Ask the receiver - The risks involved

Ask the receiver - The risks involved



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An LPA or Fixed Charge Receiver is appointed personally, and thus they take personal risk and are exposed if their actions are negligent or breach the various and many duties that a receiver has.
 
What sort of risks might arise?  The obvious include under-selling a property, not marketing it fully, forgetting to deal with a rent review or perhaps choosing to complete a development and taking on all the attendant developer's risks.  There are other more subtle risks which might include failing to deal with health and safety issues or forgetting to pay a ground rent to a freeholder where one is appointed on a commercial long leasehold interest, or perhaps failing to deal swiftly with pollution or environmental concerns.
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We have increasingly found that borrowers are choosing to challenge receivers through litigation; such an action can come about many years after a receiver has finished with their appointment.  We regularly accept instructions from litigation lawyers to assist them with expert advice and we have found an increasing volume of instructions where borrowers are choosing to pursue a receiver.  This is because over the last few years, borrowers have tended to buy properties in single purpose vehicles (companies owning one property). This ring fences each individual transaction and should a transaction fail, the bank only has recourse to that property in that company name. The borrower, who might well be a wealthy individual, cannot therefore be pursued for any loss or shortfall to a bank or lender and can keep other assets out of their reach too. What this has meant is that when receivers are appointed, high wealth borrowers can and do choose to watch both lender and receiver like a hawk and have the resources available to attack, sometimes long after a property has been sold. This means that any receiver that a lender chooses to appoint should be a registered property receiver, as their systems and processes will undoubtedly be robust enough to ensure that any such attack is thwarted.  An interesting question arises as to whom will foot the bill for any litigation brought by a borrower once a loan has been closed.  Clearly, the costs of defending such an action arise directly from the appointment itself and thus should be recoverable from the lender or the borrower. 
 
We have not yet had to test this specific question but readers might like to contact the writer in order to discuss this matter further. 
 
Simon Tilsiter is a Director of Strettons and a registered property receiver and can be contacted on 0208 509 4430.
 

1 s78(3) Environmental Protection Act 1990.  A Receiver is not guilty of an offence in relation to contaminated land or personally liable for remedial costs provided the damage requiring remediation is not attributable to any unreasonable act or omission on his part. 

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