When Would a LPA Receiver or Fixed Charge Receiver be Appointed
When would you appoint a LPA Receiver or a Fixed Charge Receiver
When to Appoint a LPA Receiver
A LPA Receiver or Law of Property Act Receiver is appointed by a lender, or mortgagee, who has a fixed charge over property under the statutory power given to that lender in Section 109 of the Law of Property Act 1925. The LPA Receiver's primary duty is to the lender, as opposed to the borrower or any other creditor.
Such an appointment may only take place if:-
1. the mortgage money has become due, and
2. the mortgagee has become entitled to exercise the statutory power of sale, where:-
2.1 there has been default in repayment of a loan for 3 months after a notice requiring it, or
2.2 Interest remains unpaid for 2 months after becoming due, or
2.3 there is another breach of the Act.
A LPA Receiver's powers, under the Law of Property Act 1925 are limited to collecting rent and safeguarding the property, which does include making repairs and insuring it.
There is an interesting case on the above which is known as Chatsworth Properties Ltd v Effiom which you can read by following the link.
When to Appoint a Fixed Charge Receiver
This will largely depend on the terms contained within the Mortgage Deed or Fixed Charge. Essentially, if there is any breach, or default, of the terms of the loan then the right to appoint a Fixed Charge Receiver would generally arise. Again the Fixed Charge Receiver's primary duty is to the lender as opposed to the borrower or any other creditor.
More often than not, most legal charges will contain a definition of what constitutes a breach or default and will list the key issues. Typically this would include:
- The Mortgage has not been redeemed by a certain date, i.e. the Mortgage has come to an end of the fixed term and the capital and outstanding interest need to be repaid.
- The agreed monthly payments under loan agreement have not been paid on time, or at all.
- The borrower has breached a specific term of the agreement, for example has failed to provide evidence that the property is adequately insured.
- If the borrower is a limited company, and is refusing to provide copies of accounts to the lender, that could constitute a breach for non-cooperation.
- The borrower is refusing the Lender reasonable access to the property to inspect it.
- The borrower is subletting the property without permission.
- The borrower is damaging the building, or is failing to maintain it properly, which in turn is causing the value of the property to reduce.
Most modern charge documents also substantially extend the powers of a Fixed Charge Receiver, to better allow them to deal with the property and maximise realisations. The most obvious extension is to give the Receiver the power to sell the property.
Another important extension is granting the Lender a Power of Attorney to sign documents on behalf of the borrower. If the Fixed Charge Receiver's appointment is made under deed, which it should be, then, if allowed by the Charge, it can grant the same Power of Attorney to the Receiver. This can be extremely useful when selling a property, particularly when signing the the Sales Agreement and TR1 Form for the Land Registry.
How to Appoint A Receiver?
Appointing a LPA Receiver or Fixed Charge Receiver is quick, easy and straight forward.
A Deed of Appointment, signed and witnessed by the Lender, is sent to the Receiver. The Receiver must acknowledge and accept the appointment in writing by the end of business on the following day. Once accepted in writing the Receiver is appointed.
However, in reality the Lender and Receiver will first discuss the case, the property in question, the borrower, and how best to approach the receivership.
The Receiver would also wish to undertake a review of the situation, prior to accepting the appointment, which will include:
- Obtaining Office Copies from the Land Registry in respect of the property to make sure that the mortgage is properly registered.
- If the borrower is a limited company, or a limited liability partnership, the Receiver would also wish to check that the mortgage or charge is registered at Companies House.
- They will also check to ensure that it was registered within 21 days of being created, otherwise it could be invalid, which may mean that their appointment is invalid.
- The Receiver would also check the terms of the charge to ensure that the power to appoint a receiver has arisen.
- The Receiver would also check the terms of the charge to check that the charge gives them the necessary power to deal with the property.
What needs to be done once Appointed?
The two most important things to be done on appointment are:
Instruct a Solicitor
It is important that on appointment a Receiver immediately instructs a solicitor to validate their appointment. The solicitor will double check all of the paperwork, to ensure that the Lender's power of sale has arisen, which in turn means that they are entitled to appoint a receiver. The solicitor will also, as far as they are able, wish to check the validity of the Lender's charge/mortgage, and the powers that are available to the Receiver.
Insure the Property
Most LPA Receivers have what is called "Open Cover" insurance, and is a special type of insurance policy that will basically insure anything, immediately. This policy typically last 30 days, during which the Receiver will provide information to the insurers, who will then formalise the insurance policy. That 30 days can be used to obtain valuations, reinstatement values, and to take steps to safeguard the property and meet any conditions on the policy. For example draining down the heating system and turning off the gas and electricity, for unoccupied properties.
There are many other things that need to be done on appointment, but, in my view, are slightly less important and time critical than the above two. These include:
- Writing to the borrower to notify them of the appointment and to agree a time and date to have a meeting.
- If the borrower is a limited company, or limited liability partnership, then there are special forms to be filed at Companies House within 7 days.
- Obtain a valuation of the property.
- Inspect and secure the property.
- Speak to agents to determine a strategy to deal with the property.
- Write to the tenants to collect rent, if the property is tenanted.
- Obtain possession of the property. This may require a Court Order and therefore legal advice will be needed.
- Get the property on the market if selling the property is the best way to repay the monies owed to the Lender.
- If the property is a commercial property there may be other factors and actions that need to be taken into account.
Once all of the above has been done by the LPA Receiver, the LPA Receivership should be off to a good start to try to realise the property for the best possible value and repay the Lender as soon as reasonably possible.
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