Legal Brief: Clear out or clear off

The fight over what happens to goods, furniture and chattels left in repossessed properties

Default is almost an inevitability for secured lenders. Repossession is much rarer than most would believe, rarer in fact than the business media may present. But it does happen.

When lenders do exercise the power of sale, most assume that the process, the sale of security, is the be-all and end-all of the lender’s duty.

But that’s not always the case, especially in instances where vacant possession is obtained but is not vacant in the true sense of the word.

This month the Court of Appeal was tasked with resolving the claims of disgruntled borrowers, seeking damages for unlawful conversion of chattels, i.e. the misappropriation and destruction of goods left by them at a property upon its repossession.

In Da Rocha-Afodu & Another v Mortgage Express, the lender took possession in 2006. Prior to the eviction date, the lender served notice on its borrowers of its intention, setting out details of the eviction date and time, the requirement to deliver  vacant possession, and warning the borrowers to make arrangements to remove their belongings prior to the repossession date. The borrowers did not do so, returning on three occasions, post eviction, to continue to remove some but not all belongings.

The legal duty.

A lender being left with goods over which it holds no charge finds itself in the position of involuntary bailee. The duty in such a position is to act in a way which is right and reasonable.

The contractual position

The contractual position is determined by the agreement made between lender and borrower; this will be contained in the terms and conditions. The lender’s mortgage terms provided that on repossession, the lender might take steps to remove and store goods, and either dispose of the goods or return the goods to the borrowers or rightful owner but only if the goods were not removed within seven days after the lender had written to the borrower at their new address, or if no address provided, then within 7 days after taking of possession.

The facts

During the post eviction period, the lender placed notice at the property requiring the removal of all items within a fixed period of 14 days; and warning that the consequences of failing to remove would be destruction by the lender.

When the borrowers returned again, they found a property empty of their goods, which had been destroyed by the lender’s sub agents.

The borrower argued that the right to dispose existed only if all the triggers contained in the contractual term had been satisfied. Failure to so satisfy, said the borrowers, would mean the lender fell on the wrong side being right and reasonable.

What the Court of Appeal said

The Court applied a purposive interpretation to the wording of the lender’s terms and conditions. Taking the text literally, as the borrower asked the court to do, would lead to absurd results. For example if the property was in negative equity, the lender would be required to pay out of its own pocket off-site storage, but left unable to recoup the costs.

The true purpose of the terms and conditions, was to afford the borrower time to make arrangements for removal, and nothing more. In this case seven days.

On these facts the lender was entitled to dispose as requisite notice has been given. The contractual term was the starting point, the court then had to consider what had been right and reasonable.

The lender had granted the borrower’s appointments; it had also discharged that duty.

Lessons to learn

Check your terms and conditions.

Make your terms clear, simple and transparent.

Act in a proportionate,  fair and reasonable fashion, and instruct your subcontractors carefully

Provide your borrowers with notice of your intentions prior to eviction, and after.

By Jonathan Newman Senior Partner of Brightstone Law LLP

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