Triggering the rules preventing tacking—a rare practical example

Triggering the rules preventing tacking—a rare practical example

When does a lender make a further advance which engages the rules preventing tacking? Ben Valentin, barrister at Fountain Court Chambers, considers the Court of Appeal’s approach to that question in Urban Ventures Ltd v Thomas.

Original news

Urban Ventures Ltd v Thomas and others [2016] EWCA Civ 30, [2016] All ER (D) 28 (Feb)

The Court of Appeal, Civil Division, in dismissing the appellant’s appeal, held that the present was not a case in which ‘tacking’ arose, and the second respondent retained its priority as first chargee in respect of an advance it had made. The second respondent had made loans available to two companies and, as security, obtained a first legal charge over their properties. The appellant made subsequent loans to the companies and obtained second and third legal charges over the properties. The court found that when the second respondent redocumented its original loan and rolled up unpaid interest and fees, that had not constituted a further advance and so the rules against tacking did not apply.

What was the background to the case?

The case concerned lending to two London property companies that in 2006 refinanced their borrowings with the second respondent, which took first charges over the companies’ properties. A second lender, the appellant, advanced money to the companies, with second-ranking security. When the companies became insolvent, the administrators sold the properties and distributed the sale proceeds to the second respondent. The lending was significantly underwater, and there was a deficiency so far as the second respondent was concerned and nothing, therefore, to satisfy the lending advanced by the appellant. Nonetheless, the appellant applied to the Companies Court for declarations that its lending should take priority over that of the second respondent on the thesis that all of the latter’s lending constituted further advances following its re-documentation of the lending in about 2007. The appellant argued that, on

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About the author:

Meet Suzanna:

1. Banking and finance lawyer with experience in real estate finance, trade finance and aviation finance

2. Likes skiing, comedy shows and listening to live music

3. Thinks the law is not for the fainthearted

Suzanna has wide-ranging experience in banking and finance transactions with particular emphasis on advising lenders in the context of real estate finance and trade finance, and advising on ECA supported aviation finance transactions. Suzanna qualified as a solicitor in 2001 with Theodore Goddard (now Addleshaw Goddard LLP) and has since gained experience with Barclays Bank PLC, ECGD and Crédit Agricole CIB before joining LexisNexis.