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Changes to the Pre-action Protocol for Possession Claims - what do lenders need to know?

The Pre-Action Protocol for Possession Claims was introduced in November 2008 and draws upon the Council of Mortgage Lenders' Code of Guidance and Mortgage Conduct of Business Regulations. Its aim is to encourage lenders to view a possession claim as a last resort and encourage them to work with customers in financial difficulties so that an agreement is reached without the need for court proceedings. Should a claim go to court, lenders need to confirm that they have complied with the Protocol by providing a signed Pre-Action Protocol Checklist to the judge. Failure to comply may lead to the proceedings being stayed and/or have costs and interest consequences for the lender.

Following consultation with stakeholders such as the Council of Mortgage Lenders, a revised Protocol came into effect on 6 April 2015.

What's changed? Authorised tenants

The main focus of the revised Protocol is to discourage lenders from issuing possession claims without first checking whether there is an authorised tenant in occupation of the property. Interestingly, the revised Protocol, and its consultation documents, state that the changes are not intended to apply to buy to let loans. In the absence of a specific definition of "authorised tenant" it appears the scope of the changes is limited to residential mortgages where the lender has authorised the letting of the property. This would appear to be quite a small pool of mortgages in which case the impact of these changes may be modest.

The revised Protocol does not prevent lenders from issuing possession proceedings when an authorised tenant is in occupation. Instead it provides that "the lender should also seek information about whether the property is occupied by an authorised tenant". If there is an authorised tenant in occupation at the time of the hearing the Court will consider whether to:

  • issue further directions for the progression of the proceedings;
  • adjourn the proceedings until the tenant is no longer in authorised occupation of the property; or
  • grant a possession order, but make the order conditional on the tenant's right of occupation. This prevents the lender from enforcing the possession order and getting vacant possession until the tenancy had been determined.

The Pre-action Protocol Checklist and Particulars of Claim, which are used in court proceedings, will be changed to reflect the revised Protocol; this may provide further clarity on the steps the lender has to take to satisfy the Protocol requirements. The updates to these forms have not yet been published in their final form.

Strategies for dealing with authorised tenants

Following the introduction of the revised Protocol, here's a short summary of the options available to lenders:

1. Appointing a receiver

The traditional approach of dealing with an authorised tenant is for the lender to appoint a fixed charge/LPA receiver. The receiver then acts as landlord to the tenant and can collect rent and/or terminate the tenancy depending on their strategy. This may ultimately lead to the receiver handing vacant possession of the property to the lender or, alternatively, selling the property.

2. Investigating the occupancy and issuing possession proceedings

If the lender believes an authorised tenant may be in occupation of the property the lender should take steps to ascertain whether that tenancy remains authorised before issuing proceedings. The nature of the investigations required is not specified in the Protocol but background commentary suggests the extent of the enquiries will be dependant on an individual lender's knowledge and record keeping as to occupation. If the basis of occupation is not apparent from the lender's records and if the customer is unwilling to engage with the lender, it may be necessary for the lender to make its own enquiries; for example by writing to the occupier or instructing an agent to visit the property. The outcome of these enquiries will shape the progression of any mortgage possession proceedings.

If, after taking these steps, the lender hasn't been able to determine who is in occupation, details of the enquiries made will be set out in the court documents at various stages of the possession proceedings. In this situation, providing an authorised tenant does not subsequently participate in the court proceedings, we would expect the court to grant the lender a possession order effective against all occupiers.

In contrast, if an authorised tenant is in occupation, whether this is known before the issue of proceedings or subsequently comes to light before the hearing, the court may impose restrictions on the proceedings to reflect the tenant's occupation. If so, the options then available to the lender include:

  • appointing a receiver;
  • issuing/continuing with a possession claim in anticipation of obtaining a possession order against the customer subject to the tenant's right of occupation. This can be done in the hope that it either motivates the customer to repay the arrears or causes the tenant to voluntarily vacate the property. If the tenant remains in occupation an alternative strategy will be needed for the removal of the tenant.
  • serving a notice to quit on the tenant prior to issuing mortgage possession proceedings or staying existing proceedings until the tenancy has been determined. On the expiry of the notice the tenant will cease being an authorised tenant. This will allow the lender to seek a possession order against all occupants of the property. Care needs to be taken when exercising this option to minimise the risk of the lender taking on the responsibilities of the tenant's landlord.

It is clear that the courts will expect lenders to have made enquiries about the occupation of the property and justify possession proceedings where authorised tenants are likely to be in occupation. Lenders should review their recoveries processes to ensure adequate enquiries are made as to the occupation of the security and that this information is made available to lenders' solicitors for presentation to the courts. We will closely monitor the courts' approach to these new requirements and keep our clients updated to help them hone their strategies. We'll be paying particular attention to what level of investigation is required when trying to ascertain the occupation of the property.

Other changes

The revised Protocol also introduces a requirement to provide the customer prior to the issue of proceedings with information on the current monthly instalments and amounts paid for the last two years. While this goes further than the current MCOB requirements, this information is already provided to the customer by the lender's solicitors on the issue of court proceedings; on this basis it will be necessary to bring forward the provision of this account information to a point prior to the issue of proceedings. It is not clear whether the court rules will be amended in the future to prevent the duplication of information.

In addition, the lender is required consider whether to postpone the possession claim where the customer:

  • has difficulties in respect of affordability and requires time to seek free independent debt advice, particularly if the customer has confirmed they have an appointment with such a debt advisor;
  • has a reasonable expectation of an improvement in their financial circumstances in the immediate future, for example an increase in income due to a new job. The lender should consider this carefully when the customer has provided evidence of their change in circumstances.

We anticipate lenders' will already be meeting these requirements as part of their commitments to treating customers fairly.

When did this happen?

Initially, it was anticipated that the revised Protocol would be put in place in either Q3 or Q4 of 2015. However, unexpectedly the Ministry of Justice brought the Protocol in on Monday 6 April. The final wording of the revised Protocol was not published until the afternoon of 8 April. It is thought that the final implementation of the Protocol was rushed through so that it could be brought in at the same time as updates to other court protocols.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2015. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297.

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