Part 4 – Law of Property Act receiver
October 2013
A Law of Property Act receiver (hereinafter referred to as an LPA receiver) is appointed under statute, specifically the Law of Property Act 1925. The Law of Property Act 1925 covers conveyancing and property law in England and Wales, sections 99 to 110 relate to receivers.
56.2.80 Definition of “property”
The Law of Property Act defines “property” as “any thing in action, and any interest in real or personal property” [Note 1]. This is a wide definition and can include other assets in addition to freehold property.
56.2.81 Definition of “mortgage”
The Law of Property Act defines a mortgage as “any charge or lien on any property for securing money or money’s worth; “legal mortgage” means a mortgage by demise or sub-demise or a charge by way of legal mortgage and “legal mortgage” has a corresponding meaning” [Note 2]. A mortgage is, therefore, any fixed charge over a specific asset. For the remainder of this part “mortgage” should be read as including any secured debt.
56.2.82 Registration of mortgage or charge
Any mortgage or charge should be registered with the Land Registry [Note 3]. In addition, where the charge is on property owned by a company it must be filed with the registrar of companies [Note 4].
56.2.83 Local authority charges
A local authority may incur expenditure on a property under the Public Health Act 1936 and the Weeds Act 1959. Where the local authority obtains a charge on the property it will have the same powers and remedies under the Law of Property Act 1925 as it were a mortgage by deed [Note 5].
56.2.84 Insolvency Act 1986 and the Companies Acts
Any reference to a “receiver” or “manager of the property of a company” in the Insolvency Act 1986 or the Companies Acts 1985 and 2006 includes an LPA receiver. An LPA receiver appointed to deal with a company’s property must comply with the requirements of the Insolvency Act 1986 (see paragraph 56.2.93).
56.2.85 LPA receiver or fixed charge receiver
An LPA receiver is a receiver appointed under The Law of Property Act 1925 [Note 6]. In addition a receiver may be appointed by virtue of an express power of appointment contained in a mortgage deed. The correct term for such a receiver is a fixed charge receiver although they are generally referred to as LPA receivers. An official receiver will, in most instances, deal with a fixed charge receiver. For the purposes of this part references to an LPA receiver will include fixed charge receivers, unless indicated otherwise.
56.2.86 When may an LPA receiver be appointed?
A lender, who holds a mortgage by deed, has a power under the Law of Property Act when mortgage money has become due and remains unpaid or the terms of the mortgage, etc, have been breached (see paragraph 56.2.87) to appoint a receiver. A lender may include an express power in the mortgage deed to appoint an LPA receiver whenever the security covered by the deed is enforceable and to exclude the conditions mentioned in paragraph 56.2.87. Generally mortgages contain these powers and it is rare for a lender to rely on the power of sale contained in the Law of Property Act.
56.2.87 When the mortgage money becomes due
The lender can only appoint an LPA receiver when he/she is able to exercise a power of sale under the mortgage. A power of sale can only be exercised when the mortgage money becomes due and;
56.2.88 Does the mortgagee owe a duty of care to the mortgagor?
The mortgagee acts as an agent of the mortgagor when appointing an LPA receiver [Note 8]. The mortgagee does not owe a duty of care in appointing an LPA receiver to the mortgagor and guarantors, if any. The mortgagee has a contractual right, contained in the mortgage deed, to appoint an LPA receiver and a decision to do so can only be challenged on the grounds of bad faith [Note 9].
56.2.89 Who may be appointed as an LPA receiver?
The lender may appoint such person as he/she thinks fit to act as an LPA receiver. There is no requirement for an LPA receiver to be a licensed insolvency practitioner. Whilst there is an expectation that an LPA receiver should be qualified or have sufficient experience to deal with the property over which he/she has been appointed there is no statutory requirement for any such qualification or experience [Note 10].
56.2.90 Statutory restrictions on who may be appointed an LPA receiver
The following are unable by statute to be appointed as an LPA receiver;
56.2.91 Appointment of LPA receiver
The appointment of an LPA receiver must be in writing [Note 16] and has to be accepted before the end of the following business day. The acceptance does not have to be in writing. The appointment takes effect from the date when the proposed LPA receiver receives the appointment document [Note 17].
56.2.92 Registration of appointment of LPA receiver - companies
The appointment of an LPA receiver should be registered by the lender with the registrar of companies within 7 days of his/her appointment. Failure to register the appointment is an offence subject to a fine [Note 18].
56.2.93 Notification of appointment – companies
When an LPA receiver is appointed as receiver of the property of a company notification of the appointment must be provided. Every invoice, order for goods and business letter issued by or on behalf of the company, LPA receiver or liquidator and all the company’s websites must contain a statement that he/she has been appointed [Note 19].
56.2.94 Property an LPA receiver is appointed over
The LPA receiver is appointed receiver of;
An LPA receiver may be appointed in respect of the property of a company, a partnership or an individual.
56.2.95 LPA receiver as agent of the mortgagor
An LPA receiver, although appointed by the mortgagee, acts as agent for the mortgagor [Note 21]. The income or other rent derived from the property is now paid to the LPA receiver as agent of the mortgagor. The mortgagor retains his/her liability to account for any tax due from this rental or other income (see paragraph 56.2.115 for further details). The mortgagor’s liability for council tax, if any, is dealt with in paragraph 56.2.113.
56.2.96 Fixed charge receiver as agent of the mortgagee/mortgagor
Where the receiver is appointed pursuant to an express power in the mortgage deed he/she will be an agent of the mortgagee unless the mortgage deed provides otherwise. The majority of mortgage deeds will contain an additional express power that the appointment of a receiver remains the agent of the mortgagor. Where the receiver is an agent for the mortgagor the mortgagor retains his/her liability to account for any tax due from this rental or other income.
56.2.97 The nature of the receiver’s agency
The nature of a receiver’s agency has been widely discussed and summarised in Silven Properties Ltd v Royal Bank of Scotland. The appointment of a receiver does not create a “true” agency but is a method of making the mortgagor responsible for the receiver’s actions. The agency could be described as a “real” agency with the following unique features;
56.2.98 Mortgagor’s responsibility for an LPA receiver’s actions
The mortgagor shall be solely responsible for the receiver’s acts or defaults unless the mortgage deed says otherwise [Note 23]. A mortgagee shall incur no liability for the actions of the receiver unless he/she can be shown to have actively intervened in the conduct of the receivership [Note 24].
56.2.99 LPA receiver’s statutory powers
The statutory powers of an LPA receiver are set out in the Law of Property Act 1925. The LPA receiver has the power to demand and recover all the income (which includes rent) of which he/she is appointed by action, distress or otherwise and must provide valid receipts for that income [Note 25]. Given the limited statutory powers of an LPA receiver it is usual for the mortgage deed to make provision for additional powers. The mortgagee may also delegate his/her powers to the LPA receiver [Note 26].
56.2.100 LPA receiver - delegated powers
The mortgagee may delegate, in writing, the following powers under the Law of Property Act 1925 [Note 27];
56.2.101 The power to obtain fire insurance
The LPA receiver has the power, if instructed in writing by the mortgagee, to obtain fire insurance for any building, effects or property, whether affixed to the freehold or not, which are covered by the mortgage. The premiums for the policy can be paid out of any monies received by him/her [Note 32].
56.2.102 Expanding the powers of a receiver by mortgage deed
A receiver appointed under the Law of Property Act 1925 has limited powers (see paragraphs 56.2.99 to 56.2.100). During the past 20 years the majority of mortgage deeds include provision of the powers of any receiver appointed to be enhanced. As stated in paragraph 56.2.85 a receiver appointed under these provisions is generally referred to as an LPA receiver rather than, the more accurate term of fixed charge receiver.
56.2.103 Typical powers of a fixed charge receiver under a mortgage deed
A fixed charge receiver has the powers given to him/her under the Law of Property Act 1925 (see paragraphs 56.2.99 to 56.2.100) together with the further contractual powers given under the mortgage or charge under which he/she was appointed. The extent of these additional powers depends upon the mortgage deed or charge under which the fixed charge receiver is appointed and should be examined in every case. The mortgage deed is likely to allow the receiver to sell the property, to collect rents, to grant leases, to borrow funds, on instruct solicitors, to employ agents, to enter into contracts, including building contracts, and to insure the property against risks other than fire (see paragraph 56.2.101).
56.2.104 The application of funds paid out under an insurance claim
The mortgagee can require the mortgagor, or the LPA receiver as his/her agent, to apply all monies received from an insurance claim on mortgaged property to;
56.2.105 The primary duty of an LPA receiver
The LPA receiver’s primary duty is to deal with the assets under his/her control. This would involve collecting the income (including rent) from the mortgaged property and may involve its sale. A LPA receiver would be in breach of his/her duty if he/she did not act to preserve and realise the property for the benefit of the mortgagee [Note 34]. The LPA receiver should distribute any monies received as follows:
56.2.106 The duty owed by the LPA receiver to prior mortgagees
The LPA receiver must account to prior mortgagees, if any, for any sums due under their mortgage [Note 36].
56.2.107 The duty owed by the LPA receiver to the mortgagor
The LPA receiver owes the mortgagor a duty to use reasonable skill and care in obtaining both a proper price for the property and in managing the property. Where the LPA receiver carries on the business of the mortgagor he/she has a duty to try and trade profitably and with due diligence [Note 37].
56.2.108 The duty owed by the LPA receiver to a guarantor
The LPA receiver owes the guarantor of a mortgage, or other secured debt, a duty to take reasonable care to obtain the best price in the circumstances [Note 38]. This duty does not extend to the general body of creditors.
56.2.109 The LPA receiver position re leasehold property
An LPA receiver may be appointed to deal with leasehold property. Where this is the case he/she has no power to disclaim the lease and is not personally liable for contracts entered into prior to his/her appointment, including the lease agreement. The landlord can still pursue other parties to the lease notwithstanding the LPA receiver’s appointment. The landlord is also free to pursue the remedies of forfeiture or distress.
56.2.110 What does an LPA receiver do?
Where a property is let by the mortgagor and the mortgagee has no intention of obtaining possession and selling the property an LPA receiver would collect the rents, and if applicable, insure the property, repair and maintain the property, pay outgoings such as ground rents, head rents, security, maintenance staff, etc., deal with legal action and make applications for planning permission. An LPA receiver could, if the mortgage deed allowed, seek possession of the property, either by agreement or by obtaining a Possession Order from the court, and arrange a sale through an agent. The mortgagee, after obtaining possession may appoint an LPA receiver to sell the property through an agent.
56.2.111 LPA receiver of company property – application to court for directions
An LPA receiver appointed in respect of a company’s property, or a mortgagee, may apply to the court for directions in connection with the performance of his/her functions. The court may give such directions or order as it thinks just to, for example, resolve matters of uncertainty about his/her appointment, powers and/or remuneration [Note 39].
56.2.112 LPA receiver of company property– preparation of accounts
An LPA receiver of a company’s property must deliver a receipts and payments account for the 12 months from his/her appointment and for every subsequent 6 month period. The accounts should be filed with the registrar of companies within one month (or such longer period as the registrar may allow). A final receipts and payments account must be filed within one month of the LPA receiver ceasing to act [Note 40].
56.2.113 The mortgagor and property tax
Where the mortgagee or LPA receiver is not in possession of an occupied property the tenant is liable for the payment of council tax or business rates. Where the property is unoccupied the mortgagor is liable for the payment of council tax or business rates. Where the mortgagor is in occupation and liable to pay the council tax or business rates the LPA receiver has a statutory obligation as agent of the mortgagor to make that payment [Note 41]. The payment or non-payment of council tax or business rates is a matter for the mortgagor and his/her agent, the LPA receiver. For advice on what an official receiver should do where the mortgagor is bankrupt or in compulsory liquidation see paragraphs 56.2.175 to 176 and 56.2.201.
56.2.114 Mortgagor registered for VAT
Where the mortgagor is registered for VAT he/she remains responsible for submitting VAT returns and paying any tax due. A mortgagor may register for VAT in order to claim VAT on his/her inputs. Where the LPA receiver is collecting rents he/she has a statutory obligation as agent of the mortgagor to account for VAT due as a result of his/her agency [Note 42]. The payment or non-payment of VAT is a matter for the mortgagor and his/her agent, the LPA receiver. For advice on what an official receiver should do where the mortgagor is bankrupt or in compulsory liquidation see paragraphs 56.2.170 to 56.2.173 and 56.2.199.
56.2.115 The mortgagor’s liability for income tax.
The mortgagor remains responsible for submitting income tax (either Schedule D or Corporation tax) returns on income from the property and paying any tax due. The LPA receiver has a statutory obligation as agent of the mortgagor to account for any income tax due as a result of his/her agency [Note 43]. For advice on what an official receiver should do where the mortgagor is bankrupt or in compulsory liquidation see paragraphs 56.2.174 and 56.2.200.
56.2.116 LPA receiver’s remuneration
The LPA receiver is entitled to receive commission from the monies collected by him/her. The rate of commission may be specified in the appointment document and should not exceed 5 per cent on the gross amount of all monies received. If no rate has been specified the rate will be 5 per cent on the gross amount. The rate of commission includes the LPA receiver’s remuneration and all costs, charges and expenses incurred by him/her. Where the LPA receiver believes the rate of commission is too low he/she may apply to the court for an increase. The court may make any order in respect of the rate of commission it thinks fit [Note 44].
56.2.117 LPA receiver’s remuneration and liquidation
Where a company goes into liquidation the liquidator may apply to the court for an order to fix the LPA receiver’s remuneration. The court may vary any order made on the application of the LPA receiver or liquidator [Note 45]. For further details of when the official receiver as liquidator should make such an application to court see paragraph 56.2.169.
56.2.118 LPA receiver and insolvency proceedings against the mortgagor
An LPA receiver ceases to be the agent of the mortgagor if;
56.2.119 Personal liability of the LPA receiver after the liquidation or bankruptcy of the mortgagor
After the liquidation or bankruptcy of the mortgagor the LPA receiver becomes personally liable, as principal, for any contract or agreement entered into after the date a resolution for the voluntary liquidation of the company was passed or a winding-up or bankruptcy order was made by the court. Where the LPA receiver, is receiving instructions from the mortgagee, they would not be personally liable as they would become the agent of the mortgagee [Note 47].
56.2.120 The position of the LPA receiver post liquidation or bankruptcy
The liquidation or bankruptcy of the mortgagor (see paragraph 56.2.118) deprives the LPA receiver of the power to bind the mortgagor personally as its agent (see paragraph 56.2.98). The formal insolvency does not affect his/her powers to hold and dispose of the property covered by the mortgage unless the creation of the mortgage is invalid [Note 48]. Further information on how the appointment of an LPA receiver affects the administration by the official receiver of an insolvent’s estate see Part 6.
56.2.121 Mortgagee’s power to appoint an LPA receiver post liquidation or bankruptcy
The mortgagee has the power to appoint an LPA receiver after the mortgagor has gone into liquidation or become bankrupt [Note 49]. There is one exception which is explained in paragraph 56.2.122.
56.2.122 Restriction on the mortgagee’s power to sell or appoint an LPA receiver in the event of bankruptcy
Where the statutory or express powers for a mortgagee, either to sell or to appoint a receiver, are exercisable because the mortgagor has been adjudged bankrupt, such power shall not be exercised only on account of the bankruptcy without the leave of court [Note 50].
56.2.123 Removal of an LPA receiver by the mortgagee
An LPA receiver may be removed by the mortgagee. The notice of removal must be in writing. The mortgagee then has the power to appoint a new LPA receiver [Note 51].
56.2.124 The official receiver and LPA receivers
Where the official receiver has to deal with an LPA receiver as result of a winding-up order or bankruptcy order being made he/she should follow the guidance in Part 6.
[Back to Part 3 Administrative receivership] [On to Part 5 Court appointed receiver]