Scrawled OK Not Enough to Signify Mortgage Lenders Consent

Commercial mortgages very often specify that the lender’s consent must be obtained before the premises can be let to tenants and, in one guideline case on the point, the High Court has ruled that a scrawled endorsement consisting of the letters ‘OK’ on a letter did not amount to such consent.

A bank had provided mortgage finance to the owner of a building. The sums lent exceeded the value of the property and the bank sought a possession order after the owner defaulted. The mortgage included a condition that the premises could not be sold, let or otherwise demised without the lender’s written consent.

The owner had let part of the premises to a company which rented it out as student accommodation. In those circumstances, an issue arose as to whether the mortgage was subject to that leasehold interest. That question hinged on whether the letters ‘OK’ – which had been written by an officer of the bank onto a letter requesting permission to let the premises – validly conferred the required consent.

In ruling that it did not, the Court found that such an informal procedure would have been entirely contrary to the bank’s usual practice. Granting consent without first vetting the proposed lease would have created a clear risk to the bank’s security. The bank’s officer had acted without instructions and his endorsement of the letter had not, in truth, been understood by the owner as constituting consent.