Implied Covenants by the Chargor
The Land Act, 2012 provides that the implied covenants in every charge instrument created by a chargor with a chargee bind the chargor—
- To pay the principal money on the day appointed in the charge agreement and to pay interest on any principal money or any part that remains unpaid at the rate and on the days and in the manner specified in charge agreement.
- To pay all rates, charges, rent, taxes and other outgoings that are at all times payable in respect of the charged land.
- To repair and keep in repair all buildings and other improvements upon the charged land or to permit the chargee or chargee’s agent to enter the land and examine the state and condition of such buildings and improvements after a seven days’ notice to the chargor until the charge is discharged.
- To ensure by insurance or any other means that may be prescribed or which are appropriate, that resources will be available to make good any loss or damage caused by fire to any building on the land, and where insurance is taken out, it is done so in the joint names of the chargor and chargee with insurers approved by the chargee and to the full value of all the buildings.
- In the case of a charge of land used for agricultural purposes, to use the land in a sustainable manner in accordance with the principles and any conditions subject to which the land or lease under which the land is held, and in compliance with all written laws and lawful orders applicable to that use of the land.
- Not to lease or sublease the charged land or any part of it for any period longer than a year without the previous consent in writing of the chargee, which consent is not to be unreasonably withheld.
- Not to transfer or assign the land or lease or part of it without the previous consent in writing of the chargee which consent is not be unreasonably withheld.
- In the case of a charge of a lease, during the continuance of the charge, to pay, perform and observe the rent, covenants and conditions contained in or implied by and in the lease contained and implied and on the part of the lessee to be paid, performed and observed and to keep the chargee indemnified against all proceedings, expenses and claims on account of non-payment any part of the rent or part of it or the breach or non-observance of any covenants and conditions referred to above, and, if the lessee has an enforceable right to renew the lease, to renew it.
- If the charge is a second or subsequent charge, that he chargor will pay the interest from time to time accruing on each prior charge when it becomes due and will at the proper time repay the principal money or part of it due on each prior charge at the proper time.
Equity Redemption Charged Land by a Chargee
The Land Act, 2012 forbids the foreclosure of the equity of redemption in charged land by a chargee.A chargee is therefore not entitled to enter into possession of the charged land or a charged lease or to receive the rents and profits of that land or lease by reason that the default has been made in the payment of the principal sum or of any interest or other periodic payment or of any part thereof or in the performance or observance of any agreement expressed or implied in the charge instrument other than in accordance with the provisions of the Land Act, 2012.
The Remedies of a Chargee
When a chargor is in default of any obligation, fails to pay interest or any other periodic payment or any part thereof due under any charge or in the performance or observation of any covenant, express or implied, in any charge, and continues to be default for one month, the chargee is to serve on the chargor a notice, in writing, to pay the money owing or to perform and observe the agreement as the case may be.
The notice is to adequately inform the recipient of the following matters—
- The nature and extent of the default by the chargor.
- Where the default consists of the non-payment of any money due under the charge, the amount that must be paid to rectify the default and the time, being not less than three months, by the end of which the payment in default must have been completed.
- Where the default consists of the failure to perform or observe any covenant, express or implied, in the charge, the thing the chargor must do or desist from doing so as to rectify the default and the time, being not less than two months, by the end of which the default must have been rectified.
- The consequence that if the default is not rectified within the time specified in the notice, the chargee will proceed to exercise any of the remedies provided for under the Land Act, 2012.
- The right of the chargor in respect of certain remedies to apply to the court for relief against those remedies.
In the unfortunate instance that a chargor does not comply within two months after the date of service of the notice the chargee may—
- Sue the chargor for any money due and owing under the charge.
- Appoint a receiver of the income of the charged land.
- Lease the charged land, or if the charge is of a lease, sublease the land.
- Enter into possession of the charged land.
- Sell the charged land.
A charge of land held for customary land or community land is valid if the charge it is done with concurrence of members of the family or community and the chargee may appoint a receiver of the income of the charged land or apply to the court for an order to lease the charged land or if the charge is of a lease, sublease the land or enter into possession of the charged land or sell the charged land to any person or group of persons referred to in the law relating to community land.
Chargee’s Action for Money Secured by Charge.
The Land Act, 2012 provides for the following circumstances in which a chargee may sue for the money secured by the charge:
- Where the chargor is personally bound to repay the money.
- By any cause other than the wrongful act of the chargor or chargee, the security is rendered insufficient and the chargee has given the chargor a reasonable opportunity to provide additional sufficient security and the chargor has failed to provide that additional security.
- Where the chargee is deprived of the whole or part of the security through or in consequence of, a wrongful act or default of the chargor.
Appointment, Powers, Remuneration and Duties of the Receiver the Income of the Charged Land
It is an implied condition in every charge that the chargee has the power to appoint a receiver of the income of the charged land. The chargee is to serve a notice in the prescribed form on the chargor and not proceed with the appointment until a period of thirty days, from the date of the service of that notice, has elapsed.
A chargee is to appoint a receiver, in writing, and sign the instrument of appointment. It is important to note that a receiver may at any time be removed and a new receiver appointed, in writing, by the chargee.
The receiver is deemed to be an agent of the chargor for the purposes for which the receiver is appointed, and the chargor is to be solely responsible for the acts and defaults of the receiver unless the charge instrument provides otherwise. The receiver has the power to demand and recover all the income of which the receiver is appointed by action or otherwise in the name of the chargor and to give effectual receipts for the same.
Furthermore, the receiver is entitled to retain out of any money received all costs, charges and expenses incurred and for a commission at the rate specified in the appointment but not exceeding five per centum of the gross amount of all money received. Where there is no rate so specified at the rate of five per centum or any other rate as the chargor and chargee may agree or if the appointment of a receiver comes before the court, which the court considers fit.
The order of priority that a receiver is to apply for all money received is as follows;
- The payment of all rents, rates, charges, taxes and other outgoings required to be paid in respect of the charged property.
- Keeping down all annual sums or other payments and the interest on all principal sums, having priority to the charge of which the receiver is appointed.
- Payment of the receiver’s commission and expenses.
- Payment of all reasonable expenses incurred in the doing of anything that a receiver is required or entitled to do in respect of the charged land, including but not limited to the payment of any premiums on any insurance policy properly payable under the charge instrument and the costs of undertaking necessary and proper repairs to any buildings comprised in the charged land as directed in writing by the chargee.
- The repayment of any money paid or advanced by the chargee to meet any reasonable expenses together with any interest on any amount so paid or advanced at the rate at which the interest is payable on the principal sum secured by the charge.
- Payment of the interest accruing due in respect of any principal sum secured by the charge.
- Discharge of the principal sum secured by the charge, and payment of the residue, if any, to the chargor or other person entitled to the charged land.
Chargee’s Power of Leasing
A chargee that appoints a receiver has the power to lease the land or lease unless the charge instrument expressly provides to the contrary. A chargee is to serve a notice on the chargor in the prescribed form and not proceed with the granting or execution of that lease until thirty days have elapsed from the service of that notice before granting a lease.
The lease granted by the chargee is to:
- Be made to take effect in possession not later than six months after its date.
- Reserve the best rent that can reasonably be obtained in the circumstances.
- Be for a term not exceeding fifteen years or the length of the term of the charge whichever is the shorter.
- Contain any reasonable terms and conditions, having regard to the interests of the chargor and of any other persons having an interest in the charged land.
- Contain a declaration that the chargee has appointed a receiver, with the date of the appointment.
A lease created by a chargee is not does not bind any person holding it neither does it take priority over any charge that has priority to the charge of the chargee who has granted the lease.
Power of the Chargee to take Possession of the Charged Land
A chargee is to serve on the chargor a notice of intention to enter, in the prescribed form, notifying the chargor that the chargee intends to enter into possession of the whole or a part of the charged land at a date that is at least one month from the date of the service of the notice.
The chargee may exercise the power of entry peaceably and any forcible entry such as entering into and taking physical possession of the land or a part of it peaceably without committing any forcible entry or asserting management or control over the land by serving a notice in the prescribed form requiring any lessee of the chargor or any other owner of the land to pay to the chargee any rent or profits that would otherwise be payable to the chargor. A chargee who has entered into possession may remain in possession and is bound by the covenants set out in the Land Act, 2012.
Withdrawal of Chargee from Possession
A chargee may not sooner than one month after the service of a notice of withdrawal served in the prescribed form on the chargor withdraw from the possession of the charged land.
The chargee is to withdraw from possession of the charged land if—
- A court makes an order directing the chargee to withdraw.
- The chargee appoints a receiver.
- The default t which was the cause of the entry into possession has been rectified through the possession of the chargee.
- The chargee has exercised the power of sale.
- The chargor has discharged all liabilities under the charge.
Chargee’s Power of Sale
When a chargor is in default of the obligations under a charge and remains in default at the expiry of the time provided for the rectification of that default in the notice served on the chargor a chargee may exercise the power to sell the charged land.
Prior to exercising the power to sell the charged land, the chargee is to serve on the chargor a notice to sell in the prescribed form and is not to proceed to complete any contract for the sale of the charged land until at least forty days have elapsed from the date of the service of that notice to sell.
A copy of the notice to sell served is to be served on—
- The Commission, if the charged land is public land.
- The holder of the land out which the lease has been granted, if the charged land is a lease.
- A spouse of the chargor who had given the consent.
- Any lessee and sub lessee of the charged land or of any buildings on the charged land.
- Any person who is a co-owner with the chargor.
- Any other chargee of money secured by a charge on the charged land of whom the chargee proposing to exercise the power of sale has actual notice.
- Any guarantor of the money advanced under the charge.
- Any other person known to have a right to enter on and use the land or the natural resources in, on, or under the charged land by affixing a notice at the property.
Duty of Chargee Exercising Power of Sale
A chargee who exercises a power to sell the charged land, including the exercise of the power to sell in pursuance of an order of a court, owes a duty of care to the chargor, any guarantor of the whole or any part of the sums advanced to the chargor, any chargee under a subsequent charge or under a lien to obtain the best price reasonably obtainable at the time of sale.
The chargee is to before exercising the right of sale; ensure that a forced sale valuation is undertaken by a valuer.
Where the price at which the charged land is sold is twenty-five per centum or below the market value at which comparable interests in land of the same character and quality are being sold in the open market there is a rebuttable presumption that the chargee is in breach of the duty to obtain the best price reasonably obtainable at the time of sale. The chargor whose charged land is being sold for that price may apply to a court for an order that the sale be declared void, but the fact that a plot of charged land is sold by the chargee at an undervalue being less than twenty-five per centum below the market value is not to be taken to mean that the chargee has complied with the above duty. It is not a defence in any proceedings against a chargee for breach of the duty that the chargee was acting as agent of or under a power of attorney from the chargor or any former chargor.
A chargee is not entitled to any compensation or indemnity from the chargor, any former chargor or any guarantor in respect of any liability arising from a breach of the duty to obtain the best price reasonably obtainable at the time of sale.
The sale by a prescribed chargee of any community land occupied by a person is to conform to the law relating to community land save that such a sale does not require any approval from a Community Land Committee.
Powers Incidental to the Power of Sale
When a chargee or a receiver becomes entitled to exercise the power of sale, that sale may be –
- Of the whole part of the charged land.
- Subject to or free of any charge or other encumbrance or charge having priority to the chargee’s charge.
- By way of subdivision or otherwise.
- By private contract at market value.
- Public auction with reserve price.
- For a purchase price payable in one sum or by installments.
Where a sale is to proceed by public auction, it is the duty of the chargee to ensure that the sale is publicly advertised in a manner and form that brings it to the attention of persons likely to be interested in bidding for the charged land and the provisions relating to auctions and tenders for land are followed in respect of that sale.
The sale of the charged land by a chargee in exercise of the power of sale is to be made in the prescribed form and the Registrar is to accept it as sufficient evidence that the power has been duly exercised.
Upon the registration of the land or lease or other interest in land sold and transferred by the chargee the interest of the chargor as described therein passes to and vests in the purchaser free of all liability on account of the charge, or on account of any other charge or encumbrance to which the charge has priority, other than a lease easement to which the chargee had consented in writing.
Purchase by Chargee
A chargee exercising the power of sale may with leave of the Court purchase the property. The court cannot grant leave unless the chargee satisfies it that the sale of the charged land to the chargee is the most advantageous way of selling the land to obtain the best reasonably price.
Where the charged land is to be sold by public auction, the chargee may bid for and purchase the charged land at that public auction provided the bid price for the charged land by the chargee is the greater of the highest price bid for that land at the auction and an amount equal to or higher than the reserve price, if any, put upon the land before the auction, whichever amount is the greater.
When a chargee that has sold charged land to themselves they are to apply to the Registrar to be registered as the lawful owner of the land under a land or lease.
Application of Proceeds of Sale of Charged Land
The purchase money received by a chargee that exercises the power of sale is to be applied in the following order of priority—
- Payment of any rates, rents, taxes, charges or other sums owing and required to be paid on the charged land.
- Discharge of any prior charge or other encumbrance subject to which the sale was made.
- Payment of all costs and reasonable expenses properly incurred and incidental to the sale or any attempted sale.
- Discharge of the sum advanced under the charge or so much of it as remains outstanding, interests, costs and all other money due under the charge.
- Payment of any subsequent charges in order of their priority, and the residue, if any, of the money so received is to be paid to the person who, immediately before the sale, was entitled to discharge the charge.
Right of Chargor to Discharge Charge on Payment of Any Sum Due Any Time Before Sale
The chargor or any other person entitled to discharge the charge may discharge the charge in whole or in part by paying to the chargee all money secured by the charge at the time of payment at any time before the charged land is sold or withdrawn from sale.
The chargee is to deliver to the chargor a discharge of the charge in the prescribed form over the whole or that part of the charged land to which the payment relates as well as all the instruments and documents of title held by the chargee in connection with the charged land.
Land Act, 2012