The Brocklesby Principle Bites: Occupation Alone Won't Defeat a Lender's Charge

In Ashrafi and another v Belmont Green Finance Ltd [2025] EWHC 3247 (Ch), the High Court dismissed an appeal by the occupants, Mr and Mrs Ashrafi against a possession order obtained by the lender, Belmont Green Finance Limited (“the Lender”). 

The Court held that Mr and Mrs Ashrafi were prevented from asserting that their occupation of the property did not bind the Lender on the basis they had knowingly placed a third party in a position whereby he was able to represent to the Lender that he was the owner of the property. 

Background

The case concerned a property in Barking which Mr and Mrs Ashrafi had acquired with the assistance of Mrs Ashrafi’s brother, Mr Shabir. Unable to obtain a mortgage in their own names, Mr and Mrs Ashrafi asked Mr Shabir to raise the necessary financing, which he did by representing to the Lender that he was the owner of the property. The Lender subsequently granted Mr Shabir a buy-to-let mortgage and funds were advanced in March 2019. Mr Shabir was the legal owner of the property. 

In April 2024, the Lender applied for a money Judgment against Mr Shabir and an order for possession of the property on the basis that the mortgage payments were in arrears and because Mr Shabir was in breach of the mortgage terms (arising from Mr and Mrs Ashrafi’s occupation as family members and not tenants). 

In October 2024, the High Court granted a money Judgment against Mr Shabir and made an order for possession. Mr and Mrs Ashrafi appealed the possession order, arguing that they had an “overriding interest” in the property such that the Lender took its security subject to their ownership and therefore were not bound by the mortgage. Mr and Mrs Ashrafi submitted that whilst they had asked Mr Shabir for his assistance, his instructions were limited to obtaining a residential mortgage and that they were not responsible for Mr Shabir misleading the Lender. 

The Decision

The High Court dismissed the Ashrafi’s appeal and applied the Brocklesby principle. This principle is founded on the basis that it is fair, as between the owner and an innocent lender, for the owner to bear the risk of a third party exceeding their authority. The Court found that Mr and Mrs Ashrafi should be prevented from asserting an overriding interest capable of binding the Lender because they had knowingly placed Mr Shabir in a position of being able to represent himself as owner, without any limitation on the scope of his authority being communicated to the Lender. 

The practical implication of this decision for Lenders is that beneficial owners are unlikely to be able to establish an overriding interest capable of binding a lender in circumstances where a third party exceeds its authority to act and where any limit on authority is not communicated to the lender at the relevant time.