Publications & Insights New judgment on Receivers and Leases created without mortgage consent
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New judgment on Receivers and Leases created without mortgage consent

Friday, 27 June 2014

New judgment on Receivers and Leases created without mortgage consent

ByrneWallace successfully acted for Aiden Murphy, of Crowe Horwath, a statutory receiver appointed by NAMA, in the above case where Mr. Justice Peart gave judgment on 22 May in Mr. Murphy's favour in relation to an interlocutory injunction application for possession of two adjoining investment properties. The Judgment will be of further assistance to receivers and mortgagees in resisting so called "sham lease" cases.

In this case, the mortgage in question contained the usual negative pledge clause restricting the borrowers' ability to grant leases save with the mortgagee's prior written consent.  Mrs. Hooton maintained that the Bank was fully on notice of her lease (from the borrowers - her husband and son) and that, as she had paid rent directly into her the borrowers' loan account the bank should be considered to have accepted the lease and therefore be bound by it. Ultimately, on review of recent case law on the point (including the judgments of Ms. Justice Dunne in Fennell and ACC Bank plc -v- N17 Electrics Limited (In Liquidation), and Ms. Justice Laffoy in McCann -v- Morrissey and others, cases  in which ByrneWallace also successfully represented the plaintiff receivers and banks), Mr. Justice Peart determined that the bank had not consented to or acquiesced in the lease and was therefore entitled to regard the tenant as a trespasser and could seek to have her evicted and recover possession.

The case is likely to be of assistance on two points:

  1. Judge Peart determined that there are only very limited circumstances where a lease, entered into without the bank's prior written consent will be binding on the bank noting that "where it is sought to imply by its conduct that the bank has acquiesced in the lease or given up its entitlement to the protection [in the negative pledge clause], then the facts must be clear so that an intention to give up that protection must be clearly made out".
  2. The Judge also held that a landowner(or in this case a receiver) whose title was not disputed was, in the ordinary course, entitled to an injunction to restrain the trespass of an alleged tenant unless the alleged tenant could satisfy the court that she has an "arguable case" that her occupation did not constitute a trespass. Only if such an arguable case had been established by the tenant, should the court go on to consider the "Campus Oil principles" usually applied in injunction applications and in particular questions as to the balance of convenience and the adequacy of damages as a remedy. This development is likely to be of assistance to receivers and banks because it shifts the onus onto a tenant to establish that they have an "arguable defence which goes beyond mere assertion".

The case clarifies the extent of the acquiescence required before a bank will be bound by a lease entered into without its prior written consent. It also assists banks/ receivers in shifting the onus onto purported tenants to establish that they have an arguable defence to the bank's/ receiver's claim.

For further information contact  or Eoin Mullowney of our Insolvency and Corporate Restructuring Department.