Legal Brief: Hide but don’t seek

A recent case in the High Court tackled two significant areas of risk to bridging lenders and also provided some sensible guidance for inspecting valuers…

In the Credit & Mercantile v Kaymuu Ltd case, a mortgage lender had repossessed the security property but faced competing claims from a beneficial owner and occupant of the property who had not consented to the mortgage, did not have any knowledge of it, and who moved into the property unbeknown to the lender at the date of mortgage advance. The beneficial owner and occupier argued that he was not bound by the mortgage in these circumstances and that his occupational interest should override the interests of the lender.

The Facts

Mr W and Mr S were business partners and friends. They agreed to enter into a property transaction together to purchase a property, in the name of a company controlled by Mr S. Mr W provided the funding. Mr S dealt with the mechanics of the transaction.

The parties agreed that the legal title was to be vested in the company name, but both knew and understood that the beneficial interest in the property was to be Mr W’s. Mr S dealt with the transaction entirely and Mr W took no active role. The property was purchased in May 2010, where soon after completion, Mr W moved into the property.

In or around the same time, Mr S, without the knowledge of his partner, Mr W, took steps to mortgage the property in favour of the lender.

The lender carried out its usual due diligence, including an inspection of the property by its valuer, who (incorrectly) reported the property to be vacant at the date of inspection. In fact, Mr W and his partner had already commenced moving into the property. It was accepted by all sides that Mr W’s occupancy had commenced prior to the actual mortgage date, which was approximately one month after completion of the purchase.

Mr W sought to resist the claims of the lender for its mortgage monies following the realisation of the security, and have his rights to occupy the property prevail over the lender.

The Judgement

In a straightforward and, I think, common-sense application of agency principles, the court held decided that by abstaining from all involvement in the purchase, and in providing to Mr S the means of representing himself to third parties as the beneficial owner with full authority to sell, mortgage, or otherwise deal with the property, the beneficial owner is bound by the lender’s charge.

In arriving at that decision, the Court took into account that the lender had innocently entered into the mortgage transaction, and had neither actual nor constructive knowledge of the beneficial owner’s interest.

For the beneficial owner to establish priority of claim, he was required to have brought his interest to the knowledge of the lender. The court noted he had opportunity to do so when the valuer arrived to inspect the property. He could have made his interest clear to the valuer (but did not). He could have found out the contact details of the valuer’s lender principals and have contacted them directly – but, again, did not.


The case is interesting, in that it highlights how an occupier’s claim can be defeated when the occupier has given others the means of representing themselves as the beneficial owner of the property, with full authority to deal as owner with the lender.

The occupier’s interest, predicated in land law, in this case was defeated due to ordinary agency principles. His associate was deemed to be acting with full authority of the occupier who was also the beneficial owner.

In Kaymuu, the court was of the view that the lender’s surveyor was not particularly careful about concluding that the property was unoccupied when he visited the property. For this reason, Kaymuu is also a necessary reminder of the significance of the valuer’s inspection in the mortgage transaction. Valuation is the primary purpose, but a more careful and diligent enquiry and reporting of occupation, as in this case, would have saved the lender from costly and contested court action.


Attributed to Brightstone Law LLP

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