LEGAL PERSPECTIVE: Charges as Security, Dr AbdelGadir Warsama, Legal Counsel

Dr AbdelGadir Warsama , Legal Counsel

A charge, simply, is one of the types of security by which a person who borrows money give the lender certain right over his asset to support the duty of the borrower to repay what is owed under the contract of loan. Based on this, the lender thus has two rights, the first is to sue the borrower on the contract of loan and, the second is to sell the asset which the borrower has charged in order to recover what is owed to him but not more. Any surplus on sale less the costs of selling the property must be returned to the borrower. The charge is of two types, either a fixed or floating charge.

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A mortgage, is term most often used to mean a fixed charge over land. However, the term mortgage may be used to describe any type of fixed (not a floating) charge over any item of land or other property such as mortgage by a shareholder who uses his shares, which are personal property, as security for a loan.

A fixed legal charge can be given over identified property belonging to the borrower. The property may be real property as land and buildings. Or personal property as machinery and equipment.

If real property is being used there is no need for the borrower to transfer the ownership in land to the lender. The law, allows the lender who has taken the fixed charge over, say land and buildings to sell it on his own without any assistance from the borrower, even though the lender has not taken a transfer of the ownership from the borrower by what is called “conveyance”.

If personal property such as machinery and equipment, were to be used as security, the borrower would have to transfer by “assignment”, the ownership in the machinery and equipment to the lender. Unless this was done, the lender could not give a good title to a buyer of the machinery and equipment if he decided to sell it which he would want to do if the borrower didn’t repay the loan.

The great benefits of the fixed legal charge is that once it has been given, the lender can sell the property charged by himself. The contract of loan will of course end his right to do this once the loan has been repaid.

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