The Land Transfer Act 2017 (the Act) prohibits notice of trusts in registered instruments including mortgages, as provided in s153 of the Act.
This may, for example, arise where a mortgage instrument indicates a trust is involved because it describes the mortgagees as trustees or security trustees, on behalf of beneficiaries, under ‘security trust deeds’. Such mortgages may be rejected or requisitioned because they contravene 153 of the Act.
How security trusts arise
Security trusts arise in ‘contributory mortgage’ or ‘syndicated loan’ arrangements, in which multiple lenders are represented by a single mortgagee, which are set out in separate security deeds. Obviously, these deeds, which are held off the register, can include trust arrangements; but these trusts cannot be mentioned in the instrument that is to be registered (see also relevant commentary on the curtain principle in The land transfer system).
Avoiding rejections or requisitions of mortgages
To avoid rejections or requisitions, the wording of provisions in mortgage instruments should be drafted so that they don’t overtly refer to trusts when referencing the security arrangements which the mortgage secures.
If a particular form of mortgage instrument will be used on an ongoing basis for this kind of security arrangement, a memorandum of standard terms and conditions may be registered under s209 of the Act for this purpose. The approval process for the s209 memorandum confirms that the proposed terms and condition of the mortgage are acceptable for registration and do not contravene s153. This will ensure that mortgages referencing the s209 memorandum comply with the Act and can be registered without further inquiry or delay.