Who are they and what is their role?

An LPA Receiver is appointed under the Law of Property Act 1925 and has the powers and duties specified in and limited by that Act. Where an appointment is solely under the LPA, the receiver appointed by the lender will only have the very limited powers set out in section 109(3) and (7).

Section 101 (3) of the LPA provides that the provisions of the LPA regulating the powers of a receiver and their exercise may be varied and extended by the Mortgage deed.
Receivers generally referred to as Law of Property Act (LPA) Receivers fall into the following two categories:

1. Receivers appointed by virtue of the power to appoint a receiver implied into a mortgage deed by section 101(1)(iii) of the LPA; or
2. Receivers appointed by virtue of an express power of appointment contained in a mortgage deed.

In the case of receivers appointed under an express power in a mortgage deed, the term LPA Receiver is strictly speaking a misnomer (the correct term being Fixed Charge receiver) but it is the term that is frequently used. Most modern mortgage deeds contain an express power to appoint a receiver and it is very rare for a lender to rely simply on the power implied by the LPA.

LPA Receivers can be appointed in respect of the property of companies, partnerships or individuals.

Definition of "Property"
The LPA defines property as "any thing in action, and any interest in real or personal property". This is a
wide definition.

Definition of "Receiver"
Any reference in the Insolvency Act 1986 or Companies Acts to a "receiver" or "manager of the property of a company", includes a receiver or manager of the property of a company, or (as the case may be) a receiver of part only of that property and a receiver only of the income arising from the property or from part of it.

This encompasses an LPA Receiver, in respect of company property, who must comply with the requirements of the Insolvency Act. The definition of a receiver in section 29 of the Insolvency Act does not apply to appointments in relation to individuals.

When an LPA Receiver can be appointed
A lender who has a fixed legal charge on a property has a power under the LPA, when the facility monies
have fallen due, to appoint a receiver:

(i) of the income of the mortgaged property, or any part thereof; or,
(ii) if the mortgaged property consists of an interest in income, or of a rent charge or an annual or other
periodical sum, a receiver of that property or any part thereof.

A mortgagee owes no duty of care in effecting the appointment of a receiver. The mortgagee is
contractually entitled to exercise its right to appoint a receiver and, in deciding whether to do so, it owes no duty of care to the mortgagor or guarantors. It has a right to appoint a receiver to protect its interests and its decision to do so cannot be challenged except perhaps on the grounds of bad faith (Shamji v Johnson Matthey Bankers Ltd [1991] BCLC 36).

Power of sale
The power of the lender to appoint a receiver under the LPA will only arise when the lender is able to exercise its power of sale under the mortgage. The power of sale arises when the mortgage money has become due but cannot be exercised unless and until one of the following has occurred:-

(i) Notice requiring payment of the mortgage money has been served on the mortgagor, or one of two or more mortgagors, and default has been made in payment of the mortgage money, or of part thereof, for
three months after such service; or
(ii) Some interest under the mortgage is in arrears and unpaid for two months after becoming due; or
(iii) There has been a breach of some provision contained in the mortgage deed or in the LPA, or in an
enactment replaced by the LPA, and on the part of the mortgagor, or of some person concurring in making
the mortgage, to be observed or performed, other than and besides a covenant for payment of the
mortgage money or interest thereon.

The Official Receiver should note that most modern mortgage deeds:-

1) contain an express power to appoint a receiver whenever the Security created by the deed is enforceable; and
2) exclude the operation of section 103 of the LPA and extend the power of sale.

Powers of an LPA Receiver
The statutory powers of the LPA Receiver are limited to those set out in section 109 of the LPA and any such appointment might only be appropriate, for example, where the mortgaged property is a building, which is let out, and the mortgagee just wants to collect rent. The powers may be supplemented by any additional powers included in the legal charge itself and, in view of the limited nature of the LPA powers, it is normal for the mortgage deed to make provision for additional powers. The mortgagee can also delegate his powers to the receiver.

The receiver's only direct powers under section 109 of the LPA are:

• the power to demand and recover all the income (which will include rent) of which he is appointed receiver, by action, distress or otherwise. He can give valid receipts for that income.

• the receiver shall, if so directed in writing by the mortgagee, insure and keep insured against loss or damage by fire, out of the money received by him, any building, effects or property comprised in the mortgage, whether affixed to the freehold or not, being of an insurable nature.

Delegated powers
The LPA Receiver has any other powers that may have been delegated to him by the mortgagee by virtue of section 109(3) of the LPA. The mortgagee's contractual powers, which can be delegated to the receiver, in writing, under the LPA are:-

• A power to sell the mortgaged property on such terms as he thinks fit.
• Whilst the mortgagee is in possession, the power to cut and sell timber and other trees ripe for cutting, and not left standing for shelter or ornament. To exercise this power, a qualified arboriculturalist would be required as receiver.

• The mortgagor or mortgagee of land, whilst in possession, has the power to make leases subject to the terms laid down in this section.

The power of the mortgagee to make leases in this section can be delegated to the receiver in writing. The mortgagee can accept a surrender of a lease but only for the purpose of granting a lease under section 99 above.

This power can be delegated to the receiver in writing.

Contractual powers
An LPA Receiver's powers are limited to the powers provided for under section 109 and the delegated powers provided for at section 109(3). It is because these powers are so limited that it will be rare for the Official Receiver to come across an LPA Receiver in the strict sense. Such appointments are likely to be under a charge that was created at least 20 years ago when it was not uncommon for the contractual powers of a mortgagee to be very limited or where the charge arises under local government legislation.

Fixed Charge Receiver
The Official Receiver is much more likely to come across a fixed charge receiver. A fixed charge receiver is appointed under an express power contained in a provision in a mortgage deed, entered into by the mortgagor and the mortgagee. This deed may significantly widen the circumstances under which the mortgagee can appoint a receiver and considerably enhance the powers available to the receiver, e.g. the power to employ agents, which would include the ability to instruct solicitors, and the power to insure the property over which he has been appointed for all necessary risks, and not just fire. A fixed charge receiver has the powers given to him under the LPA and also the further contractual powers given to him under the mortgage or charge under which he has been appointed. The extent of these powers depends upon the documentation that appoints him, which should be examined in every case.

Application to Court for Directions
A receiver or manager of the property of a company appointed under powers contained in an instrument, or the persons by whom or on whose behalf a receiver or manager has been so appointed, may apply to the court for directions in relation to any particular matter arising in connection with the performance of the functions of the receiver or manager.

On such an application, the court may give such directions, or may make such order declaring the rights of persons before the court or otherwise, as it thinks just.

This allows the receiver or the mortgagee, in relation to company property, to apply to the court on matters of uncertainty about the appointment, powers and remuneration of the receiver.

Discharge of expenses
Subject to the provisions of the LPA as to the application of insurance money, the receiver shall apply all money received by him as follows, namely:

(i) In discharge of all rents, taxes, rates and outgoings whatever affecting the mortgaged property; and
(ii) In keeping down all annual sums or other payments, and the interest on all principal sums, having priority to the mortgage under which he was appointed receiver, i.e. making any payments due in respect of prior charges; and
(iii) In payment of his commission, and of the premiums on fire, life or other insurances, if any, properly payable under the mortgage deed or under the LPA and the cost of executing necessary or proper repairs directed in writing by the mortgagee; and
(iv) In payment of the interest accruing due in respect of any principal money due under the mortgage; and
(v) In or towards discharge of the principal money if so directed in writing by the mortgagee; and shall pay the residue, if any, of the money received by him to the person who, but for the possession of the receiver, would have been entitled to receive the income of which he is appointed receiver or who is otherwise entitled to the mortgaged property. Depending on the circumstances this could be a subsequent charge holder or the owner of the property, perhaps the Office Holder in respect of the Bankrupt or company in liquidation.

Application of insurance money
The mortgagee can require that all monies received in respect of insurance of the mortgaged property be applied;

• to make good the loss or damage in respect of which the money is received; or

• towards the discharge of the mortgage money.

Remuneration
The receiver shall be entitled to retain out of any money received by him, for his remuneration, and in satisfaction of all costs, charges, and expenses incurred by him as receiver, a commission at such rate, not exceeding five per cent on the gross amount of all money received, as is specified in his appointment, and if no rate is so specified, then at the rate of five per cent on that gross amount, or at such other rate as the court thinks fit to allow, on application made by him for that purpose.

Liquidator can apply to fix the receiver's remuneration
Where a company goes into liquidation, the liquidator may apply to the court for the fixing of the receiver's remuneration. The court can vary any order it makes fixing remuneration.

The landlord's position
The Receiver has no power to disclaim a lease and is not personally liable for contracts entered into prior
to his appointment, e.g. the lease. The landlord can pursue other parties to the lease or the remedies of
forfeiture or distress notwithstanding the receiver's appointment.

If you have any questions relating to this paper, please contact:

Mark Taylor, Head of Department & Business Development
T: 0845 404 1902
Email: mtaylor@incasso.co.uk