Court considers meaning of “investment property loan”

A court has considered whether a series of loans constituted “investment property loans” under Article 61A(6) RAO, which would exempt them from being regulated mortgage contracts. To be an investment property loan, the loan must include certain declarations and statements by the borrower. These statements were made, and lead to the presumption that the agreement has been entered into for business unless the lender knows or has reasonable cause to suspect that this is not so.  Additionally, the exemption requires that:

  • less than 40% of the land subject to the mortgage is used, or intended to be used, as or in connection with a dwelling by the borrower or a related person; and
  • the agreement is entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower.

The judge considered:

  • that the fact the statements were made under a reference to regulated credit agreements rather than regulated mortgage contracts did not itself mean they could not be valid for these purposes, but this did create a problem because one element of the declaration should specifically refer to RMCs but referred instead just to “regulated agreement”. The judge felt that, in the context, especially because the heading of the declaration referred to the regulated credit provisions of the RAO, an objective reader would conclude the statement referred to regulated credit and hire agreements but not to RMCs. As a result, it was for the lender to prove the loans were “investment property loans”;
  • for completeness, although it was not relevant given the determination above, the judge considered whether there was any grounds to suspect the loans were not for business purposes. Despite the borrowers calling evidence to the contrary, the judge did not find it plausible and concluded that the lender did not have reason to suspect the loans were not for business purposes;
  • in relation to the question of whether the loans were investment property loans, the judge noted that a reasonable person merely reading the declarations would consider that this was the intention. Also, given that, a reasonable person would assume that, although theoretically possible, it would be unlikely that a person using 40% or more of a property as a dwelling would be using it wholly or predominantly for business purposes.  On balance and on all the facts, the judge concluded the loans were investment property loans and not RMCs.

Emma Radmore