Leases Ranking after Charges – Legal Office Notice 1 of 2019

Leases Ranking after Charges – Legal Office Notice 1 of 2019
1. INTRODUCTION:
The judgment in George Maloney (Plaintiff) v Paul O’Shea and anor. (Defendants) [2013] IEHC 354 has implications for leases which rank after a registered charge.
2. TRANSFER BY MORTGAGEE IN POSSESSION:
a. Lease burdens ranking after charge
It is possible that the discharge of puisne lease burdens, by virtue of Section 62(10) of the Registration of Title Act 1964, may not in all cases be an intended consequence of a transfer on sale by a mortgagee in possession. This could arise in situations where the purchaser does not intend to occupy the property but rather intends taking subject to and with the benefit of the leases that are generating a rental income. In any case, where a note of postponement of the priority of the charge or a partial discharge has not been lodged or registered, which would protect the Lease, or where the transfer by the mortgagee in possession does not expressly state that the transferee is taking subject to the lease burdens, the following query should be raised with the lodging solicitor before cancelling a lease burden under Section 62(10):
“The Lease burden(s) at entry No(s). rank(s) in priority after the charge in favour of [the transferor] and will be cancelled, pursuant to Section 62(10) of the Registration of Title Act 1964 as amended, on registration of the transfer. Please confirm, if such be the case, that this is the intention of the parties to the transfer.”
b. Notice of Section 62(10) to be inserted on Part 1A of Leasehold Folios:
In view of the issues arising from the judgment in the above cited case of Maloney v O’Shea and anor, the Authority include, in Part 1A of the Leasehold Folio, notice of the operation of Section 62(10), in the event of the exercise of a power of sale by the owner of a prior charge that is registered on the lessor’s Folio.
As and from Monday 30th September 2013, the reference in Part 1A of the Leasehold Folio to the Lease Burden appear on Folios opened from that date as follows:
“This Lease is registered as a burden on folio(s) , entry no. and ranks in the priority set down by Section 74 of the Registration of Title Act 1964 as amended. As between this lease burden and prior charges registered on folio , (if any), the provisions of Section 62(10) of the aforementioned Act apply”.
Where a Leasehold Folio was opened prior to that date, the relevant note should be amended on settling of a subsequent Dealing. ITIRS will prompt this at settling stage.
c. Easements ranking after charge
It may also be the case that it is not intended by mortgagees in possession and their purchasers that puisne easements should fall by virtue of Section 62(10) and that adjoining owners become landlocked or suffer a decrease in the value of their dominant tenement property. In any case where easements appear to be discharged, pursuant to Section 62(10), a similar query to that set out above for leases, suitably amended, should issue. The same approach is to be adopted in relation to puisne estate rights [e.g. in housing developments or industrial estates where mutual rights are granted by the developer and individual transferee’s].

3. LEASE LODGED FOR REGISTRATION AS BURDEN ON CHARGED LANDS:
Another issue, raised by the Maloney v O’Shea case, was the power of the mortgagor to create a Lease, under Section 18 of the Conveyancing Act 1881. Such statutory power may be excluded by the terms of the mortgage, except with the express consent of the mortgagee.
In regard to charges created after 1st December 2009, the relationship of the Lender with the lessor would be governed by Section 112 of the 2009 Act. This provides in respect of mortgages created on or after 1st December 2009, that there is a general power for a mortgagor in possession to lease, subject to the mortgagee’s consent, which shall not be unreasonably withheld. A lease without such consent is voidable by the mortgagee, if the lessee had actual knowledge of the mortgage and granting the lease has prejudiced the mortgagee.
For the avoidance of any doubt, the consent of the owner(s) of a registered charge should be obtained to the registration of Leases of registered land, unless the relevant Lender has joined in the Lease, or a Deed of Postponement or partial discharge is lodged prior to or with the Lease. Consent can by letter from a financial institution on its headed paper or from a practising solicitor acting on behalf of the financial institution.

John Murphy
Deputy Registrar
31 July 2019