Retention of emcumbrances urged
A proposed new Land Transfer Act drafted by the Law Commission does not contain any provisions recognising or permitting the registration of encumbrances, but the New Zealand Law Society believes these should be retained.
In a submission to Land Information New Zealand on the Land Transfer Act Review, the Society says there are a number of reasons for keeping encumbrances in any new legislation.
In some circumstances there is a need to charge land to secure a rent charge, annuity, or other periodic payment, and encumbrances were designed for that purpose, the submission says.
“A very common example of periodic payments which encumbrances protect is the obligation for individual owners in a housing development to join a residents’ society and to pay subscriptions and other dues to the society. To support these arrangements, encumbrances are registered against the titles to the individual properties in the development requiring the owners to join the relevant society and to pay all subscriptions and other dues which become payable to the society.”
The Society says it would like to see encumbrances retained and without any requirement that their principal purpose must be to secure the obligation to pay money.
It says that if – in spite of its case for retention – encumbrances are discontinued, the Bill should contain a provision recognising existing encumbrances, there should be a provision dealing with the discharge and modification of an encumbrance, and the inclusion of some saving provision where a party has previously entered into a contractual obligation to create an encumbrance.
The Society’s submission also notes its concern that the definition of “mortgage” in the Bill includes the requirement that the principal purpose must be to secure the performance of an obligation to pay money. The definition also differs from that in the Property Law Act.
“This requirement would introduce an undesirable element of uncertainty,” it says. Difficulties which could arise include a lack of clarity as to whether a charge given in support of a guarantee would constitute a mortgage. Whether or not the principal purpose of a particular mortgage relates to an obligation to pay money could also be a complex question of fact and of law, which sometimes could only be resolved after extensive inquiry.
Another clause would impose an obligation on a mortgagee to establish the identity of a mortgagor before registration of the mortgage, and this also raised concerns.