When is a mortgagee exclusion clause (MEC) needed?


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Where a party has the ability to retain control over the use of property and creates a restriction which may impact on that property's value or saleability, a mortgagee exclusion clause (MEC) may be needed.

This will enable the property to be used as security or ensure the most value can be achieved from it. Legal documents containing such restrictions are usually local authority planning or nomination agreements.

Planning permissions, restrictions registered on the title and leases are inherently binding on land. They need to be reviewed to check whether they affect value or saleability.
You should be aware that sometimes an MEC may be nothing more than a 'red herring'. A document may purport to bind, or contain an MEC, but not, in fact, be binding. Such an agreement takes effect as a contractual arrangement and is only relevant to parties to it and would, therefore, have no impact on any funder or successor.

Any document may be made binding if it contains reference to its being made pursuant to one of the following statutes:

  1. Section 106 of the Town & Country Planning Act 1990 which explicitly states that a planning obligation entered into pursuant to this statute will be enforceable against (a) the person entering into the obligation and (b) any person deriving title from that person.
  2. Section 52 of the Town & Country Planning Act 1971 which was a pre- cursor to Section 106 and sometimes remains relevant. This section states in sub-paragraph (2): an agreement made under this section with any person interested in land may be enforced by the local planning authority against any person deriving title under that person in respect of that land as if the local planning authority were possessed of adjacent land and as if the agreement had been expressly made for the benefit of such land.
  3. Section 33 of the Local Government (Miscellaneous Provisions) Act 1982 provides that where a document relating to a provision to carry out works on land contains a covenant expressed to be one to which this section applies, then this covenant shall be enforceable (without any limit of time) 'against any person deriving title from the original covenantor in respect of his interest in any of the land and any person deriving title under him as if that person had also been an original covenanting party'.

When charging security, we need to assess whether or not provisions in any document will affect the property for the purposes of a funder. As always, providing any such documentation as soon as possible helps to flush out any such issues and deal with them early in a transaction.

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