COVENANTS BY THE MORTGAGOR

The mortgage should include all covenants on the mortgagor’s part as follows:

1.Punctual payment of interest

2.Insurance

3.Provisions for borrower not to redeem for certain term

4.Consolidation

5.Leasing by the mortgagor

6.Repair

Credit - llbindia.com 

1.PUNCTUAL PAYMENT OF INTEREST

Basically, there must be a covenant that interest must be charged on the money he borrowed. At the legal due date, he will pay the principal and also the interest.

2.INSURANCE

The mortgagee/lender has insurable interest in the property and he may insure. But Sections 23 of the CA and 130 of the PCL restrict the power of the mortgagee to insure, the amount of the cover should not exceed the amount specified in the mortgage deed. Sections 23(3) of the CA and 130(3) of the PCL provides for the application of insurance money. Insurance money should be applied to reinstate the property and parties should state what happens if reinstatement is not possible. In JIA ENTERPRISES LTD. V. BRITISH COMMONWEALTH INSURANCE COMPANY (1962) 1 ALL NLR (PT. 2) 363, the mortgagee wanted to be joined in the action for the insurance money, the court held that they could not be joined.

3.PROVISIONS FOR BORROWER NOT TO REDEEM FOR TERM CERTAIN

When providing for redemption of the mortgage, it should be recalled that the right to redeem cannot be clogged except in the case of company debenture as provided in Section 171 of CAMA. A mortgage cannot be made totally irredeemable and if the right to redeem is for a term certain, the term must not be unduly long, even if there is a corresponding provision preventing the lender from calling in his money. Each case depends on its facts. A term of 10 years was held to be fair in the case of MULTI SERVICE BANKING LTD. V. MERDEN (1979) CH. 84.

SECTION 171

4. CONSOLIDATION

This is the right of a mortgagee who has two or more mortgages on different properties from the same mortgagor to refuse to permit him to redeem one without redeeming the others.This right is not favourable to the mortgagee/lender who should exclude it. It is sufficient if the contrary intention is expressed in any one of the two mortgage deeds.There is no equivalent prevalent provision under the Conveyancing Act, hence the Common Law rule applies in those States governed by that Act.

At Common Law, the principle is that he who seeks equity must do equity and the mortgagor’s right of redemption, being an equitable right, he is not allowed to redeem one property and leave the other.

5.LEASING BY THE MORTGAGOR

Except otherwise provided in the mortgage deed, the mortgagor has the power to lease the property.The covenant is dependent on the right to possession.Therefore, the mortgagee may prohibit leasing by the mortgagor without his consent. Where leasing is prohibited, the mortgagor may, however take in a licencee.

6.REPAIR

There is no statutory obligation on the part of the mortgagor to keep the property in repair, hence, it is important that it is expressly inserted in the mortgage to preserve the value of the property. But where the mortgagee carries out repairs, the cost is added to the loan.

SECTION 172

ATTORNMENT CLAUSES

Sometimes, the mortgage deed contains an Attornment clause by which the mortgagor expressly constitutes himself a tenant of the mortgagee at a nominal rent, the mortgagee being given power to determine the tenancy so created at any time without notice.The clause is of title, if any, value and conveyancers should avoid its use.

To be continued with MORTGAGE BY COMPANIES

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