The following Property practice note provides comprehensive and up to date legal information covering:
Mortgages and charges are distinct forms of security. A mortgage can be legal or equitable and involves the transfer of a legal or beneficial interest in the secured property.
A charge simply creates rights over the secured property without any associated transfer of title and is always equitable. The chargee has a right to have the property appropriated to meet the debt in the event of default.
This distinction is sometimes blurred because under section 85 of the Law of Property Act 1925, a mortgage over land must be granted by way of a charge by deed expressed to be by way of legal mortgage. Such a charge is often referred to as a ‘legal charge’ which is part of the reason why the terms ‘charge’ and ‘mortgage’ tend to be used interchangeably.
See Practice Notes: Legal mortgages and legal charges, Types of security and How is a mortgage created?
Whether a transaction gives rise to an equitable mortgage is primarily determined by the intentions of the parties. However, if:
on a true construction of the relevant documents
in the light of any admissible evidence of surrounding circumstances
the parties have entered into a particular type of security arrangement, the fact that they may not have realised the legal effect of their actions is irrelevant. They are presumed to have intended the consequences of
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