Through the introduction of an estate agent, Mr Chan inspected a flat in a quiet but convenient neighbourhood and was quite satisfied with it. Mr Chan asked the landlord to lower the rent and the landlord promptly agreed.
Mr Chan then asked the landlord if the flat was mortgaged to a bank and whether bank consent should be obtained first. The landlord admitted that the bank would only increase the interest rate which would in turn make him raise the rent. The landlord thought that as it was his own property, he could either live in it himself or rent it out, and the bank would not intervene in most cases. Mr Chan thought the landlord's explanation reasonable. As he wanted to move in quickly, he did not insist on the bank's written consent and immediately signed a lease with the landlord and paid the rent and a deposit at the same time.
Six months after he moved in, Mr Chan suddenly received a notice from the bailiff requiring him to move out of the flat within a specified time limit. It turned out that, as the landlord had been in arrears with the repayments of the mortgage loan to the bank for a long time, the bank had taken actions to possess the flat. Later, Mr Chan took up the matter with the bank but as the landlord had not obtained the bank's written consent before renting out the flat, the bank would not take possession of the flat together with the lease, nor would it make any compensation to Mr Chan.
In fact, most mortgage deeds contain a covenant that the mortgagor must obtain the bank's written consent before renting out the property. However, to prevent the bank from raising the interest rate, some owners will not notify the bank and obtain its written consent before renting out their properties. Under the circumstances, in order to safeguard his own interests, the tenant, on discovering that the flat is a mortgaged property, should ensure that the owner has obtained the bank's written consent before signing the lease. In this way, even if the bank takes possession of the property, it will do so subject to the lease. Provided that the tenant continues to pay the rent, he may still enjoy the right to occupy the flat.
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