## Introduction

The power of sale is a lender’s right to sell mortgaged property when the borrower is in default. It usually appears as an express clause in the mortgage deed and, for mortgages by deed, also arises by statute under the Law of Property Act 1925. In practice, it allows a mortgagee to recover the secured debt by selling the property without first obtaining a court order, provided the contractual and statutory conditions are met.

This guide explains when the power arises, how it can be used, the duties owed when selling, and what borrowers and guarantors can do. It also brings together the leading cases that shape how courts supervise sales to ensure proper process and fair pricing.

## What You'll Learn

- When a power of sale exists under the mortgage deed and under the Law of Property Act 1925 (ss.101 and 103)
- Triggers for exercising the power, including default, interest arrears, and other breaches
- What a valid notice should cover and typical timeframes before sale
- The mortgagee’s duties when selling: good faith and taking reasonable steps to obtain the proper price
- How courts may intervene (e.g., ordering a sale under s.91 LPA 1925 or managing possession under the Administration of Justice Act 1970)
- Duties relating to receivership and property management
- How sales to connected parties are treated and the effect on buyers’ title
- Practical steps for lenders, borrowers, and guarantors

## Core Concepts

### Key terms

- Mortgagor: the borrower who gives the security
- Mortgagee: the lender who takes the security
- Default: breach of an obligation, commonly missed payments
- Redemption: the mortgagor’s right to clear the debt and have the security released
- Equity of redemption: the continuing right to redeem until the lender enters into a binding contract to sell (or completes a sale)

### Express and statutory sources

- Express power: Most modern mortgage deeds contain a clear power of sale clause. The deed will set out triggers (events of default), any notice requirements, methods of sale, and how proceeds are applied.
- Statutory power: For a mortgage made by deed, s.101 LPA 1925 implies a power of sale. It becomes exercisable only when s.103 LPA 1925 conditions are met, unless the deed validly varies those conditions.

### When the power becomes exercisable

Under s.103 LPA 1925, the statutory power is exercisable if:

- Three months have elapsed after service of a notice requiring payment of the principal, and the default continues; or
- Interest is in arrears for at least two months; or
- There is a breach of another provision in the mortgage deed.

Express clauses often define events of default and may set shorter or longer periods, but lenders must still follow the deed and any applicable statutory rules. In residential cases, lenders commonly seek possession first to sell with vacant possession, but the power of sale does not, in itself, require a court order.

### Notice and timing

- Content: A notice should clearly state the breach, the amount required, how and by when it must be paid, and the lender’s intention to sell if the breach is not remedied.
- Clarity: Minor errors may not invalidate a notice if a reasonable recipient would understand what is required and by when, but lenders should be careful to follow the deed and any statutory wording.
- Timing: Typical contractual notice periods range from 28 days to 3 months. If the lender relies on s.103 LPA 1925, the statutory periods apply.

Horsham Properties Group Ltd v Clark [2008] confirmed that a lender may sell under the power of sale without first obtaining a possession order, though many lenders still issue possession proceedings to secure vacant property and manage risk.

### Duties when exercising the power

A mortgagee must:

- Act in good faith
- Take reasonable care to obtain the proper price at the time of sale
- Select the method and timing of sale, but not deliberately depress the price
- Market the property appropriately and disclose material features affecting value (e.g., planning permissions)

Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971] remains the leading authority: the standard is to take reasonable steps to achieve the true market value at the time, not the very best theoretical price. The mortgagee is not required to wait for perfect market conditions.

Silven Properties Ltd v Royal Bank of Scotland plc [2004] confirms there is no duty to improve the property or spend money to increase its value. The duty is to take reasonable steps to realise the property for a proper price, not to undertake development or enhancement.

### Receivers and management

Where a receiver is appointed with powers of management:

- Medforth v Blake [2000]: a receiver must exercise powers with reasonable skill and diligence, aiming to run the business in a commercially sensible way and not needlessly waste value.
- The duty to manage does not extend to investing capital to improve the property (Silven), but it does include sensible steps to preserve and realise value.

### Effect of sale and distribution of proceeds

- Buyer’s title: A buyer from a mortgagee acting under a valid power generally takes good title even if the lender commits a breach of duty; the remedy is usually damages against the lender rather than setting aside the sale.
- Connected sales: Sales to connected parties attract close scrutiny. They are not automatically void, but the lender must show good faith and a proper price.
- Order of payments: Sale proceeds are applied to (1) the costs of sale, (2) the selling mortgagee’s debt, (3) subsequent mortgages in order of priority, and (4) any surplus to the mortgagor.

## Key Examples or Case Studies

- Cuckmere Brick Co Ltd v Mutual Finance Ltd [1971]
  - Lesson: Lenders must take reasonable care to obtain the proper market price at the time of sale. Failure to advertise planning permission that adds value breached this duty.
  - Use: Obtain appropriate valuations and ensure marketing materials cover all value-adding features.

- Palk v Mortgage Services Funding plc [1993]
  - Lesson: Under s.91 LPA 1925, the court can order a sale at the mortgagor’s request where it is just, even with negative equity. Lenders should not delay a sale to speculate at the borrower’s expense.
  - Use: Consider early sale where continued accrual of interest worsens the position for all parties.

- Medforth v Blake [2000]
  - Lesson: A receiver with management powers owes a duty to manage with reasonable skill and diligence.
  - Use: Receivers should maintain records, review operations, and make commercially sensible decisions to preserve income.

- Silven Properties Ltd v Royal Bank of Scotland plc [2004]
  - Lesson: No duty to improve the property (e.g., obtaining planning permission or spending capital) prior to sale. The focus is on a proper sale process.
  - Use: Market the property in its existing state unless modest, cost-effective steps are clearly justified.

- Standard Chartered Bank Ltd v Walker [1992]
  - Lesson: Duties when selling extend to guarantors. A negligent sale (e.g., failure to seek the best price) can expose the lender to liability.
  - Use: Apply the same care for price and process as you would for the borrower’s interests.

- Horsham Properties Group Ltd v Clark [2008]
  - Lesson: A lender may complete a sale without a court order where the power of sale is exercisable. Human Rights Act arguments failed in this context.
  - Use: While a possession order is not a prerequisite to sale, many lenders still obtain one to manage risk and access.

- Farrar v Farrars Ltd (1888)
  - Lesson: A sale to a company connected to the mortgagee is not automatically invalid, but good faith and a proper price must be shown.
  - Use: Take extra care with valuations and marketing when selling to connected entities.

## Practical Applications

For lenders

- Check your power
  - Confirm an express power of sale exists in the deed. If relying on statute, confirm the mortgage is by deed and that s.103 LPA 1925 conditions are met.
- Verify the trigger
  - Identify the event of default (e.g., arrears, breach of covenant) and calculate the sums due (principal, interest, costs).
- Serve a compliant notice
  - Follow the deed’s service provisions. State the breach, sums required, how to pay, and the deadline. If using s.103 LPA, allow the statutory period (e.g., three months for principal).
- Decide on possession or receivership
  - Consider possession proceedings for vacant possession, or appoint a receiver if the property produces income and possession is not practical.
- Marketing and valuation
  - Obtain at least one independent valuation (two where risk is higher or where a connected sale is proposed). Choose a sales method appropriate for the asset (auction, private treaty, tender). Advertise properly and disclose material features.
- Timing
  - Choose a reasonable time to sell, balancing market conditions against accruing interest and costs. Avoid unnecessary delay that harms the borrower.
- Conflicts and connected sales
  - If selling to a connected person or entity, ensure robust valuation evidence and independent marketing. Keep a clear audit trail.
- Complete and distribute proceeds
  - Apply the proceeds to costs, the mortgage debt, subsequent charges in order of priority, and then account for any surplus to the mortgagor. Notify guarantors as required.
- Record keeping
  - Keep contemporaneous records of notices, valuations, marketing, bids, decisions, and reasons.

For borrowers and guarantors

- Act early
  - Engage with the lender, propose a realistic repayment plan, or market the property yourself if permitted.
- Check notices and sums
  - Review the notice for clarity, service, and timing. Ask for a breakdown of figures and challenge errors promptly.
- Court options
  - In possession proceedings for residential property, ask the court to postpone possession under s.36 Administration of Justice Act 1970 if you can clear arrears within a reasonable period (often assessed by reference to the remaining term).
  - Consider applying for an order for sale under s.91 LPA 1925 where continued delay worsens the position and a sale is the fairest outcome.
- After sale
  - If the price achieved appears low due to poor marketing or other failings, consider a damages claim. Keep evidence of comparable sales and any defects in the sale process.

Common pitfalls to avoid

- Lenders: defective notices, inadequate marketing, failing to disclose value-adding features, or selling to a connected entity without careful valuation and process.
- Borrowers: ignoring early arrears, missing court deadlines, or assuming a sale can easily be unwound (remedies are usually damages, not reversal).

## Summary Checklist

- Confirm the power of sale exists (express or under s.101 LPA 1925)
- Check that s.103 LPA 1925 or the deed’s conditions for exercise are satisfied
- Serve clear, compliant notices and allow the correct time to remedy
- Decide on possession or receivership strategy and document reasons
- Obtain independent valuations and choose an appropriate sale method
- Market properly and disclose material features affecting value
- Avoid unnecessary delay; act in good faith and aim for the proper market price
- Take extra care with connected-party sales; maintain a full audit trail
- Distribute proceeds in the correct order and account to the mortgagor
- Consider court powers: s.91 LPA 1925 (order for sale) and s.36 AJA 1970 (possession timing)

## Quick Reference

| Concept                         | Authority                 | Key Takeaway                                                      |
| ------------------------------- | ------------------------- | ----------------------------------------------------------------- |
| Statutory power of sale         | LPA 1925 s.101            | Implied where the mortgage is by deed                             |
| When power is exercisable       | LPA 1925 s.103            | Notice/arrears/breach triggers; observe statutory timeframes      |
| Sale without court order        | Horsham Properties [2008] | A lender can sell without first obtaining a possession order      |
| Duty to obtain proper price     | Cuckmere Brick [1971]     | Take reasonable care to achieve the true market value at the time |
| Court can order a sale          | LPA 1925 s.91             | Court may order sale where just, even with negative equity        |
| Receiver’s management duty      | Medforth v Blake [2000]   | Manage with reasonable skill and diligence                        |
| No duty to improve the property | Silven v RBS [2004]       | Preserve and sell reasonably; no obligation to improve value      |

Power of Sale: Property Transactions