Effect of sales agreed by bank appointed receivers

A recent case [1] demonstrates that, where a sale has been agreed by bank-appointed fixed charge receivers, this will not result in the customer being prevented from redeeming the mortgage, as would be the case where the bank had agreed a sale. The court did therefore have the power to grant an order for sale.

Whether an order for sale will be granted will depend on the terms agreed by the receiver and whether they are more attractive than the sale proposed by the borrower.

Background

Mr Hunter (Mr H) was the owner of two parcels of agricultural land and buildings that were subject to two registered legal charges in favour of the National Westminster Bank plc (the Bank) which secured his mortgage debt. It was a term of each of the charges that Mr H could not sell the charged property without the Bank's consent. Mr H defaulted in repayment of the two mortgages, and the Bank appointed receivers to realise the charged property. In addition, the Bank issued possession proceedings and subsequently obtained an order for possession against Mr H. The Bank entered into discussions with Mr H in relation to the outstanding debt. Mr H vacated the property, part of which was then sold by the receivers, however, he continued to tend to the land and feed the livestock that remained there.

Mr H made proposals to sell the remaining land to a company (the Company) which was owned and controlled by his wife. He entered into a contract for sale for each parcel of land and purported to sell the land free from registered encumbrances. The contracts were to be completed in six months' time; however, in the meantime, the Bank instead later sold the property at auction to a third party. On the day of the auction, Mr H made offers (on behalf of the Company) to buy the property at a price exceeding the guide price and valuation, with part payment to be made upfront and the rest to follow in 12 months. However, given the proximity of the auction and the lack of proof of funding, the Bank refused Mr H's offer and proceeded with the auction. Under the auction contract, completion would occur once the livestock had been removed from the land.

Mr H applied for an order for sale under section 91 of the Law of Property Act 1925 to enable his sale to the Company to proceed, in preference to the sale arranged at auction by the Bank.

Decision

It was held clear that Mr H had been, and remained, a person with an interest in a right of redemption as the freeholder of the land subject to mortgage, which could be redeemed in full on payment of full outstanding debt. Mr H therefore had an interest in the equity of redemption, and the court thus had jurisdiction under section 91.

The judge observed that Mr H had, through the receivers' agency, validly contracted to sell the property, despite the fact that the auction sale had been held against his wishes. Nevertheless, the judge stated that the court would not intervene to upset the contractual arrangements the receivers had entered into to sell the charged property. The realisation of the property under the auction contract was preferable to the offers Mr H had made: although Mr H had offered a higher price, the receivers were entitled to 10 per cent. deposit under the auction contract with the balance due on completion (which was a comparatively early date). In contrast, Mr H had offered that the balance would be paid after completion and had provided no evidence that funding had been secured. In addition, the third party buyer would have rights, that it would be entitled to pursue if Mr H was allowed to purchase the property in preference to the third party, via the auction contract.

The livestock left on the land were classed as chattels personal and therefore goods for the purposes of the Torts (Interference with Goods) Act 1977. Although Mr H owned the livestock, they remained in the possession or control of the receivers as bailees and the court was therefore entitled to order their sale. In such circumstances, the court dispensed with the requirement that the Bank had to serve a notice requiring Mr H to remove the livestock.

[1] National Westminster Bank plc v (1) Robert Hunter (2) Karen Hunter [2011] EWHC 3170 (Ch)