A legal charge is a document which secures a debt against the debtor’s property. A charge also allows a lender to secure money they have lent to an individual or a company. It is a legal document signed by the debtor or the borrower which is registered against the debtor’s or borrower’s property at HM Land Registry to alert any potential buyer of the existence of the debt. A legal charge is also known as a secured loan.
Reasons for giving or requiring a legal charge
The Bank of Mum and Dad
Parents who have lent money to their children to help purchase a house or a flat, or to set up a business and wish for the money to be repaid in the future, may ask their children to secure the borrowing by giving a legal charge over the house, flat or business.
Legal charges for monies already lent or intended to be lent
Similarly, friends and other relatives may lend monies to someone who owns a property and is willing to provide them with a charge. The charge will be released when the money has been repaid.
If you have won a court case and you have been awarded a sum of money but the other party does not have the money to pay straight away, but has assets, such as a house or flat, you can sign a settlement agreement which provides for staged payment of the sum awarded secured by a legal charge which is released when the sum awarded has been paid.
Legal Charges for separating couples
In divorce proceedings, an order for a deferred sale may be granted (a Mesher Order). This order may be granted if you wish to remain in the family home with your children but do not have the financial means to take over the mortgage on your own. The family home remains in the couple’s joint names and a charge is registered against the property until a certain trigger event happens, at which point the property would be sold, the sale proceeds divided and the charge released.
Where there are no children, the court can still make a similar order for one party to remain in the marital home and postpone the sale (‘a Martin order’). Usually, the resident party is given an entitlement to occupy the former matrimonial home for life or until re-marriage. A legal charge reflecting this position is registered against the property at HM Land Registry.
Provisions in the legal charge
The terms of the legal charge will be drafted and tailored to the particular circumstances of the case.
Once registered at HM Land Registry, the legal charge will be a public document and anyone could see the terms of the arrangement. To achieve greater confidentiality, you could prepare a separate agreement which would work together with the legal charge and remain confidential between the parties.