THE INSTITUTE OF LEGAL STUDIES

PROPERTY LAW

FORMATIVE ASSESSMENT QUESTION: MORTGAGES

Q. Some years ago when Ian purchased his takeaway café, Ian’s Plaice, he had difficulty
in finding a bank willing to lend him the money he needed. Eventually, he persuaded
Posh Pickles plc to lend him 90% of the purchase price. Posh Pickles insisted on the
loan being secured by way of legal mortgage over the title to the café. The mortgage it
agreed with Ian contained the following terms:

(i) The rate of interest payable will vary from time to time but will never be less than
10% above the Bank of China’s standard interest rate.
(ii) Posh Pickles plc will have a right of pre-emption to purchase the separate storage
shed in the backyard of Ian’s Plaice at any time during a period of five years after
redemption of the mortgage.
(iii) Ian will buy all his pickles from Posh Pickles plc at the market price for the
duration of the loan.

Ian moved into the upstairs flat above Ian’s Plaice, and initially his business was a great
success. However, after a rival café opened in the same street, Ian started to lose
money. He fell into arrears with his monthly mortgage repayments to Posh Pickles. To
boost his income he took an evening job driving taxis.

Advise Ian:

(a) whether the terms of the mortgage are enforceable;

(b) what, if any, legal protection he has in the event that Posh Pickles wants to take
possession of Ian’s Plaice; and
(c) about his entitlement to the proceeds of sale if Posh Pickles decides to exercise its
power to sell Ian’s Plaice.