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#7133 - Servitudes And Security Interests - Property A

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  • Non-possessory interests

    • Profits a prendre

    • Easements

    • Restrictive covenants are not servitudes, but are also non-possessory rights. They restrict the use and occupation of land for the benefit of other land

A servitude is a right to use and enjoy another’s property, not amounting to taking possession.

  • An easement is a right enjoyed by the owner of one piece of land (called the dominant tenement), the exercise of which interferes with the use and occupation of another piece of land (the servient tenement).

  • Exception: legislation creates certain easements in gross – no requirement that it benefit land

  • A positive easement gives a right for something to be done –

  • Eg a right to walk or drive across land

  • A negative easement gives a right to prevent something being done

  • Eg a right to receive light to a defined aperture (restricts the height of buildings on the servient land)

  • Should easements in gross be permitted generally (legislation passed to allow as in NT etc)?

    • Why should a dominant tenement be necessary?

[RG] In its final report (no. 22) on Easements and Covenants (2011), the Victorian Law Reform Commission recommended the abolition of easements by prescription and some types of implied easement, and proposed the creation of a process for the imposition of easements in appropriate circumstances by order of VCAT.

  • Security interest is a property right (of lender/creditor) attached to a debt

  • Land commonly used as security because identifiable, permanent and tends to hold its value

[11.2] Include:

  • Mortgages (what we are mostly concerned with)

    • GL: Ownership security: If you give mortgage to bank, security by ownership (you are giving your title to the land) in general law

    • Charge: a non-possessory right over property/ land as security for an obligation. A mortgage under Torrens system is an example of charge. Only in the event you default can the bank retain possession.

  • Pledges/pawns

    • Possessory security: the borrower does not transfer title but rather possession – a pledge/pawn – you give the pawn broker possession of your good and if you do not pay back the money they can sell your property.

  • Fixed charges

    • Fixed charge: gives the creditor the right to sell the asset on default. CF floating charge

  • Floating charges

    • rather than be attached to a specific asset, relates to the assets of the company as a whole – in the event of a default the floating charge will crystallise and enable the lender to secure possession of the assets

  • Liens

    • possessory lien: entitles someone to retain possession of the property so as to receive payment for a debt. repairer’s lien: can retain possession of a repaired thing until you pay – no right to sell, but there may be a court process to allow them to sell it?

    • equitable lien: equitable right to a charge over debtor’s property without the right to possession. Vendor’s lien: if you enter a K for sale of land and tfr title to the land before you get the full sale proceeds, if the purchaser can’t come up with the full payment you get a vendor’s lien. You can go to court to get an order to have the purchaser discharge the debt

  • Hire-purchase agreements

    • Hire purchase agreement: purchaser attains the right to possess items but ownership only transfers upon the total repayment of the debt.

A security interest enables the lender to enforce the debt against the property secured, often without court action

  • Secured creditors rank in priority to unsecured creditors in relation to the property secured

  • A very common form of security is the mortgage over an estate in land. Borrower (debtor) is mortgagor; lender (creditor/bank/financial institution ) is mortgagee

  • If the borrower defaults, lender can sell the land to recover the debt (up to value of secured property - can sue for any debt remaining as unsecured creditor)

Mortgages v Terms contracts

  • Terms contract - a form of vendor financing in which the purchaser takes possession and pays instalments of purchase price plus interest. It is not until after the final instalment is paid that the transfer of land is handed over to the purchaser.

[RG] A mortgage is only one way by which a purchaser of land can finance the purchase. A purchaser of land may also enter into a terms contract with the vendor under which the purchaser takes possession before all the purchase money is paid. The purchaser pays a substantial deposit and repays the balance of the purchase price and accrued interest in instalments.

[11.3] Term contract: purchaser can take possession of the premises on or shortly after signing the K and paying a deposit, and pays the remaining balance of the purchase price plus interest by instalment. The conveyance or transfer is not executed until the purchaser makes the final payment.

Term contracts create a number of problems for purchasers, particularly where the land is subject to a mortgage at the date of the K and the vendor subsequently defaults, or where the vendor him or herself is a purchaser under a term contract.

Rent to buy: this is a term contract.

Term contract: It is a form of vendor financing in which purchaser takes possession and pays instalments of the purchase price plus interest. It is not until after the final instalment is paid that the transfer of land is handed over to the purchaser.

In a mortgage you have to have a deposit of 10-20% of the value. If you can’t get this together, a term contract may be the answer as you just pay to owner. However term contracts traditionally offer far less protection than mortgages: if you are late on one payment the vendor could kick you out and you would have no regress. This is less so today as there is legislative protection.

  • Was made by deed

  • Required conveyance of the legal title to the mortgagee as consideration for the loan

Obligations and rights of the mortgagee (largely by equity)

  • mortgagee was obliged to reconvey the title to the mortgagor on repayment of the loan

  • mortgagee not able to exercise all the rights of an owner (cannot possess or sell the land before the loan is due)

  • equity considers the interest a security interest only

Obligations and rights of the mortgagor

  • contractual right to redeem if the loan was repaid by the due date (from CL).

    • Right to redeem property if loan paid. This was the only right under the CL. Accordingly if you were late on only one payment you could get kicked out and have no redress.

  • The mortgagor would have an equitable right to redeem the property (by paying off the loan) even if the payment was late, as long as the principal plus interest and costs were paid.

    • Limit to the equitable right to redeem: court can order foreclosure and declare the equitable right to redeem ended. Mortgagee then has an unhampered fee simple.

      • However, if the property was much more valuable than the debt the court would order the sale of the property. The mortgagee would receive the balance of the debt and the mortgagor would take the rest. This ensured foreclosure could not be used oppressively.

  • has an equitable estate called the equity of redemption (in equity)

    • this is a proprietary interest in land

    • consists of the total sum of the mortgagor’s rights in the property (difference between the debt and value of the property)

    • can be alienated/mortgaged etc

      • selling the land is really selling the equity of redemption in such case, as that is all the mortgagor owns to sell

      • can get a second mortgage etc on the equity of redemption but only recognised in equity since the bank owns the GL land

  • All subsequent mortgages during the currency of the first mortgage were only recognised in equity

  • Mortgage not made by deed enforceable as an equitable mortgage if

    • in writing

      • Creation of equitable mortgages without written documentation is now restricted by the National Credit Code: s42

    • Or supported by sufficient acts of part performance (such as deposit of title deeds plus advance of loan money): ANZ v Widin

    • Equity will not grant SP of an agreement to grant a mortgage unless the loan has been advanced by the mortgagee.

      • An equitable mortgage may be brought into existence where a lender advances money and the borrower deposits title deeds with the lender as security, as this...

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Property A
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