Legal
Mortgage
co.uk

Chess Pieces
wig and book pic
Changes
Archive

Limitation

LIMITATION ACT 1980

Many claims are subject to statutory limitation periods - time limits within which the claim must be commenced or else it will become statute-barred.

In relation to claims for possession:

Section 15 Limitation Act 1980 provides as follows:
(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.

(Section 38(7) provides that a right of action to recover land shall include a right to enter into possession of the land, and therefore extends to mortgage possession claims by a lender)

Section 17 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.

In relation to money claims:
 
The time limit for an action founded on simple contract (ie. a contract otherwise than by deed) is six years : Section 5 Limitation Act 1980

The time limit for an action "upon a specialty" is 12 years: Section 8 Limitation Act 1980. A mortgage deed being under seal is a specialty (Aiken v Stewart Wrightson Members Agency Ltd [1995] 1 WLR 1281).

There are however special provisions that apply to mortgages in Section 20:

20 (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 the 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.

However, in relation to both sets of provisions, it is important to remember that during the currency of a current period of limitation, time can start running again by reason of an acknowledgement or part payment in accordance with the provisions in sections 29-31 Limitation Act 1980, and it is possible for a period of limitation to be postponed in accordance with the provisions in section 32 Limitation Act 1980.

IS IT POSSIBLE FOR A LENDER TO LOSE THE RIGHT TO CLAIM POSSESSION?

Technically yes, although it would take an unusual set of circumstances in order to do so.

An example can be seen in the case 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 extinguishe 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.

Remember the importance of checking in each case when and in what circumstances the lender's right to possession actually arises. This in turn depends on the mortgage terms and conditions.

HOW ABOUT MONEY CLAIMS. CAN THE LENDER LOSE THE RIGHT TO CLAIM PRINCIPAL AND INTEREST?

Yes.

The problem typically arises following sale of the mortgaged property leaving what is called a mortgage shortfall debt. There used to be considerable confusion amongst lenders as to how long they had to sue for the shortfall. It was commonly thought that a mortgage usually being by deed, once the property is sold leaving a shortfall debt, the lender had a further 12 years in which to claim the outstanding balance.

In two important cases, the courts have now confirmed that this is not the case: Bristol & West Plc v Bartlett [2002] EWCA Civ 1181 and West Bromwich Building Society v Wilkinson [2005] 1 WLR 2303.

Mortgage lenders have 12 years to sue for outstanding principal under s 20(1) Limitation Act 1980 and six years to sue for outstanding interest under s 20(5). Time begins to run from the date on which the right to receive the money accrues, and the fact that the property is sold and the mortgage discharged does not disapply section 20. In practice, time begins to run from the date of the last payment (bearing in mind that each part-payment starts time running afresh).

Thus, 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 rwelve years from the date of the last payment.

ACKNOWLEDGMENTS AND WITHOUT PREJUDICE COMMUNICATIONS WITH THE LENDER

We have already briefly referred to the provisions in sections 29-31 Limitation Act 1980 about acknowledgments.

In simple terms, where a right of action has accrued to a lender to recover any debt due, and the borrower acknowledges the debt in writing, the right of action shall be treated as having accrued on the date of the acknowledgment, and not before: section 29(5) Limitation Act 1980.

In the common situation where a mortgage lender has repossessed and sold a mortgaged property leaving a shortfall debt, it often happens that the lender will communicate with the borrower with a view to reaching an agreement over payment of the outstanding balance, or at least to elicit information about the borrower's means - usually by submitting an income and expenditure form and inviting proposals.

If the borrower enters into written communication with the lender in which, as a matter of construction, he acknowledges the debt, then it will extend the time available to the lender to sue to recover the outstanding sums. Care therefore needs to be taken.

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

1985 - Mortgage entered into
1988-1990 - Arrears accrued on the mortgage
1990 - Last payment made
1992 - Lender repossesses the property
1994 - Lender sells at a shortfall
1994-2002 - Occasional correspondence from the lender to Mr & Mrs R seeking repayment proposals
2005 - Lender sues for the shortfall debt

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 correspondendce 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 decipher. 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

As for part payments, it is worth noting that mortgage interest paid by the Benefits Agency to a lender could constitute payment of interest by an agent of the borrower and so amount to part payment for the purposes of reviving a claim which might otherwise be statute-barred, even if the payment was not expressly authorised by the borrower: Bradford & Bingley Plc v Cutler [2008] EWCA Civ 74

LIMITATION AND CHARGING ORDERS