With the increasing number of property facilities being sold on to vulture funds by the major high street banks it is becoming more common for receivers to suddenly appear at the door step claiming all of the income and rent.
This is often a shock for the owner of the property who will have had little or no warning prior to the appointment taking place.
Receivers are the weapon of choice for vulture funds who take over property portfolios as they are unregulated, quick and easy to appoint and very hard for the borrower to challenge.
Receivers also act as a barrier to prevent the borrower complaining about the actions of the new lender.
Receivers are either appointed under the Law of Property Act 1925 (LPA receiver) or pursuant to powers granted under security (fixed charge receiver). Often the term LPA receiver is used for both.
Why appoint a Receiver?
The purpose of appointing a receiver is:
- for the receiver to take charge of the assets,
- to realise the assets (usually by a sale to a third party purchaser) or by collecting rents; and
- to use the proceeds to repay the monies due to the appointing lender from the borrower
How does appointing a Receiver happen?
The process of appointing a receiver is quick and does not require notice to the borrower (the owner of the property) until after it has taken place.
The receiver is technically an agent of the borrower however this does not mean he acts in their interests. The receiver only owes one duty to the borrower – the duty to act in good faith.
Legally the receiver is expected to put the interests of the appointer (the lender) above all else.
Impacts of a Receiver being appointed
Commercially the receiver can cause tremendous harm and loss to the borrower whilst still acting in “good faith”.
Often arguments arise where the receiver seems to be happy to sell properties at a heavily reduced or “fire sale” value. Unfortunately the only duty the receiver owes is to get the “best price reasonably available in the circumstances”. This does not mean he has to hold onto the property for any length of time and he will generally not be criticised for selling a property quickly via auction as long as it has been marketed adequately.
This can obviously lead to tension where the quick sale either reduces the surplus that should return to the borrower or increases the shortfall that the borrower is liable for.
Challenging a Receiver
There are a number of ways that receivers can be challenged, though these are all fact specific and can be difficult.
Initially challenging the validity of the appointment, raising issues of conduct or simple commercial negotiation can be used to prevent the quick sale and if that is not possible then it is important to have experts to review the actions and seek to recover any losses as soon as possible post-sale.
For more information on facilities being sold on by the major banks, read our acclaimed Banking Report 2016 and Banking Report 2015 which deals comprehensively with these issues. Or find out more about berg’s Banking Litigation and Insolvency services, and other information concerning Receivers.
The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by berg or any of its partners or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.