If a trustee doesn’t pay the mortgage for a property held on trust, does the beneficiary, in this case two limited companies held within a New Zealand based Trust, become liable to pay the mortgage even if the mortgage is in the sole name of the trustee?
For context, there are six mortgages affected.
The trustee has never paid the mortgages or received any rent on the properties for a period at least 12 years. The beneficiary companies have paid the mortgages and received all rent.
The shareholder of the beneficiary company has been recently forced into bankruptcy and has stopped paying the mortgage but is preventing rents being paid to registered property owner so that she may pay the mortgages.
No. In English law the trustees are responsible for paying the mortgage - as they sign the mortgage agreement - the beneficiaries are not liable. / broadly.
However. This will depend on:
The trust wording or trustee agreements and the mortgage agreement.
The type of trust.
Any clauses limiting the trustees liability to the debt.
If the trustee has given covenants to pay the mortgage, the liability is theirs.
If they have relied upon the rental income to cover the mortgage payments, unless they have irrevocably assigned the rents to the companies ion New Zealand, I suggest that they could revoke the current instruction and require the rents to be paid to themselves.
What has the shareholder of the beneficiary companies done to prevent payment of the rents to the trustees? If the trustees have the legal right to revoke the instruction to pay the rents to the NZ companies, it is perhaps difficult to see how the tenants can refuse to comply with the trustees change of mandate.
If the tenants continue to account to the NZ companies, instead of to the trustees, I recommend consideration be given to consulting counsel to help navigate the way forward.
One wonders if, once the rent question has been resolved, this is a client with whom the trustees might wish to continue to be associated!
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals
Please do not forget the position of the mortgagee (or mortgagees). The likelihood is that if no monthly instalments are being paid, the mortgagee will take action. If the tenancies are “authorised” (i.e. bind the mortgage) then the mortgagee may well appoint a receiver who will direct payment of the rent to himself towards discharge of money owing to the mortgagee. If they are not “authorised” then the mortgagee will issue possession proceedings against the legal proprietor. As a mortgagee has a legal right to possession then, subject to the two months’ delay a court may order under the Mortgage Repossessions (Protection of Tenants etc) Act 2010 to allow tenants time to move, a possession order will be granted.
This is not the place for a full dissertation on the rights of mortgagees (if only because we do not have the full facts), but it is something that should be uppermost in the minds of those trying to resolve the issues raised in the question.