Charging Orders

The term ‘charging order’ refers to an order that may be obtained against land that prevents a party dealing with or disposing of the property until all of the debts against the property are paid in full.

The Construction Contracts Act 2002 expressly provides that a claimant may request approval from an adjudicator for the issue of a charging order over the construction site owned by a respondent, or by an owner who is an associate of a respondent (as defined in s7 of the Act i.e. a spouse, child, parent, partner or related body corporate) in the Notice of Adjudication.

It is important to note that an adjudicator does not have the ability to issue the charging order itself in respect of a construction site. It is only the Court which can issue a charging order upon application of the plaintiff for enforcement of the Adjudicator’s Determination as a judgment under ss73 & 76

In order to obtain the approval for the issue of a charging order, a claimant must first, refer a dispute about whether an amount of money is payable by a respondent to adjudication, secondly, seek in the Notice of Adjudication, approval for the issue of a charging order in respect of the construction site owned by a respondent or a determination of a non-respondent owner’s liability where approval for the issue of a charging order is sought in respect of a construction site owned by an associate of the respondent, and thirdly, ensure that the Adjudicator is appointed by an Authorised Nominating Authority such as the Building Disputes Tribunal.

If a claimant has satisfied the criteria under which an Adjudicator may approve the issue of a charging order and the Adjudicator has determined that the respondent is liable to make a payment to the claimant under the construction contract, the Adjudicator must approve the issue of a charging order in respect of the construction site owned by the respondent and if the Adjudicator has determined that the owner is jointly and severally liable with the respondent to pay, the Adjudicator must approve the issue of a charging order in respect of the construction site owned by the owner.

Whilst a charging order is a very powerful tool to force a respondent to pay an amount determined as due and owing in an adjudication, it does have some limitations including:

 
  • It ranks behind advances made under pre-existing charges registered against the property such as mortgages and is subject to the normal rules of priority in the event that a sale is forced. However, if a charging order is lodged, it generally constitutes a breach of a borrower’s covenants under standard loan documentation and most lenders refuse to continue to make advances until the charging order is removed (i.e. the debt is paid);
 
  • An Adjudicator cannot grant approval for the issue of a charging order in respect of a construction site under a Residential Construction Contract as defined in the Act;
 
  • A plaintiff must apply to the District Court for enforcement of the adjudicator’s determination before the charging order is issued against the title and there is a risk that the Court may refuse to enter the determination as a judgment (and thus issue a charging order) in all the circumstances.

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