High Court rules a mortgagor can still redeem after a sale agreement is signed

If you’re like me, the equity of redemption brings back distant memories of property lectures at law school. But bear with me. A new case may surprise you.

A mortgagor is entitled to redeem a mortgage (by paying the secured amount) and keep the property at any time before it “has been sold”. But is a property “sold” when an agreement for sale and purchase is signed, or can the mortgagor still redeem at any time up until settlement?

Traditionally, the courts have said that a property is sold once a mortgagee has entered into a binding contract to sell the property, even if the sale has not yet settled. The right to redeem is gone.

But a standard clause in a mortgagee sale and purchase agreement often allows a mortgagee to subsequently cancel for an intervening event – a requisition, the need to obtain a consent, a court order, or “for any other reason whatsoever”.

This clause was at issue in Rahal v ASB Bank Ltd [2026] NZHC 1874. Johnstone J ruled (at an interim stage) that the right to cancel for any reason whatsoever was so broad that the mortgagee was not bound to go through with the sale. The mortgagee could walk away for any reason.

The judge further ruled that the test for whether the property had been sold was not whether a binding contract had been entered into. Instead, it was whether the mortgagee was bound to go through with the sale and settle – subject only to contingencies outside its control.

Here, because the intervening event clause was so broad, the mortgagee was not bound to go through with the sale. That meant that the property had not yet been “sold” and the mortgagor could still redeem. In effect, the judge said that at an auction “the hammer may fall twice”: once at auction and again when the mortgagee allows settlement.

Johnstone J granted interim orders giving the mortgagor 15 days to redeem.

But doesn’t this result in uncertainty for mortgagees and purchasers? The judge said that purchasers likely already account for the risk of an uncertain purchase by paying lower prices. And for a mortgagee, the solution lies in its own hands: it can draft the clause more narrowly. In short, allowing an ongoing right to redeem is “simply a consequence the mortgagee has elected to bring upon itself”.

Although much of the existing case law points the other way, the judge said it was “unsatisfactory”. He described the leading case as “imprecise” and “inconsistent”, with “flawed” reasoning and a “surprising” result. He said two further cases were wrongly decided, and that he disagreed with another two cases.

Given the previous case law, and the interim context in which Johnstone J gave his decision, it remains to be seen whether this new decision will be seen as the leading statement of principle, or whether the law will remain contested. In the meantime, lenders should carefully review their standard terms, and consider whether they strike the right balance.