Stretching it

What might once have been regarded as pretty run-of-the-mill work in the life of a district judge '“ a possession list '“ can these days present some interesting challenges.

Views often vary, but perhaps the greatest challenge for some creative thought is presented by the credit crunch and its impact on mortgaged properties. Although it is becoming increasingly clear that many responsible lenders are, sensibly, sitting back and agreeing modest repayment proposals from mortgagors facing what they obviously hope to be temporary difficulties (rather than having repossessed properties on their books which they will find difficult to offload), many mortgagees are still pursuing arrears through the courts.

The starting point is, of course, section 36 of the Administration of Justice Act (AJA) 1970 and section 8 AJA 1973. The court may adjourn the proceedings or, having given judgment, stay or suspend the execution of the judgment or postpone the date for delivery of possession provided it is likely that the arrears can be repaid within a reasonable period. In the case of an all monies charge, it has to be satisfied that all the outstanding debt can be so paid.

What is a 'reasonable period'? It could be the remaining term of the mortgage (see C&G v Norgan [1995] EWCA Civ 11). But what if a mortgagor can only offer a very small contribution towards arrears at the present time that does not even satisfy Norgan? Can the court assist through a period of temporary difficulty? The answer, I think, in practice is that many courts will do so by using the device of listing the matter for a review in six or 12 months and taking a longer term, 'holistic' view of what may constitute a reasonable period. I do, however, accept that this may be stretching the interpretation of section 36 '“ so no indignant letters, please!

Negative equity

Further, with the fall in property prices, there is an inevitable increase in the number of properties which approach, or are already in, negative equity. In theory, that does not prevent a court exercising its powers under section 36, although I believe it will be less likely to be satisfied if it should do so in a negative equity situation. So, a mortgagor will need some pretty firm proposals backed up, I suggest, by hard evidence of ability to make payments towards the arrears.

But what then of the typical scenario where a mortgagor comes along and asks for time to sell the property himself? There are conflicting decisions and mortgagees' agents will quote ad nauseam the decision in Mortgage Funding v Steele (unreported, 10 April 1996) urging the court to allow the mortgagee to take over the sale. But, although mortgagees continue to turn a deaf ear, district judges quite rightly counter that, referring to Target Homes v Clothier [1994] 1 All ER 439 where the Court of Appeal held that for the mortgagor to conduct the sale of the property himself will often be an effective and appropriate approach even at possession order stage provided a serious intent to sell is shown and the likely proceeds of sale will clear the mortgage in full.

However, what if the property is in negative equity? That was the case in Palk v Mortgage Services Funding PLC [1993] 2 All ER 481 when the mortgagors' application for an order for sale under section 91(2) of the Law of Property Act 1925 was successful. Such orders, though possible, will, however, be the exception rather than the rule. No doubt a determining factor in Palk was that the rental income which would be achieved if a sale was postponed to achieve a better price was significantly less than the interest that would be saved by selling the house immediately.

Secure and assured tenancies

The other current buzz topic relates to the rented sector. Section 299 and schedule 11 of the Housing and Regeneration Act 2008 came into force on 20 May 2009. It provides that secure and assured tenancies will not end until possession is given up. This means that no new 'tolerated trespassers' can be created after 20 May. The difficulties with this in relation to secure tenancies had been highlighted by Harlow DC v Hall [2006] EWCA Civ 156 and, following Bristol City Council v Hassan [2006] EWCA Civ 656, the 'postponed' possession order came to be used, often also being requested in respect of assured tenancies. Such an order required a landlord to apply to fix the date for possession following default under the order.

Then the House of Lords in Knowsley Housing Trust v White [2008] UKHL 70 held that there was no difference in this respect between assured and secure tenancies. Did this sound the death-knell for postponed possession orders? I make it clear that the court still has power to make both suspended and postponed orders. The Department for Communities and Local Government guidance does not recommend a standard order. It points out the pros and cons of both types of order and, if anything, favours postponed orders. No consensus has yet emerged and maybe never will. Some judges now favour a return to suspended orders for both secure and assured tenancies. Others, myself included, will continue to make postponed possession orders, where appropriate. Where there is, literally, nowhere else for a local authority tenant to go, that extra layer of protection afforded by a postponed order may very often be thought to be appropriate.