It was previously common practice to create an equitable mortgage over a property by deposit of the land certificate with the lender.
This was a common informal method of creating security. But this method was abolished pursuant to the Registration of Deeds and Title Act 2006 (the 2006 Act). To protect the interests of existing lenders who operated under such security methods, the 2006 Act provided a mechanism allowing lenders to register their liens over the relevant property’s folio in the Land Registry.
In Promontoria (Oyster) DAC v Fox [2022] IEHC 97, the original lender lent monies to the defendant on security of an equitable deposit of the land certificate with the lender. They subsequently registered a lien on the property folio under the 2006 Act and, then lent monies under further loan agreements to the defendant on the basis of the pre-existing registered lien. Promontoria had acquired these loans in a loan purchase and were now arguing that these further loans were validly secured by the existing registered lien. The defendant’s position was that Promontoria could only enforce those debts that were in existence at the time the registered lien was created.
The question of importance posed by the High Court was ‘whether a creditor can rely on a registered lien as a security for future advances to the debtor’ i.e as security for the additional loans advanced after 21 December 2009’. The legislation is silent on that point. Justice Simons indicated that in the absence of an express statutory prescription of the characteristics of a registered lien it is necessary to look at the legislative intent by reference to the overall scheme of the 2006 Act.
It was shown that the fact the security was registered as a lien rather than a charge indicated that the lien was not created with an intention that it would operate the same as a charge – that being the prescribed method for creating security over real property for present and future advances.
The introduction of registered liens under the 2006 Act was designed to protect the debts of those creditors who had registered their security via the method of deposits of land certificates. The registration of land certificates created equitable mortgages (which would have secured both present and future advances) however its conversion in statute to a registered lien extinguished the equitable mortgage and replaced it with a different interest, namely a registered lien via statutory prescription.
Justice Simons also considered obiter the possible position that Promontoria may have argued that the parties intended to create a charge for present and future advances via the deposit of the land certificate. Justice Simons observed that even if that was their intention the driving force of the 2006 Act was to bring an end to the informal mechanics of creating security by deposit of land certificates and moreover a supposed contractual intention cannot override a statutory scheme.
The importance of this decision cannot be underestimated for lenders, loan portfolio purchasers and credit servicing firms. All should assess whether they are relying on registered liens as security over Land Registry Property. Solicitors who have interaction with such security should pay heed to whether further assessments are necessary to confirm whether a debt intended to be secured post-dates the registration of the lien.
About the Authors:
Greg Flanagan is a Partner on the Property Team.
Kevin McCague is a Solicitor on the Property Team.
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