What you need to know about the appointment of a Law of Property Act Receiver in the rural industry

UK Agricultural Finance is delighted to have Vicky White from Savills guest blogging for us this week. Savills are keen to further educate rural borrowers and brokers on the role of a Property Act Receiver in the countryside setting.

When we are appointed as Receivers under the Law of Property Act 1925 in accordance with the terms of a fixed charge, we are frequently asked questions about what we are going to do and what the effect will be.

Receivers are generally appointed when a default has occurred on the terms of a loan borrowed against a real estate asset. Defaults can occur for many reasons including mortgage arrears, breach of loan-to-value ratio or any other breach (no insurance held for the property asset, breach of occupational user etc) and the reason for the default is outlined in a formal demand issued by the lender prior to the appointment.

Typically, two Receivers are appointed over a real estate asset following a loan breach, and they will have the power to act jointly and individually. It is important to note that whilst Receivers are appointed by the lender, they are appointed to act as agent of the borrower. Therefore, Receivers have a clear independence from the lender and are acting in the best interests of all concerned.

A Receiver’s powers post-appointment can vary widely depending on the terms of the mortgage document, but in all cases will provide a power to insure which will be actioned immediately following the appointment in order to protect the value of the asset. In addition to this, in most cases, the Receiver will have powers to manage the property and complete leases where required, collect rental income, and a power of sale. It is important to note that a property is not automatically offered for sale as soon as a Receiver is appointed, and instead, the receivers will manage the asset, it may be held for some time before it is eventually sold.

Any funds that are raised (minus Receivership costs) will always be passed to the mortgagee unless there is a surplus which will be passed to a subsequent charge holder or you as the borrower, subject to individual circumstances.

Once the Receiver has insured the property they will quickly seek to make contact with the borrower to establish the current position with the property and discuss any refinance potential. In the event that a refinance is not possible or simply not desired then the Receiver will devise an appropriate strategy to enable the borrower and lender to part ways.

An exit strategy can vary on a case-by-case basis and is always discussed with the borrower. Options can include:

1. A quick refinance by moving the debt to a new lender who will take a charge over the property in place of the old lender
2. Sale of part of the security to cover the repayment of the debt only, enabling the borrower to retain the remainder – debt and stress-free – examples include the sale of some land leaving the remainder for livestock or arable use, sale and leaseback of the land, therefore, freeing up the capital. However, this is only a viable option where debt is considerably less than asset value.
3. Short/medium-term hold and rent collection, if applicable, to help amortise the debt down.
4. Review of any planning or value add angles – ESG opportunities, conversion of redundant outbuildings into holiday lets, residential development, more efficient farm management opportunities, wedding venue opportunities, glamping sites etc
5. Straight sale of the whole asset, with a duty to obtain the best price for all parties. This can become very emotional with many farms having passed through the generations and vacant possession required of the farmhouse to enable a sale to progress. This option will be progressed where no other immediate better option is identified and a sale of parts or options listed above will not enable repayment of the debt.

Whichever option above is progressed, the Receiver has a duty of care as an agent of the borrower and therefore has to demonstrate they have obtained the best price for all parties.

Effective communication with the Receivers throughout is crucial, with the Receiver taking control of all elements of the exit strategy and executing an eventual sales contract on the borrowers’ behalf. Borrower cooperation also helps keep Receivership costs to a minimum, therefore, increasing the possibility of a surplus of funds being available following the completion of a transaction.

Each case is considered on an individual basis with no one size fits all exit scenario meaning that borrowers and lenders can be confident we have done all we can to achieve the best possible outcome under the circumstances.

To find out more about the role Savills can play in rural property receivership and estate management click here. 

If you are facing receivership then we may be able to assist through our restructuring and recovery finance options which you can find out more about here.