The rights of LPA Receivers over RTM properties
Appointment of an LPA Receiver
Law of Property Act Receivers (“LPA Receivers”) are persons appointed to deal with property by those with an interest in it, such as a chargeholder, under powers contained within the Law of Property Act 1925. LPA Receivers can also be appointed in respect of other assets over which a charge is held, in addition to freehold property. LPA Receivers do not need to be insolvency practitioners; in practice, they are frequently surveyors.
LPA Receivers are appointed in order to take control of a property as a result of a defaulting borrower; usually, to sell it to realise the asset. Borrowers may have accrued arrears of mortgage payments or breached the terms of their mortgage in some other way. The LPA Receiver’s duty is to the lender
Commercial properties may need to be let and require some continuing management of tenancies, and many properties over which LPA Receivers are appointed have issues to address such as poor states of repair, title issues or poor relationships with third parties. The LPA Receiver’s role is therefore much more far-reaching than a situation where a mortgagee sells in possession; there is an expectation that the LPA Receiver will actively manage the property, resulting in an asset with higher value and better realisation.
Where an LPA Receiver is appointed, this may be over both landlord or tenant mortgagor. Can the LPA Receiver exercise right to manage powers in respect of the property?
Mortgagor as landlord
Under the Commonhold and Leasehold Reform Act 2002 (“CLRA”), a right to manage must be exercised by a qualifying tenant, or tenants, who occupy a property within a block under a long lease. Where an LPA Receiver is appointed to manage a property owned by a defaulting landlord borrower, this right does not extend to exercise of the right to manage conferred by the CLRA; the LPA Receiver is assuming the responsibilities and rights of the landlord, not the qualifying tenant(s). Their involvement could extend only to membership of the company and representation in decision-making.
Mortgagor as tenant
The LPA Receiver is unable to exercise a right to manage where they are appointed in respect of a landlord’s charge, but can they assume this role where they are appointed over the property of a tenant borrower?
Again, the CLRA would likely preclude this right. In Choumert Road RTM Co Ltd v Assethold Ltd , the Leasehold Valuation Tribunal held that ‘qualifying tenants’ should be defined as those tenants named as the registered proprietors at the Land Registry.
Where LPA Receivers are appointed, the name of the registered proprietor is not changed and the defaulting borrower remains in situ on the property’s register until a sale is completed. The tenant therefore retains its status as the qualifying tenant, the LPA Receiver unable to assume this title under the LVT’s interpretation and therefore unable to exercise the right to manage, again despite having been appointed by a chargeholder over property owned by the defaulting borrower.
JB Leitch’s Rob Denman comments:
“Following the recession, LPA Receivership became a much more common way to manage a property until its value and the prevailing market conditions were such that it could be realised. It is interesting to note that, despite likely relevant expertise, in neither the case of a defaulting landlord nor defaulting tenant can an LPA Receiver assume the right to manage the property. This strict interpretation, particularly by the LVT in Choumert, should be considered by lenders prior to appointment over block and commercial properties where management is identified as an issue.”
LPA Receivership has become a much more common way to manage a property until its value and the prevailing market conditions are such that it could be realised. It is interesting to note that, despite likely relevant expertise, in neither the case of a defaulting landlord nor defaulting tenant can an LPA Receiver assume the right to manage the property.