A Law of Property Act Receiver, or LPA Receiver, is appointed under Section 109 of The Law of Property Act 1925 when a Lender, or mortgagee, is entitled to exercise the power of sale granted under the Law of Property Act 1925. What that means in plain English, is that if the borrower, or mortgagor, has breached the terms of their mortgage, then the Lender’s power of sale will have arisen, which means they can appoint a LPA Receiver.
A Fixed Charge Receiver is slightly different. They are not appointed under a statutory power within a piece of legislation, but are instead appointed under a Fixed Charge, or Mortgage Deed, that is registered at the Land Registry, and at Companies House, if the borrower is a corporate entity. It is likely that a Fixed Charge Receiver, could also be a LPA Receiver, and the term, "LPA Receiver" is often used for both inter-changeably.
A LPA Receiver does not need to be a Licensed Insolvency Practitioner and no formal qualifications are required. However obviously any Lender would want to ensure that the person they appoint is suitably experienced. Most LPA or Fixed Charge Receivers are either Insolvency Practitioners or Chartered Surveyors.
There is a voluntary licensing arrangement in the form of the Fixed Charge Receivership Scheme. The voluntary licensing arrangement is backed by several Governing Bodies; the Royal Institution of Chartered Surveyors (RICS) and the Insolvency Practitioners Association (IPA).
So, what is the point of a LPA Receiver or Fixed Charge Receiver?
The main reason a LPA Receiver or Fixed Charge Receiver would be appointed would be to take control and sell the mortgaged property following a period of non-payment of the mortgage.
The main powers given to LPA Receivers under the 1925 Act are:
1. To collect rent.
2. To pay disbursements.
3. To insure the mortgaged property.
4. To repay the appointing charge holder.
Obviously however there is one major shortcoming, which is that a LPA Receiver has no statutory power of sale. This is where a Fixed Charge Receiver has an advantage.
Most modern charge documents greatly extend the powers of a Receiver to allow him or her to do almost anything to maximise realisations to the Lender. While each charge document will be unique, the typical powers would be:
- The power to sell the property
- The power to borrow funds against the property
- The power to enter into leases
- The power to continue to trade
- The power to develop the property
- The power to bring legal proceedings
For example, if a Lender has lent substantial sums to a property developer, who is part way through a development, i.e. the land and buildings are basically a building site, and the developer has got into financial difficulty, it is likely that in order to recover all of the monies lent, the development would need to be finished, or at least partially finished to allow a sale to take place.
Accordingly making sure a Receiver has all of the extra powers listed above would be a necessity, unless the Lender themselves was to take control of the development. Given that their speciality is likely to be lending, they are unlikely to want to become first-time property developers.
When Can You Appoint a LPA or Fixed Charge Receiver?
Unless you are relying on the 1925 Act, the Legal Charge, or Mortgage Deed, should set out the terms on which the loan has been agreed and should also set out the borrower’s obligations.
Included within those documents is often a list, or at least a definition, of what constitutes a default or breach of the agreement. Again each charge will be different but typical examples 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 properly insured.
- 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 or not repairing the property, which in turn is causing the value of the property to deteriorate.
Once the mortgage is in default the Lender would be entitled to appoint a Receiver, which must always be done under Deed.
If you have lent money to a third party, who is not keeping to the terms of the loan, and have a legal charge against a property, a LPA or Fixed Charge Receivership could be an ideal way to seek repayment of the monies that have been lent.
A key advantage of a LPA or Fixed Charge Receivership, is that it is not a collective recovery process for all creditors, such as an Administration or Liquidation, but instead the Receiver’s focus is on the repayment of funds to the Lender.
If you would like to discuss any issues raised in this blog, please do not hesitate to contact us on 01326 340579 or email us at firstname.lastname@example.org.