Statutory Charges and Sales by Mortgagees

Some public bodies have robustly contended that statutory charges such as those that arise from unpaid taxes and derelict sites levies take priority over prior mortgages. This has led to lost sales and reduced prices for mortgagees. A recent Supreme Court ruling has clarified the position at least as regards derelict sites levies. This will be welcomed by secured lenders.

Statutory charges can arise as a result of non-payment of certain taxes and payments due to public bodies including commercial rates, local property tax and derelict sites levies. Recently, some public bodies have robustly asserted that such charges take priority over prior mortgages or charges. This resulted in the loss of some sales by mortgagees and price reductions in others.

The issue regarding derelict sites levies has been clarified by a recent Supreme Court judgment.

Mortgages, charges and priority

The traditional position was that a sale by a mortgagee or charge holder left the purchaser with good title freed from all charges created or registered after the mortgage (commonly referred to as overreaching). Therefore, a purchaser did not need to be concerned about any subsequent charges.

Moreover, as regards registered land, the mirror principle applies. This means that a purchaser should be able to see from the register who owns the land. That said, there are some burdens specified in the Registration of Title Act 1964 as affecting land without registration, the most notable of which are rights of persons in actual occupation of the land.

The Supreme Court decision

The Supreme Court decided[1] that derelict sites levies, which had become a charge on land by virtue of section 24 of the Derelict Sites Act 1990, can be overreached by a mortgagee selling the land.

Separately, the Court concluded that a charge under the Derelict Sites Act is registrable. Accordingly, such a charge cannot affect a bona fide purchaser of registered land or obtain any priority until registered.

Other statutory charges

Some more recent statutes have provided for the creation of statutory charges, including:

• section 32 of the Local Government Reform Act 2014 – commercial rates;
• section 123 of the Finance (Local Property Tax) Act 2012; and
• section 47 of the Capital Acquisitions Tax Act 1976 – tax due on a gift or inheritance.

Some of these set out more clearly than the Derelict Sites Act how the charge can continue to bind the land. However, none of them expressly makes provision to disapply the power of overreaching by the mortgagee. The Supreme Court explicitly stated that it would not express a conclusion as regards whether any of these statutory charges affect the power to overreach.

Pending further clarification by the courts, consideration should be given to whether or not it is possible to overreach such charges on a case-by-case basis.

The mortgagee in possession trap

Separately, Ms Justice Baker referred to a trap that a solicitor drafting a contract for sale can fall into. There is no need for a mortgagee to be a mortgagee in possession to overreach subsequent charges. However, if a mortgagee enters into possession, by virtue of being in possession, it may become liable to make certain payments that are payable by an ‘occupier’. Accordingly, the safer approach is for the mortgagee to sell simply as mortgagee.

Is it possible to create statutory charges that affect mortgagees?

Interestingly, Mr Justice Murray, gave a strong signal that he would expect any future law seeking to reverse the Supreme Court decision should require the local authority to engage with secured creditors directly in relation to derelict sites levies.

Comment

This decision will be welcomed by secured lenders as it:

• affords absolute clarity as regards charges under the Derelict Sites Act 1990; and
• provides guidance to the approach the courts are likely to take regarding other statutory charges.

It is to be hoped that it will make negotiations with purchasers in mortgagee sales simpler and increase the prices obtainable.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

[1] [2024] IESC14, separate judgments by Baker J. and Murray J.