Tacking Notices in Secured Lending: A Timely Reminder for Private Lenders

With so many new private lenders coming into the market, this brief article serves as a timely reminder of this critical issue. If you are lending money and taking real property security in anything other than a first-ranked position, beware.

What is tacking?

Tacking is the right of a first-ranking mortgagee to consolidate further advances made to a borrower under an existing mortgage. The result is that those advances rank in priority alongside the original mortgage and ahead of any subsequent mortgagees. It is a powerful tool for first-ranking lenders, and an equally significant risk for those who rank behind them.

The tacking notice: the subsequent lender's key protection

A subsequent mortgagee (whether ranked second, third, or further) must send a formal written tacking notice to the first-ranking mortgagee, providing them with actual notice of the subsequent interest. Once actual notice is received, the first mortgagee's priority is capped at the amount outstanding at that date. The first mortgagee cannot tack further discretionary advances ahead of the mortgagee that sent the notice.

This is not new. Way back in 1861 the House of Lords settled the rule in the case of Hopkinson v Rolt. It has since been adopted across Australian jurisdictions, with each State and Territory enacting its own legislative framework governing the rule.

One important exception: where a first mortgagee is contractually obliged to make further advances (for example, under a committed construction facility), those advances retain tacking priority even after notice is received.

The consequences of not acting

For subsequent mortgagees, failing to issue a tacking notice promptly can be costly. Every further advance made by the first mortgagee before actual notice is received will rank ahead of the subsequent interest, progressively eroding the equity cushion on which the subsequent lender's security depends.

For first-ranking lenders, receipt of a tacking notice requires an immediate review of which further advances remain obligatory under the facility, and which do not.

Real property vs personal property: the rules differ

The tacking notice mechanism applies to real property mortgages. For personal property security governed by the PPSA, an entirely different priority framework applies, and tacking notices are not available as a protective mechanism. Priority under the PPSA turns primarily on the order and timing of PPSR registration, not notice.

Practical checklist

If you are a first-ranking mortgagee:

• Ensure your mortgage and facility documents expressly cover further advances; and
• Upon receiving a tacking notice, identify which further advances remain obligatory.

If you are a subsequent mortgagee:

• Issue a tacking notice promptly upon registration — do not delay;
• Review the first mortgage to assess whether advances are discretionary or obligatory; and
• For personal property security, negotiate intercreditor or subordination arrangements instead.

Where there is interaction between equitable security interests, Torrens indefeasibility, caveats or unregistered mortgages, transactions involving security in multiple Australian states, or mixed real and personal property structures, fact and jurisdiction-specific advice is essential. Tacking is a nuanced area that can vary across jurisdictions.

We strongly recommend contacting our team for advice tailored to your specific security structure.

If you would like to discuss tacking, your security documentation, or your priority position, please contact Naomi Ascui or Phil Hustler.

This summary is prepared for general informational purposes only. It does not constitute legal advice and should not be relied upon as a substitute for advice tailored to your specific circumstances.