The lease expired in July 2016 and Ryan did not renew it because the council substantially increased the rent, and a Bill before Parliament would soon allow him to buy his property freehold. In April 2018, the bank sent him a demand notice, saying he had to renew the lease and pay the outstanding rent. Ryan did neither, so the bank prepared a default notice under the Property Law Act 2007. This stated that unless he took both steps by September, it could demand he repay the loan in full. The notice also said the bank could sell his property to recover the money he owed.

Preparing the default notice incurred legal fees, and these grew substantially when the bank was unable to serve notice on Ryan in person and was forced to go to the High Court to do so. The following month, Ryan repaid the loan in full, and the bank told him the matter was settled. But a week later the bank froze his account to debit legal fees the following day. Ryan complained to us that he had been given no notice of this action.

Our investigation

We found the bank was legally entitled to undertake debt recovery action, but its communication with Ryan was inadequate and this meant the action was unfair and unreasonable in the circumstances. The bank had been active in its communication with the council about the expired lease and overdue rent, but it had made no attempts to contact Ryan before sending the demand notice. When Ryan tried to discuss the demand notice, the bank repeated that he had to renew the lease and get up to date with the rent.

Further to this, Ryan’s bank acknowledged it had incorrectly advised him it would have the right to sell the property if the defaults were not resolved. It did not have this power at the time because the lease was expired. We also found that while the bank had the right under its contract with Ryan to debit his account without notice for the amount he owed, it did not have the authority to freeze his account under these circumstances.

Ryan accepted that he contributed to the higher legal costs by refusing to accept service. Ryan found the possibility of a mortgagee sale of his home highly stressful, and the bank’s inadequate communication with him added to this stress.

We concluded the bank should have taken steps to resolve the situation with Ryan before resorting to exercising its legal powers under the Property Law Act 2007.

We recommended the bank reimburse Ryan $10,338.84, which covered most of the legal fees he had paid. We also recommended the bank pay Ryan $2,000 for the distress it had caused.

Outcome

Ryan and the bank accepted our recommendation.