On 6 August 2021, the Court of Appeal of the Republic of Botswana passed a landmark judgment on the question of whether a mortgage bond could outlast termination of title to the property that it secures. In this regard the Appeal Court emphatically confirmed a mortgage bond is subject to the title conditions of the property that it secures.
More specifically, the Appeals Court held that where title conditions of the subject property contain a right of reversion to the original owner thereof, then the mortgagee’s title to the subject property effectively ceases upon the exercise of such right, with the consequence that any mortgage bond securing such title becomes unenforceable.
The facts of the matter were briefly as follows: A developer of a township in Gaborone had included a development covenant in the conditions of title of certain property that it sold and transferred to a purchaser. The said covenant required that the purchaser erect a dwelling house on the property to a required standard and that should it fail to do so, the developer had a right to resume ownership of the subject property. The conditions of title, including the development covenant, were contained in the registered title deed issued to the purchaser.
The purchaser failed to erect a dwelling house as required and consequently the developer obtained a High Court order cancelling the sale of the property to the purchaser and the resultant title deed. Following the granting of the said order, it transpired that unbeknownst to the developer, the property was subject to a mortgage bond, and when requested to consent to the cancellation of the said bond for the purpose of facilitating the developers’ resumption of ownership in the property, the mortgagee refused to do so.
The developer accordingly launched proceedings in the High Court for the cancellation of the mortgage bond and successfully obtained an order to this effect. It was against this order that the subject appeal was brought by the mortgagee and the purchaser.
The Court of Appeal, in coming to its decision, held that where conditions of title included development and/or other similar covenants, and these are contained within the registered title deeds to a property, then such covenants became real rights enforceable against all comers.
In this respect, the Appeals Court importantly confirmed that a development covenant and any associated right of the original owner to resume ownership in the subject property, once registered, were rights enforceable against all subsequent purchasers taking title to the property and against mortgagees or others seeking to secure loans against the security of the property in question.
Furthermore, in rendering judgment the Appeals Court reaffirmed the principle that a property owner cannot offer as security for his borrowings rights in a property greater than those that he himself possessed, meaning that where a mortgage was granted over property subject to a registered reversionary right, then the rights of the mortgagee and/or any person acquiring the property on a foreclosure by the mortgagee were subject to such reversionary rights.
The effect of this, as set more fully out in the judgment, was that a mortgage bond registered over a property subject to a revisionary right, ceases to have any value or effectiveness as security if, before foreclosure by the mortgagee, title to the subject property had reverted to the original vendor in terms of the reversionary right. Furthermore, the Appeals Court pointed out that even after foreclosure by the mortgagee, the original owner may enforce the reversionary right against any person taking title through the foreclosure process.
Finally, the Appeals court held that should a mortgagee refuse to consent to the cancellation of a mortgage bond covering property subject to a reversionary right, then the court will, on application of the original vendor (being the revisionary title holder) order the cancellation of the bond, and so enable the Registrar of Deeds to undertake the necessary transfer in terms of Section 54 of the Deeds Registry Act (Chapter 33:02). The Court may also grant the necessary consequential relief to ensure that the transfer without the mortgage is effected.
For the above reasons, the court dismissed the appeal and in doing so rejected arguments raised by the appellants to the effect that real rights of a mortgagee are equal to the real rights of the owner, or the revisionary owner of the plot.
This case is a salutary warning to lenders to carefully consider the underlying conditions of title when lending against the security provided by property. To mitigate or avoid the risk posed by the above judgment, the services of a seasoned conveyancer should be engaged by lenders to ensure that security taken is effective and not subject to the reversionary rights of the original owner.