A charging order can be made against a client’s ‘beneficial interest’ (her/his share) in a property. If a client owns only a part share of a property, then a charge can still be made but it will apply only to her/his part share.
If a charging order is made, the creditor becomes a party with an interest in the property and can apply for an order to sell the property so that the creditor’s interest can be realised. The court is required to have regard to the following matters:
The intentions of the owners at the time of the original purchase — i.e. the purpose for which the property was bought.
The purposes for which the property is held. For example, it may be that a court should not order the sale of an asset, which was bought for a specific purpose, until the need for it has ceased to exist. If this is a correct interpretation, then a family home should not be sold until all members of the family have ceased to need it.
The welfare of any minor who occupies the property as her/his home.
The interests of any secured creditor.
Pre-1997 case law suggests that, in the absence of exceptional circumstances, the wishes of the creditor should prevail (loss of the home not being regarded as ‘exceptional’ in this context). However, it appears that these cases are no longer good law as a result of the statutory provisions quoted above.
On the other hand, one of the factors is the interests of creditors and the Court of Appeal ordered a sale of a property where there was sufficient equity to pay only part of the debt and the client was apparently unable to make any offer of payment. The statutory provisions quoted above do not apply where the client is the sole owner of the property.
The personal circumstances of the client and other occupiers should be explained to the court in detail and the following points drawn to the attention of the district judge about the other owners:
It is not equitable (or fair) for a whole family, or group of occupants, to be evicted for the debt of one of their members.
Any special factors — e.g. age, disability, illness, need for stability at work or school, availability of alternative housing, effect on children. The history of the loan.
If an application for an order for sale is made, a claim form will be sent to all coowners of the property. This may include someone who owes no money to the creditor who has obtained the charging order. However, because that person owns part of the property against which the debt is secured, the court must treat her/him as a joint defendant in the case.
Where a divorce petition has been served, an application for a charge (or order for sale) should normally be considered along with the finances and property of the couple.
Some creditors argue that a charging order allows them to enforce payment of accrued contractual interest even though it forms no part of the judgment. If a creditor tries to argue this, then you should seek specialist advice.
Charging orders are increasingly sought by creditors./P>
