Law of Property Act (LPA) receivership is a process in which a creditor assumes ownership of a debtor’s property after they default on a mortgage that is secured by a fixed legal charge. An administrative receivership is a less common process in which the lender assumes control of an indebted company’s business operations in order to recover monies owed. After a lender begins acting as receiver, or appoints a receiver, the focus shifts towards collecting rent, facilitating a sale/acquisition of property, or conducting business transactions in order to cover the cost of the total debt due.
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In some instances the lender and debtor will agree on LPA receivership as the most suitable course of action because it gives the debtor the opportunity to set in motion the repayment a debt without further recourse (albeit losing a property in the process) while the creditor is able to recover the monies owed to them. The receivership procedure begins after a lender sends an appointment letter to the party whom they wish to act as receiver. The appointment of receiver is supposed to be registered with the Registrar of Companies within a week of the written appointment. However, the appointment is not invalidated if it is never registered. The lender has the right to remove the current receiver and appoint a new one at any time.
The lender’s right to enforce through receivership is granted within the provisions of the Law of Property Act of 1925, and are therefore not governed by the Insolvency Act of 1986. Thus, the lender does not have to prove then petition the Insolvency, as is the case with many other formal insolvency procedures in fact receivership is not really an insolvency procedure. Instead, as soon as it can be indisputably shown that the loan has been defaulted on the creditor has the right to use an appointment to appoint a receiver of his choice.
Under the Law of Property Act, when mortgage money has become overdue the lender has the right to begin the process of appointing a receiver to collect income from the mortgaged property. However, before the lender is able to appoint a receiver they must first be able to exercise their right of power of sale under the terms of the mortgage. Unless the mortgagor has breached a provision contained within a legal charge of the mortgage deed, the lender must first serve a notice demanding payment. If the repayment demanded is not made, the lender can then appoint a receiver. If a legal charge in the mortgage deed is violated the mortgagee has the right to appoint a receiver immediately.
The primary aim of the receiver is to act in the interests of the lender and recover all owed monies as quickly and efficiently as possible. The statutory powers of a receiver are described within section 109 of the LPA; however, it is permissible, and common, for lenders to supplement the power of an appointed receiver by adding provisions to the legal charge within the mortgage deed. The statutory powers given to the receiver in the LPA include:
Under the LPA the mortgagee also has the right to delegate the following contractual powers to the receiver:
Most receivers are fixed charge receivers, which means they are appointed under the express right granted within a provision of the mortgage deed. These provisions may make it much easier for a mortgagee to appoint a receiver, without having to go through the waiting process or payment request serving procedures mentioned above. Fixed charge receivers have the powers given to them under the LPA, as well as contractual capabilities granted under the terms of the mortgage agreement. Thus, the extent of a receiver’s powers is often determined by the appointment documentation, which should be thoroughly examined in all cases.
While many receiverships end in the property being sold this is not always the case, as an experienced receiver will examine a variety of factors to devise an appropriate strategy, including the occupancy and operating status of the property, the background and current state of the mortgage (i.e. – the balance, arrears, and monthly payment amounts), and any surmountable issues that are causing the property’s value to be decreased. In most cases an experienced receiver can find ways to add realisable value to the property before negotiating a sale or acquisition. Receivership ends when the receiver has recovered the amount of money due to the mortgagee that appointed them.
If you’re concerned about your rights as a mortgagee or mortgagor, and would like to find out more about the process and procedure of receivership, feel free to contact us today for a free consultation. Our team members are trained to accurately assess your situation and provide useful advice and assistance.