In light of increasing interest rates and the risks of insolvency ever growing, many creditors are seeking to appoint fixed charge or LPA receivers to enforce their security over properties. The receivers will act as agents for the lender and have an obligation to agree the best possible price for the property so that the debt that the borrower/property owner has defaulted on can be repaid in part or full.
For many, buying a property by way of a receivership sale can seem very attractive as it may mean the property can be acquired at a lower price than expected. It is important to be aware that this is not without risks. Receivers will typically have no prior knowledge of the property – they will be selling with no title guarantee. It is important for receivers to ensure this is reflected in the sale contract and transfer deed. The contract will usually also confirm that no representations or warranties will be provided for the buyer to rely on. The transfer deed which will be signed to transfer the property to the buyer will need to be drafted so it is appropriate for a transfer by receivers or a lender. Typically, a form TR2 may be executed by the lender so that their charge can be discharged simultaneously with the transfer of the property. It is important that the transfer deed that is used includes the necessary provisions to provide protection for receivers and lenders against any liability.
The sales pack provided on a receivership sale will usually be very slim with very basic information provided and this must be made clear to the buyer’s solicitors at the outset too. In this situation replies to any enquiries raised will predictably be limited and as many lenders will want to prevent delay in the debt being repaid, time scales offered for exchange of contracts and completion will usually be tight.
The due diligence process for a buyer in these circumstances will usually be far less detailed than a typical purchase and to mitigate some of the risk it is crucial that the buyer inspects the property and undertakes a survey prior to committing to the purchase. Full searches should also be conducted to identify any issues such as environmental risks or planning breaches and indemnity insurance may be appropriate depending on the potential problems identified.
For receivers meanwhile, despite their lack of knowledge of the property it is important to be aware of potential roadblocks which may delay the sale. Where the property being sold is a leasehold for example, landlord’s consent may be required for the assignment to the buyer and there may be restrictions on the title preventing this unless the landlord’s requirements are satisfied. It is important that a comprehensive management pack is obtained to establish any requirements of the landlord at the outset and to obtain up to date statements to confirm whether there are any service charge or ground rent arrears which will need to be cleared on completion. It is also important that solicitors acting for the receivers establish any issues on the title for the property which may cause a buyer concern such as any other charges or unilateral notices so that these issues can be tackled or advised upon at an early stage.
It is important for both buyers and receivers to be aware of the issues that can arise during the sales process. With the right advice a buyer can take an informed view on the property they are purchasing and how best to reduce any risks identified. Collins Benson Goldhill LLP have an experienced team on hand who are happy to assist you with any enquiries you may have in respect of buying or selling through receivership. Please do get in touch with Samuel Shorrocks at sas@cbglaw.co.uk or on 0207 462 6038/07795 915323 and we would be happy to discuss any preliminary questions you may have.