A charge is a document that is prepared where a person wants a loan and as security for the loan, they provide the title of the land that they have.
It involves two parties a chargee and a charger.
A chargee is the lender of money such as a bank, while a chargor is the borrower of the money. A chargor confers rights to chargee to enable him/her to recover the money plus interest however there is no transfer, but the security exists, and it only becomes an encumbrance on the title.
Both the Land Registration Act 2012 and the Land Act 2012 states that a charge shall have effect as a security only and shall not operate as a transfer.
There are two types of charges
- formal charge and
- informal charge.
Formal charges are given by commercial banks through a charge document prepared after formal agreement between the bank and the applicant.
Informal Charge
An informal charge is a written and witnessed undertaking the clear intention of which is to charge the chargor’s land with the repayment of money or money’s worth obtained from the chargee;
To create an informal charge, the following set of requirements must be met:
- The chargee must accept a written and witnessed undertaking from a chargor,
- the chargor must deposits any of the following-
- a certificate of title to the land;
- a document of lease of land;
- any other document which it is agreed evidences ownership of land or a right to interest in land.
A chargee holding an informal charge may only take possession of or sell the land which is the subject of an informal charge, on obtaining an order of the court to that effect.
According to section 81 (1) of the Land Act 2012, Informal charges shall rank according to the order in which they are made provided that a registered informal charge shall take priority over any unregistered informal charge. If two informal charges are made on the same day or are registered on the same day, the charge which was first in time to be made or registered shall have priority.
If a chargor, subsequent in time to a prior chargor under a charge, lends money or money’s worth on the security of a charge to a chargor as a consequence of or through the fraud, dishonesty or misrepresentation of the prior chargee, either in conjunction with or separately from the fraud, dishonesty or misrepresentation of the chargor, that prior chargee’s right to repayment under the charge shall be postponed to the rights of the subsequent chargor.
