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Possession proceedings by lender

This content applies to England

How tenants of borrowers can become involved in possession proceedings against their landlord.

Pre-action protocol

Before repossessing a borrower who has mortgage or purchase plan (also known as 'Islamic mortgage') arrears over a residential property, lenders must comply with the Pre-action Protocol for Possession Claims based on Mortgage or Home Purchase Plan Arrears in respect of Residential Property. The protocol requires lenders to check who is in occupation of the property before issuing possession proceedings and, in certain circumstances, postpone legal action against the borrower.

Lenders will have to demonstrate compliance with the protocol by presenting two copies of Form N123 – Mortgage pre-action protocol checklist at the court hearing. See the page Pre-action protocol for mortgage arrears for more information.

Notice of proceedings

Lenders who have issued a claim for possession against a borrower must serve a notice on the property addressed to 'the occupiers'. They must do this within five days of receiving notification of the hearing date from the court.[1]

Lenders will have to demonstrate compliance with this requirements by producing copy of the notice and evidence of its service at the court hearing.[2]

Application to join the proceedings

If a tenant becomes aware of the lender's possession proceedings against her/his landlord, s/he can make an application to the court to join the proceedings as a party on form N244.

Some courts may give a tenant permission to be joined to proceedings at the hearing itself.[3] This is within the discretion of the court. The tenant will need to prove the existence of a tenancy and may wish to ask for an adjournment of the possession hearing so that s/he can obtain legal advice.

Unauthorised tenants wishing to apply to the court for postponement of a possession order (see the 'Not binding on the lender' section below) will not need to apply to be joined in proceedings.

Offers of payment

Claims for possession of residential property following a default on mortgage payments will usually fall under the provisions of the Administration of Justice Acts 1970 and 1973. Under these Acts only the borrower can make an offer to pay the mortgage installments and an amount off the arrears. The tenant cannot make such an offer in an attempt to resist the making of a possession order.[4]

If the borrower/landlord offers to pay the installments and an amount off the arrears funded by the rent from a tenancy that was created in breach of the mortgage agreement, this is likely to be rejected by the court. This is because the offer of payment could only be met by continuing the breach of the mortgage agreement.

Possession orders

The type and effect of a possession order against the borrower/landlord will vary depending on whether the tenancy is binding on the lender or not.

Binding on lender

If a possession order is made and the tenancy is binding on the lender, the tenant will have the right to remain in the property and the court will order that the lender will recover possession against the borrower/landlord, but not against the tenant.

Not binding on lender

If the tenancy is not binding on the lender, any possession order the lender obtains will be enforceable against the borrower/landlord and the tenant.

The provisions of the Mortgage Repossessions (Protection of Tenants etc) Act 2010 came into effect on 1 October 2010 and apply to any assured, assured shorthold, protected or statutory tenancy that is not binding on the lender and that was in existence, or commenced on or after, that date.[5] A tenant who has succeeded to such a tenancy will also be covered. The key points are:

  • when making a possession order the court may, on the application of an 'unauthorised' tenant, postpone the date for delivery of possession for up to two months
  • if the possession order has already been made and the tenant did not ask for a postponement, or was not the tenant when the order was made, s/he may ask the court to stay or suspend execution of the order for up to two months. In these circumstances, the tenant will only get extra time from the court if s/he has asked the lender to give a written undertaking not to enforce the order for two months and the lender has not given such an undertaking[6]
  • when considering whether to stay, suspend or postpone possession, the court must have regard to the circumstances of the tenant and whether there have been any breaches of the tenancy agreement
  • the court may make any stay or postponement conditional on the tenant making payments to the lender although this will not create any tenancy or any other right to occupy the property.

The Department for Communities and Local Government (DCLG) Guidance to the Mortgage Repossessions (Protection of Tenants etc) Act 2010 informs lenders, landlords and tenants of their rights and responsibilities under the 2010 Act.

For further information on whether the lender is bound by the tenancy see the page Tenancies binding on the lender.

Notice of execution of possession order

In order to enforce the possession order, the lender needs to apply to the court for a warrant of possession to be enforced by a court bailiff (in the county court) or for a writ of possession to be enforced by a High Court enforcement officer (in the High Court). See the section Enforcing of possession orders for more information, including additional notices that the court bailiff or officer will need to serve before executing the order.

From 1 October 2010, the lender must serve a 'Notice of execution of possession order' at the property when the warrant or writ of execution is applied for. No warrant or writ may be executed until 14 days after the notice is given.

The notice must be in the prescribed form and must be either personally served on any person who appears to be resident at the property or addressed to 'The Tenant or Occupier' (or by name, if known) and sent by first class or registered post or affixed to the property in a prominent place.[7]

Lenders will have to demonstrate compliance with this requirement at the court hearing. The DCLG guidance also covers this procedure.

Application to suspend or set aside execution

At this stage if a tenant wants to apply to the court to suspend the execution of the warrant or writ for a period, or to set them aside where the tenants argue that they have a tenancy that is binding on the lender, they must make an application to the court on form N244.

Appointment of receiver under LPA 1925

It should be noted that instead of seeking a court order for possession, the lender may, in certain circumstances, appoint a receiver under the Law of Property Act 1925 to receive rent and/or to exercise a power of sale without a possession order.

The appointment of a receiver is most likely to occur with buy-to-let mortgages, but all mortgage agreements can contain an express power to enable the lender to do this, and the law imply this power for every lender. See under 'Receivership' on the page Tenancies binding on the lender for more information.

Compensation for breach of implied covenants

A tenant can make a claim against the landlord for damages for breach of the covenant for quiet enjoyment and/or the covenant that the landlord shall not derogate from the grant of the tenancy, both of which are implied into every tenancy agreement.

A tenant has up to six years from the date that the tenancy agreement was breached in which to issue such a claim against the landlord.[8]

[1] Civil Procedure Rules, r.55.10(2).

[2] Civil Procedure Rules, r.55.10(4).

[3] Civil Procedure Rules, rr.19.2 and 19.4.

[4] Britannia Building Society v Earl (1990) 22 HLR 98, CA.

[5] Mortgage Repossessions (Protection of Tenants etc) Act 2010.

[6] s.1 Mortgage Repossessions (Protection of Tenants etc) Act 2010 and Civil Procedure Rules, rule 55.10(4A).

[7] s.2 Mortgage Repossessions (Protection of Tenants etc) Act 2010; The Dwelling Houses (Execution of Possession Orders by Mortgagees) Regulations 2010 (SI 2010/1809).

[8] s.5 Limitation Act 1980.

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