A mortgagee in possession has wider leasing powers than the mortgagor
A worked RES examination question on mortgages, from our Paper 1 bank — with the rule it turns on, and why each of the four options is right or wrong.
The question
A lender has gone into possession of a mortgaged site after a long default and wishes to put it to some use while it decides what to do. One proposal is a straightforward occupation lease to a plant nursery. The other is a building lease to a contractor who would put up a small block in return for a long term. The mortgage says nothing about leasing.
Which statement is correct?
The answer, and why
Answer: B
The rule. A mortgagee in possession has wider leasing powers than the mortgagor. It may grant an agricultural or occupation lease for a term not exceeding twenty-one years, and a building lease for a term not exceeding ninety-nine years.
Why B is correct. Twenty-one for the occupation lease, ninety-nine for the building lease.
The other options.
- A applies the mortgagor's three-year limit to a mortgagee in possession and then caps the building lease at the occupation figure.
- C gives both the longest term.
- D transposes the two figures, which is the most likely error for a candidate who has learnt that there are two numbers but not which attaches to which.
Exam note. Two variables — who is in possession, and what kind of lease — permuted across the options. The longer term goes with the lease that requires the tenant to build, because building has to be worth the tenant's while.
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Independent study material. Not affiliated with or endorsed by the Council for Estate Agencies. No pass guarantee — for study use only.