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LPA Receivers - understand their powers and end the myths

By Nick Horton, Partner and Head of Dispute Resolution.

In the blizzard of daily news about property in the current recession, appointments by mortgage lenders of Law of Property Act 1925 (LPA) Receivers is making a fast comeback at a level not seen since the last major property slump.

A tool for lenders

LPA receivership is a tool for lenders in enforcing their mortgage security. The limited statutory powers of Receivers are widened by the standard clauses in charges. A Receivers' basic power is to receive the income from the property and apply it. These powers have improved LPA receivership as a tool specially designed for situations where the relatively straightforward type of enforcement (entering into possession and selling the property) is not an attractive option for the lender. This could be due to the particular circumstances of the property or to general market conditions.

Typical receivership situations

Typical receivership situations are where the property has been let by the borrower, so that the Receiver effectively assumes the role of landlord, or where the property is held as a commercial venture for development and sale or letting. Recently LPA receivership has become more common in the home mortgage sector.

The need for expertise

The lender needs to ensure the most profitable handling of the property pending eventual sale to discharge the mortgage debt. The appointment of an LPA Receiver gives the lender a degree of legal separation from the handling of the property, so that the Receiver takes the risk of liability on the lender's behalf.

Development projects

For instance, the lender in a development project may wish to appoint a Receiver as an alternative to insolvency proceedings or the exercise of step-in rights or the right to go into possession. The Receiver will, on behalf of the lender, take on the whole range of complicated responsibilities and liabilities. In a partially completed development these issues, from construction problems to environmental liabilities, are often intimidating.

Effect on a tenant

A tenant whose landlord's interest in the property has been put into the hands of an LPA Receiver will get a letter to pay rent only to the Receiver.

Assessing the impact

Obtain sound legal advice from a specialist in this field to assess the impact on the tenant in the particular circumstances. The tenant's own obligations under the lease will not alter but the insolvency of the landlord may well be imminent and this is a prospect on which the tenant will need legal advice.