proprietor as set out in Section 132 (4)(c) Housing Act  2004.

You are in effect a mortgagee in possession and would classed as the person having control -  ie would be entitled to the rack rent etc.

Therefore, the freeholder lacks the requisite control and the LA ( public body) has stepped into that position.

There are also a range of duties that follows from a mortgagee being in possession i.e insuring the property, ensuring to take reasonable care of the property.

So sensible to dispose of the proeprty asap to reduce risk to the LA

It is a pre requisite that the relevant propreitor is not a public sector body.

I think you could have pursued an EDMO at an earlier stage, but the case has progressed to far and therefore better off pursuing your current option to completion.

Regards

Andrew Lavender

www.htlc.co.uk

 

Thanks again Andrew. Advice and support (grant offers) were the starting points - no response from the original registered proprietor. Considered EDMO ( borderline viability) ended up with Order of Sale. Reconsidered possibility of EDMO with the new registered proprietor, I had concerns that the Council's possession on confirmation of the OoS meant we could be seen as a, 'mortgagee in  possession'. Asked legal for an opinion - no answer. Again, the Network gives direction, What a resource. That's why I think membership should be by invitation and the fee should be raised 5 fold.