AIB granted a loan to Richard Finbarr Fitzgerald and the parties entered into a mortgage contract. The 1995 mortgage, registered in the Registry of Deeds, was secured on a flat in Dublin 4 and the bank now sought an order for possession.
However, there was a problem.
Fitzgerald had gone bankrupt in January 2020 but had previously granted a 35 year lease on the flat to Ms Daly in 2002. The question then arose in this case as to whether this lease was void as against the bank and they could go ahead and recover possession, or did this lease snooker the bank and prevent repossession.
The bank were seeking to recover a debt outstanding from a loan granted in 2015.
The bank’s position was that Fitzgerald needed the consent in writing of the lender if he was going to grant a lease on the property, pursuant to the 1995 mortgage which states
“The Mortgagor shall not be entitled without the consent in writing of the Bank to exercise the powers vested in him by section 18 of the said Conveyancing Act of 1881 so long as any moneys shall remain unpaid on this present security.”
It is worth noting that the Land and Conveyancing Law Reform Act 2009 changed the law in this area, specifically section 112 which states:
112.— (1) A mortgagor of land, while in possession, may, as against every other incumbrancer, lease the land with the consent in writing of the mortgagee, which consent shall not be unreasonably withheld.
[CA 1881, s. 18][CA 1911, s. 3]
(2) A lease made without such consent is voidable by a mortgagee who establishes that—
(a) the lessee had actual knowledge of the mortgage at the time of the granting of the lease, and
(b) the granting had prejudiced the mortgagee.
(3) A mortgagee of land while in possession or, after the mortgagee has appointed a receiver and so long as the receiver acts, the receiver, may, as against all prior incumbrancers, if any, and the mortgagor, lease the land provided—
(a) it is for the purpose of—
(i) preserving the value of the land, or
(ii) protection of the mortgagee’s security, or
(iii) raising income to pay interest due under the mortgage or otherwise reduce the debt,
(b) it is otherwise an appropriate use of the land pending its sale, or
(c) the mortgagor consents in writing, or
(d) the court in any action relating to the mortgaged land makes an order permitting such lease.
(4) In this section “ mortgagor” does not include an incumbrancer deriving title from or under the original mortgagor.
(5) The power of leasing conferred by this section applies only to mortgages created after the commencement of this Part.
However, the contractual position between Fitzgerald and the bank, as a consequence of the mortgage entered into between the parties, could not be retrospectively amended by the 2009 act as this act was not applied retrospectively to existing contracts and mortgages.
The High Court held that the 1995 mortgage was not affected by the 2009 act and held that all the authorities led one to the conclusion
“If such prior written consent is not obtained by the mortgagor and the mortgagor proceeds to enter into a lease with a tenant, the lease will be binding on the mortgagor as lessor, but as against the mortgagee, the lease will not be binding.”
The bottom line is that any potential impediment to the realisation of the security must be approved of by the lender. The principles in N17 Electrics Limited have been applied consistently and the onus on proving that a mortgagee had consent to a lease lies with the party seeking to rely upon the terms of the lease.
This lease, therefore, was void as against AIB and an order for possession was granted, with a stay for 6 months to allow obtain new accommodation having regard for the fact that she had lived there for two decades.
Read the full decision in Allied Irish Banks PLC and Richard Finbarr Fitzgerald  IEHC 197.