Limitation

Limitation

This part looks at the statutory time limits in the Limitation Act 1980
for claiming possession or money under the mortgage
Information Sheet

What does limitation mean?

The expression ‘limitation’ is used to refer to a statutory time limit within which certain claims must be brought before they become ‘time barred’ or ‘statute barred’. The main limitation periods are set out in the Limitation Act 1980, although there are a number of other specific statutes and rules which impose time limits. There is no general limitation period at common law, although certain claims in equity may be barred by what is called ‘laches’ or ‘acquiescence’ (delay).



In the context of mortgage cases, all the relevant limitation periods are to be found in the Limitation Act 1980.

Claims for possession

Section 15 of the Limitation Act 1980 provides (so far as relevant) as follows:



     15 Time limit for actions to recover land

           (1) No action shall be brought by any person to recover any land after the expiration of twelve years from the date on which the right of action accrued to him...



          (6) Part I of Schedule 1 to this Act contains provisions for determining the date of accrual of rights of action to recover land in the cases there mentioned.



A right of action to recover land includes a right to enter into possession of the land, and therefore extends to mortgage possession claims by a lender (s 38(7)). However, under Schedule 1, para 8(1), no right of action to recover land is treated as accruing unless the land is in possession of some person in whose favour the period of limitation can run (called ‘adverse possession’).



What does this mean?

A mortgage lender has 12 years to claim possession of mortgaged property from the date on which its right of action accrued, provided someone is in adverse possession of the property.



When does the right of action accrue?

It depends on the terms of the mortgage contract. Technically, a lender’s right to possession arises immediately on execution of the mortgage but most mortgages postpone the right to possession (and other rights of enforcement) until a particular event of default, typically two months’ arrears of instalments, or other default under the mortgage conditions, but in each case it is important to check.



What happens after the limitation period has expired?

Section 17 of the Limitation Act 1980 provides that after the expiration of the period prescribed by this Act for any person to bring an action to recover land (including a redemption action) the title of that person to the land shall be extinguished. 



Although this provision has been disapplied generally in relation to registered land, it still applies in respect of an action by a chargee to recover land: s 96(1) Land Registration Act 2002.



Can a lender lose the right to claim possession?

Yes, although it would take an unusual set of circumstances for it to happen. Take the example of National Westminster Bank plc v Ashe [2008] EWCA Civ 55. The case involved a Nat West third party all-monies legal charge which, as was previously pointed out in National Westminster Bank Plc v Skelton [1993] 1 WLR 72, did not actually contain any contractual provision to postpone the lender's right to take possession. Consequently, absent any part-payment or acknowledgment which would have the effect of starting time running afresh, the right to possession arose on completion of the mortgage.



The unusual feature of the case was that after formal demand had been made of the joint borrowers, one of them had been adjudged bankrupt and the bank delayed taking any further action for more than 12 years. The trustee in bankruptcy subsequently sought a declaration that the bank's charge had been discharged.



The bank argued that it could not lose its right to recover possession unless the borrowers had been in 'adverse possession' against the bank for more than 12 years, whereas it was implicit that the borrowers had been left in possession with the consent of the bank. The Court of Appeal disagreed. There was no implied consent. The bank had simply done nothing. The right to recover possession was therefore statute barred under s 15 Limitation Act 1980 and the security was extinguished under s 17. The bank had two obvious solutions: (1) sue for possession in time, or (2) procure a part-payment or acknowledgment to start time running afresh. 


Claims for money

Although there are a number of possible provisions in the Limitation Act 1980 which apply to claims for money, there are special time limits in claims by mortgage lenders in section 20:

20 Time limit for actions to recover money secured by a mortgage or charge or to recover proceeds of the sale of land

     (1) No action shall be brought to recover—
          (a) any principal sum of money secured by a mortgage or other charge on property (whether real or personal)…
     after the expiration of twelve years from the date on which the right to receive the money accrued.

     (5) Subject to subsections (6) and (7) below, no action to recover arrears of interest payable in respect of any sum of money secured by a mortgage or other charge         or payable in respect of proceeds of the sale of land, or to recover damages in respect of such arrears shall be brought after the expiration of six years from the             date on which the interest became due.

So, a claim for principal has to be brought within 12 years of the date on which the right to receive the money accrued, and a claim for arrears of interest has to be brought within 6 years from the date on which the interest became due.

When does the money become due?
Again, it depends on the terms of the mortgage contract, but it typically arises on the first default in payment or other event of default. 

What if there are subsequent payments (or written acknowledgements)?
The date on which the right of action accrues to claim principal and interest may be subject to repeated extensions where the person liable or accountable for the claim acknowledges the claim or makes any payment in respect of it under s 29(5) within a current period of limitation (s 29(7)), and this can extend to payments made by an agent (s 30(2)(a)). See the special provisions about acknowledgements and part payments in sections 29-31 and for an example of a payment by an agent (Benefits Agency paying mortgage interest) see Bradford & Bingley Plc v Cutler [2008] EWCA Civ 74

In most mortgage cases, time starts running on the first default in payment, but starts again with each subsequent payment, or if there is a written acknowledgement of the mortgage. Significantly, the statutory provisions in s 20 remain the operative provisions even if the mortgage comes to an end for e.g. on the sale of the mortgaged property (West Bromwich Building Society v Wilkinson [2005] 1 WLR 2303, approving Bristol & West Plc v Bartlett [2003] 1 WLR 284 and Scottish Equitable Plc v Thompson [2003] HLR 690). 

To take the example of West Bromwich Building Society v Wilkinson:

   26.10.98    Legal Charge entered into
   Jan 89        Arrears started accruing
   25.07.89    Order for possession
   31.07.89    Date of last mortgage payment
   09.10.89    Society takes possession of the property
   14.11.90    Society sells the property leaving a shortfall debt of £23,921.92
   12.11.02    Society issues a claim form for the recovery of the shortfall debt plus interest

The Society argued that it had commenced proceedings just inside twelve years from the date of sale. The House of Lords held that the claim was out of time. It should have been commenced within twelve years from the date of the last payment. 
 

Acknowledgements and 'without prejudice' communications with the lender

If the borrower acknowledges the mortgage debt in writing, time will start running again. This often happens after a mortgage lender has repossessed and sold a mortgaged property leaving a shortfall debt, where the mortgage lender communicates with the borrower with a view to reaching an agreement over payment of the outstanding balance, or seeks to obtain information about the borrower's means - usually by submitting an income and expenditure form and inviting proposals. If the borrower writes back and acknowledges the debt, or if he fills in and returns an income and expenditure form, it may well extend the time for the lender to claim the money back. Care therefore needs to be taken. 

In Bradford & Bingley Plc v Rashid [2006] 1 WLR 2066 for example:

     1985             Mortgage entered into
     1988             Arrears started accruing
     3 Jan 91        Date of last mortgage payment 
     1991             Lender takes possession of the property
     1991             Lender sells the property leaving a shortfall debt of £15,583.00
     1994-2002   Occasional correspondence between lender and Mr & Mrs R about repayment proposals
     17 June 03   Lender issues claim for recovery of shortfall debt plus interest

The primary limitation period had expired since the lender's claim was commenced more than 12 years after the last payment. However, the issue was whether the correspondence entered into during the primary limitation period had the effect of starting time running afresh.

Unfortunately, the correspondence was not marked 'Without Prejudice' and much of the legal argument concerned the admissibility of the correspondence - it being argued that correspondence which was genuinely entered into to compromise a debt claim should be deemed to be impliedly without prejudice and should therefore be inadmissible. The House of Lords disagreed, although their reasoning is difficult to follow. The general view was that the correspondence admitted the debt and only sought to negotiate the terms for payment so that it could not be regarded as impliedly without prejudice. Since it plainly acknowledged the debt, it was an effective acknowledgment and had the effect of starting time running afresh. The claim was therefore brought in time.

For further, more recent consideration by the House of Lords of 'without prejudice' communications, see Ofulue v Bossert [2009] UKHL 16 


Limitation and Charging Orders

The enforcement of a charging order obtained by a judgment debtor is not subject to any statutory limitation period: Yorkshire Bank Finance Ltd v Mulhall [2008] EWCA Civ 1156

However, the enforcement of a charging order obtained by a trustee in bankruptcy pursuant to s 313 Insolvency Act 1986 is subject to s 20 Limitation Act 1980: Gotham v Doodes [2006] EWCA Civ 1080 

The rationale is that a judgment creditor has already pursued and obtained an order from the court, complying with any applicable limitation period.

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