Court finds mortgage loan not “by way of business”

The High Court has handed down its judgment in the case of Arthistory Ltd and Mr and Mrs Campbell.  The Campbells own a property and had granted an option to Arthistory (the Claimant) to acquire it.  The Claimant sought specific performance or an order that the Campbells be compelled to execute a transfer. The trial went ahead in the absence of the Campbells.

The Court examined the suite of written agreements including a Facility Agreement, and a Legal Charge was executed over the property. The Option Agreement included a period within which the Claimant would exercise the option by giving written notice, which would oblige the Campbells to complete the sale to the Claimant within 28 days.  The Claimant exercised the option, but the Campbells did not transfer the property. The Campbells argued the various agreements and deeds were not enforceable. Among the regulatory issues considered were:

  • whether the Facility Agreement and Legal Charge constituted a “regulated mortgage contract”. The Claimant said the residential use comprised less than the required 40% of the property, but the Campbells said it was 62%.  On this point, there was significant discussion over what “domestic purposes” meant. Guidance in PERG notes that a small house with a large garden would generally be covered by “domestic purposes”, unless the intention at the time of the contract was for the garden to be used for some other purpose. Equally, a loan to buy farmland and a farmhouse would not be considered “domestic” as the land could not properly be said to be used “in connection with” the farmhouse.  In this case, the percentage swung on whether a field in which the Campbells kept their horses was within “domestic use”, as opposed to other parts which were used for commercial stables. Quoting a piece of CLA guidance on a planning application, the judge referred to the concept of a “residentially incidental horse” being a recognised concept and on that basis decided its field was part of the domestic use percentage;
  • if there was an RMC, did the Claimant enter into it “by way of business”.  The claimant had previously had a consumer credit license for entering into hire purchase agreements in respect of motor vehicles, which would obviously not have allowed it to enter into an RMC by way of business. On this, the judge was clear the RMC was not entered into by way of business – although he was in business and did buy and sell property, that did not mean he had entered into the RMC by way of business; and
  • whether the arrangements were an unfair relationship under s140A CCA: the judge concluded that, on the whole, the terms were unfair.

The judge declined to order specific performance or the transfer, and used powers under s140B CCA to set aside the Option Agreement, Buy-Back option and transfers but leave in place the (amended) Facility Agreement and Legal Charge.


Emma Radmore