Tenants of mortgagees

This page considers whether or not a tenancy is binding on a lender; and the limited protection given to tenants by statute when it is not.


Whether tenancy binding on the lender

Payments direct to lender

Paratus AMC Limited v Fosuhene

[2013] EWCA Civ 827


An unauthorised tenant was unable to establish that her tenancy was binding on the lender. Although she had made payments direct to the lender, there was nothing to connect those payments with her as the tenant of the property.


A lender (M) advanced funds to a borrower (B) on the security of a first legal charge. The mortgage conditions prohibited B from leasing the property without the consent of M. B defaulted and subsequently let the property to T. The letting was without M’s consent but T paid her “rent” direct to M. M’s agent visited the property and spoke to a child who said his parents were renting the property. M’s solicitors subsequently wrote to “the tenants or occupiers”, asserting that the arrangement they had with the owner did not bind M.

M subsequently commenced proceedings for possession against B and separate proceedings for possession against “persons unknown”.

Initial decisions

The Master made an order for possession and sale against B and subsequently an order for possession against “persons unknown” on the basis that M was not bound by the alleged tenancy. T appealed to the High Court, which dismissed her appeal on the ground that there was no evidence that M had expressly or impliedly consented to T becoming their tenant, or otherwise treating the tenancy as binding. T appealed to the Court of Appeal.


The Court of Appeal dismissed the appeal. Although the claim against T was decided without disclosure or cross-examination, but decided summarily on the documents, there was nothing to connect the payments received by M to the person in possession of the property. When it was paid in cash they had no way of knowing from whom it came. Even if M’s bank statements showed T’s name, this would not have told them that the money was coming from the occupier.

Since T was a trespasser, the court had no power to delay the order for possession for 28 days (Boyland & Son v Rand [2006] EWCA Civ 1860).


It is not uncommon for lenders to find unauthorised tenants in occupation of the property. Whilst the tenancy may be binding as between the borrower and the tenant, it will have no effect as between the lender and the tenant so that once the lender becomes entitled to possession as against the borrower, the tenant has no defence to a claim for possession.

A request for and payment of rent to the lender (Whitaker v Hales (1831) 7 Bing 322), or a lender’s solicitor’s letter to the tenant saying that he should not pay any more rent to his “former landlords” and making new arrangements for payment of rent (Chatsworth Properties v Effiom [1971] 1 All ER 604), or a letter advising the tenant that the terms of his tenancy will be the same as those in the original lease (Stroud Building Society v Delamont [1960] 1 All ER 749) have all been held to be sufficient to create a new tenancy binding on the lender.

Those are, perhaps, clear cases. In the present case, the evidence was much less clear and, critically, there was no evidence to link the payments, which were admittedly received by the lender, to the identity of the occupier.

The tenant in such situation is in a tricky position. If he explicitly identifies himself to the lender, he is at risk of immediate possession proceedings, and his only protection is to seek a short postponement under the Mortgage Repossessions (Protection of Tenants) Act 2010.....


Limited protection for unlawful tenants

Mortgage Repossessions (Protection of Tenants) Act 2010

This Act (which came into force on 1 October 2010) gives limited statutory protection to unauthorised tenants whose landlords are repossessed by their lender. The key points are as follows:

  • The measure applies in standard residential mortgage possession claims in which the property is tenanted under an assured or Rent Act tenancy, where the lender is not bound by the tenancy.
  • The court, on the application of the tenant, is able to postpone the date for delivery of possession for up to two months.
  • If the court has made an order for possession which has not yet been executed, the tenant (if the court has not already postponed the order or if the applicant was not the tenant at the time) may apply to stay or suspend execution of the order for up to two months if the tenant has first asked the lender for an undertaking not to enforce the order.
  • In deciding whether to exercise its powers, the court will have to have regard to the circumstances of the tenant; the nature of any outstanding breach of the tenancy agreement and whether the tenant might reasonably have avoided or remedied the breach.
  • It is possible for the court to make any postponement, stay or suspension conditional upon payments to the lender in respect of the continued occupation of the property.
  • Where an order for possession has been made it will only be possible to execute the order if the lender has given notice at the property and only after the expiry of a prescribed period.

The Act only applies to unauthorised tenancies. It does not therefore apply to buy-to-let mortgages where the tenancy exists with the permission of the lender or other circumstances where the landlord has obtained consent to let. In those circumstances the tenant has a right to remain in possession as against the lender.


Court rules

CPR 55.10 (Possession claims relating to mortgaged residential property) was amended by inserting after CPR 55.10(4) the following new provision:

    “(4A) An unauthorised tenant of residential property may apply to the court for the order for possession to be suspended.”

CCR Order 26, rule 17 (Warrant of possession): There are some minor amendments to rule 17, para (2) and the following paragraph is inserted:

    “(2A) When applying for a warrant of possession of a dwelling-house subject to a mortgage, the claimant must certify that notice has been given in accordance with the Dwelling Houses (Execution of Possession Orders by Mortgagees) Regulations 2010).”

Tenants should be alerted to the risk of repossession either by service of a notice to occupiers prior to a hearing (CPR 55.10(2)), or by the service of a form of prescribed notice prior to execution. The prescribed form of notice is contained in the Schedule to The Dwelling-Houses (Execution of Possession Orders by Mortgagees) Regulations 2010, and the mortgagee cannot execute the warrant until fourteen days after giving the notice.

Form N325 Request for Warrant of Possession of Land requires the mortgagee to certify that notice has been given when it applies for a warrant of possession.



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