In a new series of articles, Simon Tilsiter, Director & Registered Fixed Charge Receiver at Strettons Chartered Surveyors, describes exactly what happens when a receiver is appointed, and offers us an exclusive insight into some of his own recent cases…

I am often appointed as an LPA Receiver (some call it a Fixed Charge Receiver) too late. The loan is in default, the borrower and lender are at war, neither trust each other and gathering relevant information including up to date documentation is difficult.

The question though is - should I have been appointed at all?

A lender under a carefully drawn security documentation has many powers; the power of sale, to secure possession, to appoint a receiver are just a few, if the documentation is properly drawn then all of the lender's powers can be transferred to a receiver but often the best course of action is for a lender and a borrower to discuss matters at an early stage, and for the lender to act as mortgagee in possession without the need to appoint a receiver. The benefit to the lender is that costs are kept to a minimum, control is retained and with a straightforward property, a house or a shop and upper part, a disposal can be realised quickly. The mortgagee in possession will of course have a duty and a liability to secure the best price reasonably obtainable but by instructing a reputable agent and securing two formal valuations a mortgagee can more than adequately protect themselves. The process of securing possession either physically or technically can often be straightforward and with the assistance of an experienced insolvency lawyer the lender can recover its capital, interest and costs swiftly.

The disadvantage of being mortgagee in possession is that the lender takes on liabilities relating to getting the best price, obligations under any leasehold interest such as paying service charges or repairing premises, and of course they have to collect rents, manage a building, look after tenants, involve themselves in running service charges. Coupled with this the lender may well find themselves responsible and liable under health and safety, employment and environmental legislation if they are in possession and in control. Where the premises are not straightforward and involve multi let property, then appointing an LPA Receiver will not only be cost effective, it will minimise risk and will mean that a property expert will be able to manage the premises and secure additional value to maximise the realisation for the lender. This latter point is especially pertinent when the loan is under water and where every penny counts.

So the original question - Should a receiver be appointed at all? - needs to be considered quite carefully. The lender should identify more complicated property loans at the outset and work closely with their ‘regular’ receiver so that the receiver can monitor the loan in the background. In this way the receiver can guide the lender and their legal advisers as to what documentation should be sought at the early stages of the loan and throughout its life so that if things turn sour then the receiver already has knowledge of the premises and of the documentation and contracts in place. By having an on-going relationship with a property expert/receiver the lender can ensure that the borrower is aware of the receiver's existence right from the outset and can build any charges into the loan agreement. Further, should the borrower get into difficulty then the receiver and the lender can visit the borrower together and demonstrate that the threat of appointing a receiver is not an idle one. I have been involved in many cases where the mere threat of a meeting with the intended receiver is enough to get a loan back on track and that in itself brings the borrower to their senses. In other instances our early involvement means that we can hit the ground running and can stand in the borrower's shoes when we are appointed (for this is precisely the role we take) with greater speed and effectiveness.

Two examples spring to mind. The first related to my appointment as receiver on a flat in South London where I did little more than inspect, report on the documents, secure a valuation and place the property in our auction. This case would have been better dealt with by the lender as mortgagee in possession instructing us as auctioneer rather than as receiver and auctioneer. In another example, I was appointed as Receiver by a private lender on a pub with a flat above except that when I inspected I found that the flat had been sub divided into seven studios all let to tenants on benefit, the electricity supply was ’wired’ into next door, the electrical installation itself had been stolen from EDF, the freeholder (the property was held on a long lease) had not been paid ground rent and the tenant in the pub had stopped fitting it out as the borrower was supposed to have done the initial works and had not.

The appointment of the receiver is interesting and has many benefits to a lender but with early discussion with a receiver a lender can quickly ascertain whether an appointment is of assistance or whether the lender might be better off taking possession and doing it themselves.

For more information contact Simon Tilsiter on 0208 509 4430.