When land is compulsorily acquired, section 12(2) frees it from all interests, trusts, restrictions, obligations, contracts, licences, charges and rates — and that includes mortgages. Division 7 of Part III of the Land Act 1996 deals with what happens next.
Section 34(1) — the mortgagee must choose
Where land acquired by compulsory process was, at the date of acquisition, subject to a mortgage, the mortgagee may either (a) claim compensation under Division 2, or (b) by notice to the Minister, waive his rights to compensation.
A mortgagee who claims must state in the claim:
- (a) the amount of principal due under the mortgage at the date of acquisition; and
- (b) the amount of interest, costs and charges due at that date.
Sections 34(3) and (4) — the Minister can force the election
The Minister may, by written notice served on a person who is or may be a mortgagee, require them at their option either to make a claim as mortgagee, or to waive.
If the person fails to make a claim within two months of service of that notice — or such further period as the Minister allows in writing — they shall be deemed to have waived their rights to compensation as mortgagee.
A deemed waiver is as effective as a real one. Lenders holding security over land in an acquisition area should have a system for spotting these notices.
Section 34(5) — the effect on the borrower
Where a mortgagee claims compensation, the acquisition has — to the extent that the compensation payable to the mortgagee is sufficient to satisfy the mortgage debt and the interest, costs and charges due at the date of acquisition — the effect of extinguishing the liability of the mortgagor under the mortgage as from the date of acquisition.
So for the borrower this is genuinely good news, so far as it goes. To the extent the compensation covers the debt, the debt is gone. What it does not do is extinguish any shortfall.
Sections 34(6) and (7) — what waiver does and does not do
- A mortgagee who waives is debarred from claiming or recovering as mortgagee any compensation or other amount from the State.
- But waiver — or failure to claim — does not affect the mortgagee’s rights and remedies against the mortgagor, or in respect of other land included in the mortgage that was not acquired.
If the mortgagee waives, the borrower does not get the benefit of the section 34(5) extinguishment. The lender simply keeps its personal claim against the borrower, and its security over any remaining land. A borrower whose land is being acquired therefore has a real interest in the lender claiming rather than waiving.
Section 33 — time-barred mortgage moneys
For the purposes of Division 7, money is not deemed to have been due to a mortgagee, or secured by the mortgage, at the date of acquisition if the mortgagee’s right to recover it was already barred by a limitation statute at that date — unless the mortgagee had, at that date, a power of sale or other remedy exercisable in relation to the land.
A stale debt cannot be revived by an acquisition.
Section 35 — particulars
Section 35 provides for particulars of mortgages to be given, so that the Minister and the compensation machinery know what security existed at the date of acquisition and in what amounts. Mortgagees should respond to requests for particulars promptly and accurately — the figures given become the basis of the claim.
If you hold or have given a mortgage over land being acquired
- Fix the date of acquisition. Everything — principal, interest, costs, charges — is calculated as at that date.
- Lenders: diarise the two months from any section 34(3) notice, and apply in writing for an extension if more time is needed.
- Borrowers: ask the lender whether it will claim or waive, and put in writing that the section 34(5) extinguishment depends on it claiming.
- Check whether the mortgage covers other land. Waiver leaves the security over the balance intact.
- Both: get the figures agreed early, before they go into a compensation claim.
Sources
- Land Act 1996 — ss 12, 14, 33–35, 39
- Land Registration Act (Chapter 191) — Part VII, mortgages and charges
- Constitution — s 53
Before relying on anything here, read the current text of the Land Act 1996 and check for later amendments. If a decision matters to you, get advice — start with the Office of the Public Solicitor, or find a firm in the law firms directory.