CREATION OF LEGAL MORTGAGE

The location of the property determines the mode of creation and the law(s) applicable. The country is divided into three jurisdictions, namely –

1) The Conveyancing Act, 1881 (CA) States - Under the Conveyancing Act, we have two Methods/modes of creating a legal mortgage:

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a. By assignment of the unexpired residue of the mortgagor’s leasehold interest with a proviso for ceaser or reassignment upon redemption: One major feature of this in that the mortgagor transfers the entire unexpired residue of his leasehold interest to the mortgagee; there is no reversionary interest in the mortgagor, hence in the event of default, the mortgagee can pass the mortgagor’s entire interest to a purchaser without any problems. Again, even though there is no privity of contract between the Governor/Head-lessor and the mortgagee, there is privity of estate; the mortgagee is therefore bound to observe and perform all restrictive covenants that run with the land. This though creates some difficulty/problems.

b) Sub-demise of the unexpired residue less few days with a proviso for ceaser

upon redemption– Unlike in assignment, the mortgagor here has a reversionary interest in the mortgage property. The main advantages of this mode are:

i) there is neither privity of contract nor privity of estate between the Governor/head-lessor and the mortgagee;

ii) there is uniformity , as this mode is applicable under the CA as well as under the PCL.. This makes it attractive to banks.

2) Property & Coveyancing Law (PCL) States: - Under the PCL, there are two methods/modes of creating a legal mortgage:

a) Sub demise for a term of years absolute, less at least one day than the term vested in the mortgagor and subject to provision for ceaser on redemption– the same rules as explained earlier apply here, except that under the PCL, there is no need for the drafting devices to ensure conveyance of the totality of the mortgagor’s interest in the property. The law already makes provisions for them. See section 112, PCL.

b) A charge by Deed expressed to be by way of legal mortgage– this charge confers in the mortgagee all the powers and privileges of a legal mortgagee, even though it creates no legal interest.

Advantages:

i) since no interest is passed to the mortgagee, it is no breach of the covenant against sub-letting. See section 22, Land Use Act

ii) it is shorter and simpler to create. See Samuel v. Jarrah (1904)AC 323, at 274, and

iii) it is easily discharged by a statutory receipt.

IV) this mode is most appropriate where the mortgagor is charging several properties. If the mortgages were by assignment/sub-demise, each of the properties would have to be conveyed by a separate instrument.

One obstacle with this mode is that statutory receipt is not a registrable instrument, with

the effect that at the discharge of the mortgage (the creation of which is registrable), the

mortgage can still be found on the Register.

3) Creation Of Legal Mortgage Under The Registration Of Title Law, Lagos: - This law regulates creation of mortgage in the Registration District of Lagos. There is only one method of creating mortgage under this Law, and that is by a Charge using Form 5. See section 21, RTL. 

To be continued with DISTINCTION BETWEEN LEGAL MORTGAGE CREATED BY ASSIGNMENT AND LEGAL MORTGAGE CREATED BY SUB-DEMISE

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