Property securities law changes

In January 2008, the Property Law Act 2007 comes into force. Financiers are advised to review their documentation and practices in light of the new laws.

The Property Law Act 2007 (the new Act) replaces the Property Law Act 1952 (the old Act).

Property affected

Whereas the old Act applied to mortgages over land, the new Act also extends to mortgages over personal property. However, to the extent that the new Act overlaps with the Personal Property Securities Act (the PPSA), the provisions of the PPSA will prevail.

Covenants

The new Act implies a series of covenants into all mortgages entered into on or after 1 January 2008. It is possible to vary, or to explicitly exclude, the covenants.

Priority for further advances

The new Act codifies the existing common law on priorities for further advances under a first mortgage after a second mortgage is entered into. Any doubt as to what constitutes a "further advance" is intended to be removed by section 93 of the new Act. The old Act's "section 80A priority amount" is retained in section 92 of the new Act.

Security over amounts expended for protection and realisation of security

Under the new Act, mortgages will secure amounts advanced by the mortgagee in relation to the protection and realisation of its security. For example, amounts expended in repairing the property, entering into possession etc.

Restriction on acceleration for default

The new Act restricts the rights of a mortgagee to accelerate a debt by reason of a default. Unless the loan is a true "on demand" facility, 20 working days notice must have expired without remedy before the debt can be accelerated.

Duties on power of sale

The new Act clarifies that the duty of a mortgagee to obtain the best price reasonably obtainable at the time of mortgagee sale extends to parties other than the mortgagor (for example, subsequent mortgagees and guarantors).

In addition, mortgagees will now be able to step in as the vendor under an existing agreement for sale and purchase of mortgaged property.

Application of sale proceeds is also now covered specifically, with the new Act requiring payment of any surplus to subsequent equitable mortgagees (including holders of general security agreements extending to land) before payment to the mortgagor.

Action

Financiers are advised to review their documentation and their enforcement practices to ensure compliance with, and proper reference to, the new Act.

If you would like more information on the new Property Law Act, contact Hugh Kettle or Rachel Gowing

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.