Focus on section 114 of the Law of Property Act 1925 28 July 2025
Focus on section 114 : a key provision with enduring importance
Summary
- Section 114 LPA is concerned with the transfer of mortgages, or charges, over any property, the right to the sums secured by them and the estate in land, if made by deed (save for a limited exception in respect of chattels). But only insofar as the transfer concerns unregistered land.
- For registered land the statutory control of assignments is instead by way of section 27 Land Registration Act 2002 (effectively replacing section 33 of the Land Registration Act 1925) and section 136 LPA. Section 114 has no application to registered land.
- It is a lesser dwelt upon provision, at least in the Senior Courts.
- Section 114 appears in only 9 reported cases, yet it is of critical importance in mortgage law, and repays re-consideration.
- Who can demand the mortgage debt, and who can seek possession?
A limited history
Section 114 of the LPA is a curious thing in that, while it is of significant import in its own realm, that realm has been little traversed by the Courts.
Its own realm: s.114 concerns unregistered land
Section 114(1) provides:
“Transfers of mortgages.
(1) A deed executed by a mortgagee purporting to transfer his mortgage or the benefit thereof shall, unless a contrary intention is therein expressed, and subject to any provisions therein contained, operate to transfer to the transferee—
(a) the right to demand, sue for, recover, and give receipts for, the mortgage money or the unpaid part thereof, and the interest then due, if any, and thenceforth to become due thereon; and
(b) the benefit of all securities for the same, and the benefit of and the right to sue on all covenants with the mortgagee, and the right to exercise all powers of the mortgagee; and
(c) all the estate and interest in the mortgaged property then vested in the mortgagee subject to redemption or cesser, but as to such estate and interest subject to the right of redemption then subsisting.”
To put it baldly, this provision means that: “a deed executed by a mortgagee purporting to transfer his mortgage operates to transfer the right to demand the mortgage money and the benefit of all securities” (per Arden LJ in Meretz Investments NV v ACP Ltd [2007] EWCA Civ 1303).
Section 114 bears some similarity to s.62 LPA in the manner in which it operates. Unless the contrary is specifically stated in the instrument purporting to transfer the benefit of the mortgage, s.114 provides that a deed which purports to transfer the mortgage or benefit of the mortgage has the legal effect of transferring to the purported transferee the rights set out in sub-section (1)(a), (b) and (c), the clear implication being that those rights will be taken to have been transferred even where they are not expressly referred to in the relevant instrument. Thus, like s.62, they provide for a form of shorthand by which the mere transfer of the mortgage or benefit of the mortgage transfers the further rights set out in the section without them being expressly assigned.
Yet, when a mortgage is transferred by deed, those words do not always have the effect that s.114 automatically transfers the right to the mortgage debt to the transferee. The section may have that effect - but it does not for all purposes in mortgage law.
When does it apply?
In short, for unregistered land, as Paragon Finance Plc v Pender [2005] EWCA Civ 760 is authority for the proposition that s.114 does not apply to registered land.
Why is that?
The reasoning in Paragon Finance (in a judgment given by Jonathan Parker LJ, with whom Carnwath and Ward LLJ agreed) was to the effect that to find s.114 applicable to registered land “would produce a fundamental and wholly illogical conflict between” the regimes of unregistered and registered land in respect of the transfer of mortgages.
Accordingly, when the LPA was properly construed, s.33 of the Land Registration Act 1925 (‘LRA 1925’) (which expressly made provision for the transfer of a registered charge being completed only upon registration of the new proprietor of the charge) made separate provision for registered land. Reliance on s.114 was thereby misconstrued.
In that appeal, Mr and Mrs Pender had been defendants in a possession action brought against them by Paragon as chargee over a residential dwelling. The Penders had borrowed £75,000.00 from Paragon to renovate the property.
During the currency of the term, the Penders’ charge had been sold to a special purpose vehicle (“SPV”) in a process labelled “securitisation” under which Paragon retained legal title to the charge, but it had been agreed that the SPV would administer the charges. Upon Paragon suing the Penders, the defendants argued that title to sue vested in the SPV because of the securitisation process.
The question arose: who had title to sue for possession? And what, if any, impact on this did the title to sue for the debt have?
Before both the High Court and the Court of Appeal, counsel for the Penders submitted that the SPV had become an equitable chargee, and was thereby embossed with all the powers and rights exercisable by the chargee under the charge. Further, it was argued that this included the right to sue for possession.
In the High Court, it was observed that, by virtue of s.33 of the LRA, an executed transfer of registered land operates only in equity until it is registered. As such, in order for s.114 to be operative, the SPV required to be registered as proprietor of the legal charge. This had not occurred. For registered land, it was found that s.114 LPA does not have the immediate effect which it takes in unregistered land - rather, it instead takes effect subject to the statutory regime of the LRA.
Before the Court of Appeal, counsel for the Penders submitted that s.114 was intended to protect third parties relying on the register and was not concerned with affecting rights between assignor and assignee, or between mortgagor and mortgagee. Alternatively, it was submitted that the right to sue for possession was not one of the "powers conferred by law on the owner of a legal mortgage" within the meaning of s.34(1).
Counsel for Paragon submitted that the Penders’ suggestion, on the premise that there can be no transfer of legal ownership until registration, that the registered proprietor of a legal charge had no right to claim possession of the charged property was “startling”. Reliance on s.114, it was said, was thereby misplaced.
The Court of Appeal concluded:
“One incident of [Paragon’s] legal ownership-and an essential one at that-is the right to possession of the mortgaged property. I can see no basis upon which it can be contended that an uncompleted agreement to transfer the legal charge to the SPV (that is to say an agreement under which, pending completion, the SPV has no more than an equitable interest in the mortgage) can operate in law to divest Paragon of an essential incident of its legal ownership. In my judgment as a matter of principle the right to possession conferred by the legal charge remains exercisable by Paragon as the legal owner of the legal charge (ie as the registered proprietor of it), notwithstanding that Paragon may have transferred the beneficial ownership of the legal charge to the SPV.”
Now, for some time, there was a possible wrinkle in all of this, which is that the decision on the s.114 point in Paragon Finance was not considering a completed transfer.
Nevertheless, the case was followed and applied in Meretz Investments NV v ACP Ltd [2006] EWHC 74 (Ch) where Lewison J (as he then was) took Paragon Finance as authority for the proposition that s.114 has no application whatsoever to the transfer of a registered charge.
The Court of Appeal upheld Lewison J on this point. The law has since remained unchanged.
Who is entitled to possession and who can claim the debt?
It is now clear that in respect of registered land, where a mortgagee has contracted to transfer the mortgage, but the transfer has not yet been completed by registration (so that the transferee is entitled only in equity), then the transferor is the party who has title to seek possession.
While section 33 LRA 1925, upon which the Paragon decision was partly based, has since been repealed, the effect of section 27 LRA 2002 is much the same: a transfer of a charge over registered land must be completed by registration to have effect in law.
But what of the entitlement to sue for the secured debt? While the registered proprietor of a legal charge has the right to possession, any right to the debt must be specifically assigned. To this one must also add the effect of section 136 LPA, which provides for notice in writing of any assignment of a debt to be given to the borrower in order for the assignment of that debt to take place in law. Section 114 will be of no assistance.
In a case where no express assignment has taken place, a curious situation arises whereby the registered proprietor of the charge can seek possession of a property but without any entitlement to sue for the debt secured by the charge. Such rights to sue will remain with the original lender notwithstanding the transfer of the charge. Where the assignee and assignor are in cahoots no issue arises as the two could act together in bringing a claim against a defaulting borrower. More difficult, however, is the scenario where by the chargee acts alone. Could the borrower in defence to a money claim brought by the registered proprietor of the charge seek to have the claim dismissed on that basis that there is no right to the secured sums? Seemingly yes. Could a borrower, in defence to the possession claim, pray section 36 of the Administration of Justice Act 1970 in aid, even though the sums due are payable to the lender who is not party to the claim? Seemingly yes although one wonders whether the court would require the original chargee to be joined. These questions highlight the fact that without the operation of section 114 LPA, the neatness of the charge and debt moving together is lost.
So where does that leave us?
- Section 114 is a useful and often overlooked section of the LPA which deems certain rights, essentially the security, debt and estate, to have been transferred to a transferee of a mortgage without being expressly specified in the instrument by which the transfer is effected.
- Practitioners should be careful to note, however, that it applies only to unregistered land.
- In the case of registered land, it is imperative that the rights referred to in s.114 and, in particular, the right to sue for the debt, to be expressly assigned.
- It is also important to note that s.114 operates subject to an indication to the contrary in the relevant instrument. It is important, therefore, to look out for any contractual provision which might be said to contradict the effect of s.114 where it would otherwise apply.
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