Chapter 24 Self-test questions

. Edward owns Westacres, currently worth £500,000. Frank is proposing to lend Edward £300,000, secured by a mortgage of Westacres. While inspecting Westacres, Frank exclaims 'Wow, what a lovely house. I would not mind living here. If I paid you £10,000, not part of the loan agreement, for an option exercisable at any time in the next 20 years, would you be agreeable?' Edward, who is anxious to get his loan, says 'I think I would.' How should Frank arrange things so that the option is undoubtedly valid?

Add the options to the various terms and conditions of the mortgage.

Agree the option one day, execute the mortgage the following day.

Execute the mortgage one day, agree the option the next, the price on exercising the option being fixed at £500,000.

Execute the mortgage; agree the option three months later, the price on exercise to be agreed between the parties. If they cannot agree, have it fixed by an arbitrator appointed by the president of the Royal Institution of Chartered Surveyors.

. Karesh is the owner of The Dog and Duck public house. He borrows £100,000 from X, and mortgages The Dog and Duck to secure the loan. The mortgage contains a clause stating that he cannot redeem the mortgage for ten years. In what circumstance is this 'postponement of redemption' undoubtedly valid?

Apart from the postponement of redemption, the mortgage is very much 'standard form', with a variable interest rate tied to 'the bank rate'.

X is a small individual investor who wants 'a safe place for my money' for a few years. The interest rate is fixed at 2.5%.

X is a large mortgage company; the interest rate is fixed at 6%.

X is a brewery and the interest rate is 3%. There is a solus agreement (tie clause) obliging Karesh to sell only X's beer.

. Matthew needed £50,000 to modernise his filling station. In 2019, he mortgaged it to Lion Petrols PLC to raise the cash. The mortgage cannot be redeemed for five years. While the mortgage exists, Matthew is 'tied' to selling only Lion petrol. Which of the following rules/doctrines can not be used as an argument that the tie clause is invalid?

That the tie is 'oppressive or unconscionable'.

That the tie is in unreasonable restraint of trade.

That the tie is 'an extortionate credit bargain'.

That the tie itself, or the way it operates, constitutes an 'unfair credit relationship'.

. Which of the following propositions regarding 'collateral advantages' is correct?

The collateral advantage, provided it is neither oppressive nor is an unreasonable restraint of trade, nor an unfair credit relationship, will always continue to be valid after redemption of the mortgage.

A collateral advantage must, in all cases, cease on the redemption of the mortgage.

A collateral advantage must cease on the redemption of the mortgage unless it can be treated as an independent agreement separate from the mortgage.

A collateral advantage is only valid, both before and after redemption, if it can be treated as an independent agreement, separate from the mortgage.

. Giles has just mortgaged Manor Top farm to Eastminster Bank. The statutory power to lease the mortgaged land has not been excluded. Giles remains in control of the farm. The farm includes North, South, East and West Fields. Which of the following leases will not be binding on Eastminster Bank?

A legal lease granted in 2019 for seven years of North Field. The rent charged was about 50% of the market rent of the time.

A legal lease of South Field, granted after the mortgage; Giles charges a 'premium' for the grant of the lease, thus reducing the rent the tenant is willing to pay.

An equitable lease of East Field for five years at what is undoubtedly a full market rent. The lease was agreed after the mortgage.

A legal lease of West Field, granted after the mortgage, which is at the full market rent. The lease commences six months after the grant.

. H and W own a quite substantial house, Westroofs, as tenants in common in equal shares. H's business is in financial difficulties, and its account at the Northminster Bank is heavily overdrawn. The bank is willing to continue the overdraft only if it gets a mortgage of Westroofs. A few days later H calls in with a mortgage deed of Westroofs, already executed by H and W. In what circumstances could it be argued that the bank is not 'put on inquiry', and therefore need not ensure that W gets separate advice?

Where W is H's wife, but W has a successful separate career as manager of a large factory.

Where W is H's brother. They inherited the house from their parents. W has considerable business interests of his own, and has a large share in H's struggling business.

Where W is H's sister; she is a solicitor; she has lived in Westroofs all her life. They inherited the house from their parents.

Where W is H's cohabitee. W works as a bus driver.

. When W is going to be 'surety' for H's loan, and the bank is 'put on enquiry', what sort of advice should the bank ensure that W receives?

Independent advice from a financial advisor.

Independent advice from her solicitor.

Advice from a solicitor appointed by the bank.

Advice by a solicitor appointed by H.

. Which of the following is not required of a solicitor to fulfil his professional obligations to a person (W) who is going to be a 'surety' for the mortgage loan?

Obtain full details of the loan from the bank, including matters which are, in principle, confidential between the bank and the borrower.

Hold a face-to-face meeting with W, making sure that the borrower is not there.

Advise W as to the risks of acting as surety.

As well as he himself telling W of the legal and financial risks, advise W to see an independent financial advisor.

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