Formative Assessment

Property law Answer and Feedback

STUDENT ANSWER
A mortgage is a transaction whereby an interest in property, whether land, business or house is
transferred to a mortgagee who is the lender, as security for a loan, which is subject to a right of
redemption vested in the mortgagor, who is the borrower. It is a balance between the law of
contract and the law of equity. In the former, it aims to bind the mortgagor to the terms and
conditions agreed; and in the latter, it provides recourse through the courts for the mortgagor if
there are unfair or unconscionable terms whereby the courts can amend the terms. Ultimately, it
is about striking a balance, where the mortgagee will enforce the law of contract and the
mortgagor will seek to focus on equity.
In the stated case, the mortgagee is Posh Pickles Plc and the mortgagor is Ian. A legal mortgage
is in place as per the terms of s87 LPA 1925. Based on the facts of the case presented, in
advising Ian, one has to focus on the mortgagor’s perspective therefore examining the equity of
redemption. The equity of redemption is the borrower’s right of ownership of the property
subject to the mortgage. That is, the borrower has a right to pay back the mortgage in full and
there should be no exclusion or postponement of that right. Any clog or fetter that likely
appears to interfere with the equity of redemption can be struck down by the courts as per
Samuel v Jarrah Timber [1904]. Essentially, the mortgagor should not be stopped from
redeeming his property and from doing so free from any condition in the mortgage.
In the matter at hand, we have an issue of a commercial mortgage. Ian, the owner of Ian’s Plaice,
a take away cafe has secured a mortgage from Posh Pickles plc. In examining whether the terms
of the mortgage are enforceable, one has to examine each term in turn to ascertain whether
there were any unfair collateral advantage.
i. For the first term of the mortgage presented, the issue is whether the interest rate is
oppressive and unconscionable. Though the mortgagee is allowed to have discretion
with interest rates, they are not to be oppressive. In the case of Paragon Finance v Nash
[2002], the interest rate was variable and could be set by the mortgagee who was
relatively reasonable with how they adjusted the interest rate over the lifetime of the
mortgage. Though the mortgagor considered it unfair, the mortgagor had agreed to the
terms and the courts did not find it unconscionable and so it was upheld. However, in the
case of City Land and Property Holdings v Debrah [1968], it was held that the interest
rate was completely oppressive as it was 57%, which the courts reduced to 7%. The
justification in this regard, is that the terms should not be unreasonably harsh but it
should reflect the costs endured by the mortgagee such as administrative costs and
other processes. It may therefore be concluded that the interest rate may not be
unconscionable depending on the level at which it varies from time to time. In the case
presented, above 10% may be considered reasonable but there is no way of
guaranteeing how it might rise and to what level, based on the discretion of the
mortgagee. Equity will review with suspicion any attempt by the mortgagee to gain any

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 collateral advantage in this regard. However, if the interest rate is deemed unreasonable
but not oppressive or grossly exorbitant, it may be upheld by the courts (Multiservice
Bookbinding Ltd v Marden [1979].
ii. The second term presents an issue of redemption free from conditions. Collateral
advantages can be enforceable if designed to cease after redemption. The term of the
mortgage in question may not be unconscionable if it is independent of or is a collateral
to the mortgage agreement as per G & C Kregliner v New Patagonia Meat [1914]. If it is
a separate agreement, it will not be deemed as a clogger or a fetter by the courts, but if it
is persisting beyond redemption, it will be viewed as interfering with the equity of
redemption and will not be enforceable (Samuel v Jarrah Timber [1904]). Based on the
facts of the question, the term seems to be persisting beyond redemption and so would
not be enforceable.
iii. The third term presents an issue of a solus agreement, an agreement where a retailer
buys all their stock from a single supplier. Posh Pickles plc wants Ian to buy all his posh
pickles from them only, at market price, for the duration of the loan. This can be deemed
as a solus agreement as per Esso Petroleum v Harper’s Garage [1968]). This term will
prevent Ian from buying pickles from anywhere else, thereby interfering with his right of
freedom to trade. There is therefore an issue of a restraint of trade, which interferes with
Ian’s freedom to buy from whomever he wants. The rule of English Law dictates that such
matters can be struck down as against public policy or as in conflict with EU Competition
Law as outlined in Article 101, TFEU. This term may therefore be deemed unreasonable
and against public interest and as such may be rendered unenforceable.
b) If Posh Pickles plc wants to take possession of Ian’s Plaice, a right that Posh Pickles has, Ian can
seek legal protection under the Administration of Justice Act 1970 to petition the courts to
stay possession proceedings. Given that Ian moved upstairs the flat above his business place, he
could bring an action under the Administration Justice Act. Under such a protection, Ian is not
required to pay the entire debt, and he must provide evidence of his ability to pay the arrears.
However, in favour of Posh Pickles plc, the postponement cannot be indefinite. The courts can
also give a suspension to allow a private sale. If Ian has anyone who may have any equitable
rights in the property, they should also be served a notice of an action for possession before
possession can take place. There is no evidence of any other person with equitable rights in the
case, but it would be worthy of investigation if Posh Pickles chooses to sell as any other party
would bind the bonafide purchaser and the world at large.
d) If Posh Pickles exercises its power to sell, after the property is sold and Posh Pickles pays all
costs and charges consistent with the sale, discharges the mortgage and associated interests
and pays any other charge, then any excess money left should go back to Ian, the mortgagor.
It is important to note that Posh Pickles, if they undertake a power of sale, have both a subjective
duty and an objective duty to Ian. In fulfilling, their subjective duty, they must act in good faith
and not in any reckless action against Ian’s interest as per Kennedy v De Trafford [1897] and
without conflict of interest as per Martinson v Clowes [1882]. In responding to their objective
duty, they have to sell the property as if it “were sold on an open market by a willing vendor”,
consistent with Sch. 17, para. 3 (2) of the Housing Act 1985. The property should be taken to
the market as soon as possible (FCA Handboook, MCOB, 13.6 1 R (1), bearing in mind that if
the sale is not carried out correctly, the courts can set the sale aside as per Tse Kwongham v
Wong Chit Sen [1983].

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EXAMINER FEEDBACK
Student mark: 65

Strengths
You dealt with the interest rate reasonably well. There are really two issues here: the interest
being variable; and the minimum of 10% over the standard rate. You dealt with the first very
well. With the second, if you look at Dabrah, it’s not that the lender shouldn’t be compensated
for its high risk but that the lender already has security (i.e. a mortgage over the land) which
could make that 10% unconscionable. But then, we need to define unconscionability.
You did well with the pre-emption right not to confuse it with an option. Kreglinger is the case
but you could have concentrated on the tests with the court clarified in that case.
With the solus tie, has the court interfered with such an arrangement? Or has it declared that in
given circumstances they will be upheld?
Then s.36 AJA. If Ian were to be given a reasonable time to repay his arrears, how long might that
be? And does he have any option in common law or equity to stop possession? You dealt with
s.105 briefly but not inaccurately.

Areas for improvement

You have clearly acquired a good learning and understanding of this area, well done.
To add 'meat' to your argument, see if you can incorporate secondary authority - an opinion
from an article published in a legal journal. That enables you to have a critique of the law as it
stands or the way it is applied and it attracts great credit.
If you do that for all the issues presented, you end up with a logical, authoritative argument that
leads to a clear conclusion - and that's what earns the really high marks.

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