Property in Receivership: The obligations of a property’s receiver as a tenant under the lease (Alma Property Management Ltd v Crompton – 2023)

Where a receiver becomes the tenant under a lease of property, how do the receiver’s obligations under the lease operate and what are their liabilities?

The background

Alma Property Management Ltd v Crompton [2023] concerned a 22-storey tower in Manchester, comprising a hotel on lower floors and residential flats held on long leases to units in the upper levels. Alma Property Management was the freeholder of the tower and, having defaulted on its borrowing over the reversionary interest, receivers were appointed.

A lease had been granted of the common parts and structure of the building to a lessee which was responsible for their repairs and maintenance, for which the leaseholders of the building paid a service charge. The tenant company under this lease had been dissolved, and the receivers made an application to court for this lease to be vested in them. A party acquiring the freehold would therefore also take an assignment of the lease.

Before a sale of the freehold could be completed, Alma redeemed its charge and the receivership was ended. An error, whereby an assignment of the lease of common parts was drafted but not completed, meant that the lease remained vested in the receivers.

With the structure of the building in a state of considerable disrepair 4 years later, Alma demanded that the receivers made good the disrepair as lessees under the lease. The leaseholders of the flats in the building were willing to take an assignment of the lease and undertake the repairs through a company controlled by them, and the receivers applied to Alma for consent to assign the lease. Alma gave consent conditional on the receivers entering into an Authorised Guarantee Agreement, which was refused by the receivers.

Alma applied for specific performance of the lease’s repair covenants. The receivers made a counterclaim, seeking a declaration that Alma had unreasonably withheld consent to the assignment.

The High Court dismissed the specific performance claim, and awarded judgment on the receivers’ counterclaim. When the receivers were appointed, they were acting as agents for Alma and, given that the receivers were entitled to an indemnity from Alma, an order for specific performance would be inappropriate. An AGA was not appropriate or reasonable in this case, given that the indemnity from Alma would only arise in respect of its obligations under the lease, and would not extend to future obligations under an AGA. Alma appealed.

The decision

The Court of Appeal found in favour of the receivers, dismissing Alma’s appeal.

Bringing a new argument into the appeal, Alma stated that the lease was held by the receivers on trust for Alma following redemption of the charge. Alma contended that it was therefore able to direct to the receivers how the lease should operate. The counterclaim, argued Alma, was therefore seeking court approval to a bare trustee’s non-compliance with the directions of its beneficiary.

This was dismissed by the Court of Appeal. The proceedings were based on the parties’ relationship as landlord and tenant, and not as trustee and beneficiary. The receivers were entitled to apply for consent to assign the lease to the leaseholders’ company and, where a condition placed upon that consent by Alma was unreasonable, the consent was to be deemed unconditional. The receivers were able to assign the lease to the leaseholders.

Advice and action for landlords

This judgment is an interesting analysis of the liabilities of receivers, and the operation of their role as tenants. Specific performance was not a remedy available to the freeholder in this instance, given that the receivers had been acting as agents for the freeholder during their appointment, and the freeholders’ requirement of an AGA was unreasonable.

On appointment, and particularly where assuming the role of a landlord, tenant or other party involved in a contractual relationship, receivers should ensure they are fully aware of the extent of their liabilities and obligations. Where a receivership is coming to an end, appropriate planning and consideration must be given to all liabilities, assets and other obligations required of, or enjoyed by, the receiver to ensure that these are assigned, released or redeemed as appropriate.