VI. Properties with mortgages
When a property has been mortgaged to a bank/financial institution, the landlord must obtain the prior consent from the relevant bank/financial institution before letting out the property. If the landlord fails to obtain such consent, both the landlord and tenant may be adversely affected.
I received a letter from a bank claiming to be the mortgagee of the property that I am renting. The bank claimed that the tenancy document between my landlord and me was made without its consent and asked me to move out of the property. What can I do?
All properly drafted mortgages contain a clause that requires the mortgagor (the landlord) to seek consent from the mortgagee (the bank) before the mortgagor lets the property to another party (the tenant).
If the landlord complies with this requirement, then the bank has notice of the tenant’s presence and cannot evict the tenant even if the bank eventually exercises its power of repossession under the mortgage, such as when the mortgagor fails to make mortgage repayment to the bank. The bank, under such circumstances, will become the landlord and is entitled to receive rent from the tenant.
If the landlord lets the property to a tenant without obtaining the bank's consent, then the landlord is in breach of the mortgage and the property is liable to be repossessed by the bank. When the bank eventually exercises its power of repossession under the mortgage, which may arise from causes other than the aforesaid breach, the tenant is actually a trespasser on the property and the bank is perfectly entitled to ask the tenant to leave even if the tenant is prepared to pay the rent.
As a mortgage will invariably be registered with the Lands Registry, the tenant is deemed to have notice of the mortgage and its terms. If the bank exercises its power of repossession under the mortgage, then the tenant cannot use ignorance as an excuse. Therefore, before entering into a tenancy document, a tenant should always conduct a land search at the Land Registry to check whether the property is mortgaged. If the answer is affirmative, then the tenant must ensure that the landlord has obtained consent from the mortgagee.