Are CHL and Fleet’s mortgage terms prohibiting transfer of beneficial interest enforceable?

by Mark Alexander

8:38 PM, 10th August 2017, 9 years ago 3

Categories:

Landlord News Landlord Tax Planning

Over the last 18 months I have had to point out to many of my consultancy clients that CHL “Capital Homeloans” and Fleet Mortgages are the only lenders we are aware of which specifically prohibits the transfer of beneficial interest in their mortgage T&C’s.

This can cause a bit of a headache when it comes to tax planning strategies which rely on the use of Declarations of Trust.

I always make this clear to clients who have and point out that whilst the Declaration of Trust is completely invisible to anybody unless they declare it, the risk is that if a lender with such conditions in their T&C’s was to find out that beneficial interest had been transferred, technically, they would be in default. However, there is no history of any mortgage lenders having ever called a loan in on this basis. Nor has there ever been a Court case where a lender has been granted possession or appointed LPA receivers for a breach of such conditions. Given that all conveyancing solicitors have at some point implemented Declarations of Trust you have to wonder why this is?

This also makes me wonder whether CHL and Fleet mortgage conditions prohibiting the transfer of beneficial interest are legally enforceable?

What business is it of a mortgage lender who gets the benefit of capital appreciation and rental profits if it has no effect on their security whatsoever?

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Mark Shine

Member Since July 2015 - Comments: 438

10:25 AM, 11th January 2018, About 8 years ago

Hi Mark

I have a CHL mortgage. Are you able to specify which clause is the one you are referring to as I couldn’t see it in mine. Although I’m probably not looking hard enough!

However I also have one TMW whose mortgage conditions state:

‘11.1 On any of the following events the security constituted by the mortgage shall become immediately enforceable without further notice to you. We shall cease to be under any further commitment to you to make any advance and the debt shall immediately become due and payable without the necessity on our part of making any demand for payment and the provisions of the mortgage regarding enforcement of the security shall apply:

… (q) any change is made in the legal or beneficial ownership of all or any of your or any guarantor’s shares or there is any change of control of you or any guarantor without our previous written approval. – in addition where appropriate any event referred to in this clause shall be deemed to also refer to a similar event in accordance with the laws of any other jurisdiction.’

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Mark Smith (Barrister-At-Law) Read Full Bio

Member Since November 2013 - Comments: 252 - Articles: 10

10:45 AM, 11th January 2018, About 8 years ago

The TMW clause relates to where the borrower is a company not an individual.
The CHL clauses I have seen prohibit dealings with the beneficial interest without the consent of the lender. This type of clause is rarely encountered elsewhere, simply because it is the legal estate that the security bites on, not the beneficial interest

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Crossed_Swords

Member Since April 2021 - Comments: 189

11:20 AM, 29th September 2022, About 4 years ago

Case law favours the beneficial owner over the bank if the legal owner defaults:
House of Lords in Williams & Glyn’s Bank Ltd v Boland [1981] AC 487, Lloyds Bank Plc v Rosset [1991] 1 AC 107; Midland Bank plc v Cooke [1995] 4 All ER 562 and many others.

It’s why sitting tenants are now sometimes being asked to sign as well

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