The new Property Law Act 2007 (Act) will come into force on 1 January 2008, replacing the Property Law Act 1952 (1952 Act) and other outdated legislation.
The Act will affect, amongst other areas, a number of aspects of mortgages over land and goods, even though much of the law relating to goods is already contained in the Personal Properties Securities Act 1999 (PPSA). These changes will be relevant to both security documentation and enforcement procedures.
The new provisions relating to mortgages apply to all mortgages, whether coming into operation before, on or after 1 January 2008 (subject to any provisions to the contrary).Under the Act, a mortgage includes any charge over property for securing the payment of amounts or the performance of obligations, any registered mortgage, and any mortgage arising under a mortgage debenture. A 'mortgage debenture' means an instrument creating a charge on the property of a body corporate that comprises all, or substantially all, of the assets of the body corporate. 'Property' is broadly defined under the Act as meaning all real and personal property, tangible or intangible.
Key provisions include:
- A discharge of mortgage will no longer automatically clear the debt. Instead, the Act provides only that the property is discharged from the mortgage. The issue of the effect of the discharge on the debt will be governed by general law.
- Confirmation that a mortgage secures, in priority to any subsequent mortgage, all amounts reasonably paid or advanced by the mortgagee in relation to the protection and realisation of the security.
- The abolishment of the ability to tack on further advances to a mortgage in priority to subsequent mortgages, except as provided for in the Act (which includes where the mortgage provides for financial accommodation up to a stated priority limit).
- Covenants implied in mortgages over goods (except inventory) entered into on or after 1 January 2008. These include provisions relating to payment of principal and interest, default provisions, powers of sale, discharge, and the mortgagor's liability for costs. The provisions will be implied into every mortgage unless a contrary intention is expressed in the mortgage.
- The right of the mortgagor or other person entitled to redeem the mortgage (such as a subsequent mortgagee) to apply to the Court for an order directing a sale of the property. This may apply for example where the first mortgagee is delaying in selling the property and a subsequent mortgagee considers the property should be sold immediately.
- The requirement of a mortgagee to give not less than 60 working days notice to the mortgagor before calling up the principal amount where a mortgage over property for a fixed term has expired and the mortgagee has accepted interest for a period of three months or more after the expiry date. This carries forward the substance of section 90 of the 1952 Act, except the notice has altered the three months to 60 working days.
- Changes to the default notices. Sections 119 to 121 will replace the corresponding provisions of section 92 of the 1952 Act. Changes include: an extended definition of 'default' in respect of which a default notice must be served and have expired unremedied (if it can be remedied), before payment can be accelerated; a change to the period for remedying a default notice to 20 working days (from the current one month or 28 days); the cost of issue of the default notice can be included in the payment required to remedy the default; a copy of the default notice must be served on a wider range of parties; and an express provision making a mortgagee liable in damages for any loss arising from the failure to serve a copy of the default notice on all persons entitled to receive it.
- A receiver appointed under a mortgage debenture can be appointed without notice.
- The law regarding the entry into possession of land by a mortgagee has been restated and extended, for example mortgagees now have an obligation to ensure that the property is adequately insured if this can be done out of available income from the property.
- Powers have been added to allow a mortgagee more flexibility under mortgagee sales. For example, mortgagees can adopt an agreement for sale and purchase previously entered into by the mortgagor, pay off prior mortgages to enable a sale unencumbered by prior mortgages, and apply to the Court for directions concerning the sale.
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