Limitation on charging orders

30th September 2022

We have previously discussed Charging Orders as a route for Local Authorities to take for debt recovery. In this article, we discuss the limitation period on these Charging Orders and on the interest that may be accruing on the Charging Order, which makes this type of enforcement method really attractive for creditors. We will also discuss how a Charging Order may affect a debtors’ credit report.

This article was first published in IRRV Insights September edition.

Limitation of a charging order

Usually the enforcement of a judgment debt would be limited to six years, inclusive of interest. This is outlined in the Limitation Act 1980 and would mean that interest could only be charged up to six years from the date of the claim. However, although judgment debts are limited to six years, Charging Orders are already secured debts so this restriction does not apply.

Statutory interest applies on judgment debts above £5,000 and accrues at a rate of 8% per annum from the date of the judgment. Therefore, once a Charging Order has been obtained, interest will begin to accrue from the date of the Interim Charging Order at that rate.

It is mentioned in the Limitation Act 1980 that the bringing of a fresh action is time barred to six years. However, the House of Lords in the case of Lowsley v Forbes [1998] UKHL 34 concluded that this does not include proceedings by way of execution and, as a Charging Order is securing the debt against the property and is not creating new proceedings, therefore the Limitation Act 1980 does not apply.

It is also stated in the Judgments Act 1838 that interest should run until the debt is satisfied. Therefore, the debt remains payable with interest continuing to accrue until the debtor has paid in full. Further to this, the County Courts (Interest on Judgment Debts) Order 1991 also states that every unpaid judgment debt will carry interest from the date that the judgment was given until the debt has been satisfied/paid in full.

Case law

In the case of Ezekiel v Orakpo [1997] 1 WLR 340, Ezekiel had obtained a Charging Order against Orakpo for a judgment debt in 1979. The Charging Order amounted to £42,000 with additional interest continuing to accrue, causing the debt to exceed £75,000. As the Charging Order had been left unpaid and interest was continuing to accrue, Ezekiel applied for an Order for Possession of the property in 1993. Orakpo disputed that pursuant to the Limitation Act 1980, the Charging Order was barred as six years had passed since it was obtained. The court held that the Limitation Act 1980 did not apply in this case because the Charging Order was a different ‘entity’ to the original judgment debt.

Further to this, in the case of Lowsley v Forbes [1998] UKHL 34, Lowsley obtained a judgment against Forbes totalling £70,000 and by 1992 the judgment debt and interest had exceeded £184,000. More than six years later Lowsley obtained a Charging Order and Forbes appealed. The court held that only the bringing of a fresh action was precluded by the Limitation Act 1980, not by way of execution, which is what the Charging Order was. Therefore, Lowsley was entitled to obtain the Charging Order after a period of six years.

How will a charging order affect a debtors' credit/credit rating?

Local Authorities may choose to obtain a charging order for an unpaid liability order in relation to unpaid council tax. Usually this is a good enforcement method for smaller debts under £5,000. As the charging order would be sought following non-payment of a liability order, a county court judgment will not be obtained and would therefore not affect the debtors credit rating. Charging Orders are not recorded on a debtors’ credit report and is instead only recorded at HM Land Registry to prevent the debtor from selling or transferring the property before the debt has been settled.

Although a charging order may not affect a debtors’ credit, once it has been secured against the property, in most circumstances the debtor will be prohibited from selling or transferring their property or even re-mortgaging their property until the debt has been settled.

Registering the charge on a property

Once a Charging Order has been obtained from the court, it must be registered correctly on the individuals’ property. If the charge is not registered on the property correctly, it could mean that the charge would be unsecured and would therefore be limitation barred pursuant to the Limitation Act 1980. This could be detrimental to Local Authorities as they could lose out on money that is due to them so it is important that Charging Orders are registered correctly.

You can read this article and more in IRRV Insights, which is a magazine from the Institute of Revenues Rating and Valuation. Find out more here.

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