Categories
Debt Problems | Bankruptcy Property Law

The Misuse of Inhibitions and Cautions to Frustrate Lenders-High Court Cancels Inhibitions on Property

Since the property crash in 2007 some hard pressed property owners, who had judgments registered against them, have used various ploys and ruses to block and thwart the holders of judgment mortgages from selling their property against their wishes.

A recent High Court case concerned this very issue and it is worth taking a look at the decision in ACC Loan Management Limited v Fryday & others. The timeline in this case is critically important and is as follows:

ACC obtained judgment for €1,301,344.44 against William and Vanda Fryday in 2009 and registered this judgment as a judgment mortgage in 2011 on certain property folios of the Frydays. In 2012 ACC sought a court order to the effect that the judgments were “well charged” on the folios in question.

The Frydays had sworn affidavits in December 2012 and January 2014 as part of the legal proceedings and did not make any suggestion or assertion that anybody else had an interest-beneficial or legal-in the property.

Then, in April 2014 and December 2014 the mother (Lavinia) and brother (Richard) of the first defendant (William) registered with the Property Registration Authority two inhibitions on the properties in question. These inhibitions were based on the mother and brother claiming to have an interest in the property and were lodged with the consent of the registered owners (William and Vanda, a married couple) of the property.

ACC had obtained a well charging order and an order for sale of the properties and now sought to have these inhibitions cancelled. Naturally, the Frydays opposed this application. ACC argued that these inhibitions were only registered by the notice parties, Lavinia and Richard, to thwart and prevent the bank from selling the property and to frustrate the bank in enforcing the judgment it had obtained against William and Vanda Fryday.

The Court, having considered the timeline set out above, held that the inhibitions claiming an interest by the Frydays (Lavinia and Richard) were only claimed when the bank went to enforce its judgment and seek the well charging order with a view to sale. The Court ordered the cancellation of the inhibitions as it found that the sole purpose of the inhibition was to prevent the bank from enforcing its well charging order.

Conclusion

The use of lis pendens, cautions and inhibitions by property owners against whom judgment has been obtained is quite common. The problem from the lender’s perspective arises when he wishes to sell and needs to cancel or vacate these burdens on the folio. It can be costly and slow to do so but the registration of such burdens is relatively straightforward with an application to the Property Registration Authority being the route to take, pursuant to the Registration of Title Act 1964.

The chilling effect of an inhibition, caution, or lis pendens is to discourage interest in potential purchasers of the property on which the burden has been registered.

Read the full decision: ACC Loan Management Limited and William Fryday and Vanda Fryday and Lavinia Fryday and Richard Fryday It is a detailed judgment and sets out how and why the Judge arrived at the decision to exercise the Court’s discretion to cancel the inhibitions.

Categories
Property Law Property Purchases and Sales

Commercial Property Investment-4 Vital Things to Consider

Thinking about buying a commercial investment property? There are a number of factors you will need to consider. 

Here are four important ones: 

1. The tenant

The quality of your tenant is critically important because it will determine how sound your rental income stream will be. Having a major retail brand or franchise as a tenant is a huge advantage over having a one man or woman business.

If there is difficulty in collecting the rent you can certainly go to Court and get a Court order for vacant possession and a judgment for the outstanding rent and costs. But this judgment will be of little value if you cannot enforce it and your debtor simply does not have the money to pay the judgment amount. This is a strong possibility with an inexperienced sole trader.

You will also have incurred your own legal costs and you can be sure your solicitor will want to be paid.

So, a weak tenant carries inherent and obvious risks from the outset.

2. The physical condition of the property

The physical condition of the property is worth considering carefully if you want to avoid a property which will require significant expenditure in maintenance or repair and refurbishment. The type of lease in place will determine who is responsible for repairs and maintenance to the building so this would want to be checked before investing.

3. Location

The location of your investment property is vitally important for a number of reasons. Firstly, from the perspective of selling the property on when you are ready. Secondly, if you have to evict the tenant or he does not renew the lease you will have to find another tenant and the location, if good, will make this a much easier task.

On the other hand the business that was carried on may have been one which relied to a large extent on the business and personal contacts and reputation of the tenant. It may be difficult to re-let the premises if it is in a secondary location and is only suitable for a small number of businesses.

4. The legals

You will need to ensure that all legal, planning, and regulatory matters are in order. This involves checking that good title is being offered, the planning and building regulations/building bye-laws are in order, the terms and conditions of the existing lease, and any rates or management company liabilities have been fully discharged and there will be no unpleasant surprises for a buyer of the building.

Conclusion

Buying a commercial investment property is broadly similar to buying a residential investment property. You are more likely, however, to have a sitting tenant with a commercial property and you may be buying a property that is subject to a long commercial lease-for example for 15, 20, or 35 years.

Categories
Debt Problems | Bankruptcy Property Law

Can a Joint Tenancy Be Severed to Protect the Interest of the Judgment Free Joint Owner?

investigation-of-title

What happens if a judgment mortgage is granted against one owner of a property held as a joint tenancy. How is the other owner affected, if at all?

The High Court looked at this question in the case of ADM Mersey PLC v Bergin and Another [2020] IEHC 3, a decision handed down in January, 2020.

In this case property in Kilkenny was jointly owned by a father and son. 

The son had borrowing difficulties and a lender obtained judgment in 2010 against the son and his wife and registered this judgment as a judgment mortgage on the property jointly owned by the son with his father.

In 2013 the father changed his will to leave the land in question to his two grandchildren.

Then the father and son changed the ownership of the land from a joint tenancy to a tenancy in common. The purpose of this move was to ensure the father’s interest in the land could not be attacked by the son’s creditors as both father and son would now have a clear, divided interest in the property with each one owning a certain percentage. 

Joint tenants versus tenants in common

It is important to understand the significant difference between land owned as joint tenants and as tenants in common.

If land is owned in a joint tenancy by two parties and one passes away the land passes automatically to the other joint tenant by reason of the doctrine of survivorship. However, if the land is owned as tenants in common the interest of the deceased owner can go anywhere he chooses. In this case, the father chose to leave it to his grandchildren. 

The father died and his interest in this property then passed, in accordance with his will, to his two grandchildren.

ADM Mersey plc sought to enforce their judgment and they argued that when they registered their judgment mortgage the property was a joint tenancy and the entire property should have passed to the other joint tenant-the son-when the father passed away.

In effect, they were arguing that the purported passing of the father’s interest to the grandchildren should have been ignored as their judgment mortgage was in place first.

High Court

Mr Justice Allen decided there was nothing wrong with the father attempting to put his interest in the land beyond the reach of ADM Mersey plc. 

He held that the judgment mortgage only attached to the son’s interest in the land, the tenant in common interest.

He also held that the judgment registered against the son did not affect the father’s interest in the land, who was a joint tenant at the time of registration of the judgment.

Also, the judgment mortgage did not attach to the lands at Kilkenny but only to the son’s interest in those lands.

The judgment mortgage did not sever the joint tenancy nor did it prevent the father from doing so.

The severing of the joint tenancy by the father and son in 2013 was effective in creating a tenancy in common and ADM Mersey PLC’s judgment mortgage only attached to the son’s interest as a tenant in common. Thus, the grandchildren’s interest was unaffected.

Takeaway

Even if a judgment mortgage is registered against one owner of a property that is held in a joint tenancy that joint tenancy can still be severed and converted to a tenancy in common. This allows the non debt owing owner to put his interest in the property out of reach of the lender who has the judgment against the other owner.

Read the full decision in A.D.M. Mersey PLC v Bergin & anor, delivered on 14th January 2020 in the High Court. 

Categories
Business and Company Law Property Law Start Your Own Business

Agreement for Lease Versus the Lease Itself-What’s the Difference or Purpose?

Are you considering taking a commercial lease and you are being asked to sign an “agreement for lease” first?

Wondering what’s the difference? Or what is the significance, if any? Let’s take a look.

Lease

A lease sets out the terms and conditions under which a lessee will occupy a premises on an exclusive basis. The lease will contain the term, the rent, and other terms by which the lessee will enjoy possession of the premises.

Agreement for lease

An agreement for lease on the other hand is a binding contract to grant a lease in the future.

Sometimes an agreement will only bind one of the parties-for example the lessee may have an option to renew a lease at the expiry of the existing term.

The big difference between an agreement for a lease and the lease is the tenant will have entered into possession and occupation if it is a lease he has executed.

Why enter into an agreement for a lease?

There is a number of reasons, the most common of which is the property cannot be handed over to the lessee yet. This may be where a property is being constructed or it may be where the property is currently occupied by an existing tenant.

Or it may be where significant refurbishment or remedial work, or a costly fitout needs to be carried out on the property before the lessee will enter into occupation. If you were the landlord, you would want some comfort that the money you will spend will not be wasted by your proposed tenant changing his mind.

The agreement for lease is a binding contract, so the change of mind problem should not arise.

An agreement for a lease might also arise where all the terms and conditions of the lease have not yet been agreed or where the proposed lessor has not yet acquired title to the property.

All these circumstances require an agreement for lease as it is not yet possible to grant a lease and hand over vacant possession to the lessee.

Where the reason for an agreement for a lease is where major refurbishment of an existing property is required, or where a building must be constructed, important factors to consider include:

  • Fitout works and defect rectification periods
  • When practical completion will occur
  • What are the handover provisions
  • What warranties will be given
  • Is security required-for example a bond or bank guarantee

You will note, therefore, that an agreement for a lease is similar to a new build of a residential house contract, save for the agreement for lease is between a landlord and tenant.

The terms negotiated and agreed upon in the agreement for a lease should make provision for the completion of the works in a timely and satisfactory manner. If this does not occur there should be compensation to the proposed lessee.

An architect or engineer should also be engaged to check that the proposed work is satisfactory and complies with planning permission and any applicable building or statutory regulations.

Practical completion

When practical completion is arrived at the building should be ready to occupy.

At this point the date of the lease should be agreed, the bank guarantee (if agreed) should be provided by the lessee, any period during which rectifications should be carried out should be used to ensure rectifications are carried out, even though some minor works may still be outstanding.

Categories
Property Law Property Purchases and Sales

Signing a Contract in Trust Where Principal Did Not Exist-Interesting Court of Appeal Decision

Signing contract in trust

The Court of Appeal handed down an interesting decision in this case involving the sale of land.

The facts were that Mr Gibbons was selling real property and Mr Doherty signed the contract for sale in trust and on behalf of a limited company. Mr Gibbons then nominated the beneficiary of the trust and the purchaser as ADT Investments Limited.

ADT Investments Limited was unable to complete the purchase and Mr Gibbons then sued Mr Doherty and ADT Investments Limited for specific performance of the contract. Mr Gibbons argued that as the company was not incorporated at the time of execution of the contract by Mr Doherty he was entitled to sue Mr Doherty in his personal capacity for specific performance.

The High Court refused to agree with Mr Gibbons who then appealed to the Court of Appeal.

The Court of Appeal agreed with the High Court decision and dismissed the appeal.

The Court of Appeal held General Condition 30 of the Law Society General Conditions of Sale, 2001 Edition permits a person to sign a contract in trust or as agent.

And importantly it does not expressly provide that the beneficiary or principal be in existence at the time of the contract. It also observed that that commercial reality sometimes demands that contracts be signed in trust and once the principal is in existence to complete the transaction there is no obvious problem.

You can read the full decision of the court of Appeal here (Gibbons -v- Doherty & anor [2019] IECA 275)