Under LRA 2002, the lender will not be bound by the interest of someone who is in occupation provided inquiries are made of that person and the interest not disclosed. Needless to say, this is why lenders have standard documentation that all occupiers must sign (postponing their rights behind those of the lender). But, this can only apply if the lender is aware of the existence of the occupier. Under LRA 2002, if the person’s occupation is not reasonably obvious on an inspection (at the time of the creation of the charge) then the lender will not be bound. But, remember that it is the date of creation of the charge that matters (not the date when the mortgage inspection or valuation was carried out). Having said that, it may be possible for the chargee to argue that the occupier is estopped from launching a claim in priority to the lender, on the basis that the occupier had contemporaneous knowledge of the mortgage (this argument has succeeded in several cases). Moreover, even if the occupier did not know about the remortgage, then provided he or she knew about the original (first) mortgage then they will have been deemed to have consented to the remortgage to the extent of the amount (plus accrued interest) of the first mortgage – although any excess cannot be enforced against that occupier.

One final piece of trust law that can be relevant in these situations is that on overreaching. It will be remembered that a beneficial interest can be overreached if capital money is paid over to two or more trustees. So, if the loan moneys on a remortgage are paid to joint owners, then the receipt of the capital money by those two trustees will mean that the interests of any other beneficiaries will be overreached and the lender will take free of their claims (with the remedy of the other beneficiaries then being against the two trustees).

It is a complex topic. For an excellent introduction see [2007] 199 Property Law Journal 2. © Practical Lawyer