Law of Property Act Receivership

The Law of Property Act Receivership1925 gives various rights and responsibilities to those lending and borrowing using property (usually land and buildings) as security. One of the rights available to such lenders is that of being able to appoint a receiver if the terms of the loan are not being met.

Most mortgage deeds permit the appointment of a receiver, but it’s important to note that the right must be specifically mentioned in the deed for it to be used.

If the borrower is unable to continue making their mortgage repayments it is inevitable that the lender will want to take action to recover the debt. Initially this will be in the form of negotiation with the borrower, in an attempt to agree a way forward.

If these negotiations break down and other course of action is available, the lender will appoint a receiver. This receiver, an insolvency practitioner or a chartered surveyor, effectively takes over the role of the owner of the building. The legal owner has no control over their property, with all actions being managed by the receiver.

The receiver’s objective is to recover the outstanding amount owed to the creditor. This will usually, although not always, involve the sale of the property. They will look to get the best possible price, which may include taking out planning permission for a change of use.

The receiver will also receive rents, deal directly with all the occupants, and manage any other building issues including repairs and insurance.

The receiver’s powers only extend to cover the building against which the debt was secured. They have no power over the business that took out the loan or the owners of the business.

The costs of a receiver are met from the proceeds of any rental or the sale of the property.

Avoiding Law of Property Act Receivership

Exercising their right to appoint a receiver is very much a last resort for a lender. The cost and amount of administration associated with taking this route is considerable and lenders will usually want to avoid it where possible.

A business which is purchasing a building via a mortgage and which is struggling to maintain its repayments should contact the lender as soon as possible. It’s better to begin a dialogue sooner rather than later, as this will allow other options to be explored.

A lender might opt for a pre-receivership report by an insolvency practitioner or chartered surveyor. This can reveal issues that the lender is not familiar with which affect the property. It can also create a final opportunity for a negotiation between the lender and the borrower prior to the appointment of a receiver.

The Value of Good Advice

An organisation that is having problems repaying a mortgage is likely to have other financial difficulties as well. It is probably insolvent and facing claims from a range of different creditors.

Business managers should seek professional advice as soon as they realise the business is, or will soon be, insolvent. There are a number of different routes that organisations can take. Business turnaround specialists or insolvency consultants are well positioned to give the right guidance in this situation, as they will have helped others through similar problems.

Touch Financials has supported thousands of organisations through a number of different cash flow challenges. We operate in partnership with our customers, taking the time to understand their needs before developing the solution that’s right for them.

If you’re facing an insolvency situation why not make contact with us to discuss how we might be able to help? One of our experts will take you through a no-obligation consultation that will help us learn more about your situation, and you’ll discover how Touch can help you.

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