Legal and Floating Charges
A legal charge is a statutory form of legal mortgage, created under the Law of Property Act 1925 as a ‘mortgage by demise’ which was made obsolete under the Land Registration Act 2002. A legal charge is easier to administrate and carries the same rights, i.e. the lender takes it out over the registered land as security for a loan. This grants the lender the right to recover any losses incurred from the leaseholder in the event of a mortgage default.
In the event of a later repossession, a Land Registry search will confirm the rankings of those parties having a Legal Charge against the property. There are various forms of legal charges, including full legal mortgages, and equitable charges. The latter are generally registered in the event of contractual obligations not being met on an unsecured transaction.
Another type of charge is a floating charge. Instead of naming a specific property, which can be taken by the creditor if the debtor defaults (as in a fixed charge like a mortgage) a class of goods or assets is named such as the debtors stock. This allows the debtor to trade in the assets freely but if the debtor fails to make repayments then the floating charge becomes a fixed charge (known as crystallisation) over all the stock at that time and the creditor can take and sell it to recover the debt.
The original mortgage lender will be paid from the proceeds of the sale first, with any left over funds being repaid to other charge holders (recorded on the Charge Certificate) and usually in the order of the date they were registered.