What Is a Charge, and How Does It Differ From a Mortgage?

Part VII of the Land Registration Act is headed “Mortgages and Charges”, and it treats the two together throughout. The distinction is in what is being secured.

Section 62 — the two instruments

Section 61 — why Part VII says “creditor” and “debtor”

Section 61 defines, for Part VII:

• “creditor” — a mortgagee or chargee;
• “debtor” — a mortgagor or chargor;
• “purchaser” — a purchaser under a sale authorised by section 68;
• and a reference to “secured money” is a reference to money secured by a mortgage or charge.

That is why the operative sections speak of creditors and debtors: they apply to both instruments without repetition. When reading sections 67 to 77, read “creditor” as covering a chargee.

Section 63 — both charge, neither transfers

A mortgage or charge (a) charges the estate or interest specified with the money, interest, annuity or rent charge intended to be secured; and (b) does not operate as a transfer.

So under either instrument the borrower or chargor remains the registered proprietor, and the security is recorded as an encumbrance notified on the folio — one of the matters a buyer takes subject to under section 33(1)(b).

Section 72 — securing periodical payments

This is where the charge does its distinctive work. An obligation to pay someone a sum periodically — rather than to repay a capital advance — is exactly what section 62(2) contemplates, and section 72 supplies the machinery for expressing the instalments.

The remedies are identical

Because Part VII speaks of creditors and debtors, a chargee has the same five remedies as a mortgagee:

1. Notice and sale — ss 67 and 68: one month’s default, written notice, a further month, then sale. The periods may be extended or reduced by the instrument under section 73.
2. Entry into possession by receiving the rents and profits — s 74(1)(a). But note section 76: a creditor of a leasehold estate who enters into possession becomes liable to the lessor for the rent and the covenants, to the same extent as the lessee.
3. Distraint on the occupier or tenant after 21 days’ arrears and written application — s 75, subject to the tenant’s protections in subsections (2) and (3).
4. Ejectment — s 74(1)(c), available before or after any other remedy.
5. Foreclosure of the right to redeem — s 74(3), by proceedings in the Court.

Sale proceeds are applied in the order set by section 68(6) — expenses, prior registered securities, the creditor, subsequent registered securities, and finally the debtor. Priority among registered securities follows the Register under section 24.

A different thing entirely: statutory charges

Practical points

1. Use the right instrument. Securing a loan is a mortgage; securing an annuity or periodical sum is a charge.
2. Express the payment terms fully where instalments are involved — section 72(2) requires it.
3. Check for a section 73 variation of the notice periods before assuming the one-month-plus-one-month timetable.
4. Register it — an unregistered security is not on the folio and does not bind a later registered proprietor who is not affected by notice.
5. Discharge it when it ends — section 77. Payment does not clear the title.
6. For a State lease, remember the security is over a leasehold interest that can be forfeited — and that section 122(4) of the Land Act entitles a registered chargee to notice.