How to appoint an LPA receiver

How to appoint an LPA receiver

Appointing an LPA receiver is a powerful way to recoup a debt when a borrower defaults on a loan secured against property. If the borrower misses a payment or breaches the loan agreement in some other way, the lender can appoint an LPA receiver, also known as a fixed charge receiver, to take control of the property. They can repossess the asset without court approval and sell it to ensure the debt is repaid in full.

Here we look at the LPA receivership process in more detail and discuss how you appoint an LPA receiver and what their role is. 

What is LPA receivership?

LPA receivership, short for Law of Property Act receivership, is the process a lender can use to recover an asset when a debtor with a secured loan, such as a mortgage, falls into arrears. The LPA receivership process allows a lender to take ownership of the property for a single missed payment or other breach that represents a default.

The benefit of this process is that, unlike other forms of receivership, an LPA receiver does not have to be a licensed Insolvency Practitioner. Surveyors and solicitors can also assume the role, making it a powerful debt recovery tool. It’s also cost-effective, as LPA receivership fees are capped at 5% of the gross sum returned, and it’s difficult for the debtor to challenge.  

How does LPA receivership benefit lenders?

LPA receivership allows lenders to take quick and decisive action. The benefits of the process include:

• You can appoint a receiver without court approval
• The financial status of the debtor is immaterial - you can appoint a receiver if they’re solvent or insolvent and no proof of insolvency is required
• The receiver only acts in the interest of the creditor they are appointed by - they do not consider the interests of other creditors
• The sale of the secured asset typically leads to full repayment of the liability
• The process is cheap as receivership fees are capped 

When can you appoint an LPA receiver?

Any lender holding a fixed charge over a property can appoint an LPA receiver. That could be a mortgage or other secured loan where a property is used as collateral. The exact conditions that allow you to appoint a fixed charge receiver will vary from lender to lender according to the precise terms of the loan agreement.

Generally speaking, common grounds for entering LPA receivership include:

• The loan term has come to an end but there’s outstanding capital or interest that has not been paid
• The borrower does not pay the agreed monthly payments on time or at all
• The borrower does not provide requested documentation, such as proof that the property is adequately insured
• The borrower does not give the lender reasonable access to the property
• A limited company does not provide accounts to the lender when requested
• The borrower damages the property, fails to maintain it or sublets it without permission

Almost all charge documents contain a clause that allows the lender to appoint an LPA receiver. Once appointed, they will assume the role of the owner and deal with issues such as repairs, insurance and damages. They can also collect rent, commence a sale or advertise for new tenants. The actual owner will have no control over the property while the receiver is in place.

One common scenario where an LPA receiver may be appointed is a property developer who defaults on a loan and no longer has the capital to complete a development project. At this point, the lender can appoint an LPA receiver. The LPA receiver may decide the only way to recoup the debt in full is to complete the project, which they’ll do before selling the development to repay the lender. 

How do you appoint an LPA receiver?

The process of appointing an LPA receiver is straightforward. Once a default event occurs, the fixed charge lender must obtain evidence that the loan conditions have been breached. Often that is done by making a formal payment demand. If no payment is made, that serves as proof of the default and receivership proceedings can begin. 

The next step is to appoint a receiver, which you must do in writing. Typically, you’ll meet the receiver to discuss how they’ll approach the receivership first. The receiver will also want to review the situation to ensure the property is properly registered and check the terms of the charge. If everything is okay, you can issue a signed Deed of Appointment. The receiver will officially be appointed when they accept the position in writing.

What happens when a receiver is appointed to a property?

The LPA receivership process is designed to protect the interests of lenders and ensure that borrowers receive fair treatment. Once a default event has occurred and you have appointed a receiver, the process will usually go as follows.

Assume control

The receiver will take control of the property as soon as they are appointed. From that point, they are responsible for its management and collecting rent from existing tenants. 

Insure the property

LPA receivers must insure the property with an ‘open cover’ policy, which covers against any risks for 30 days. That makes the receiver liable for any issues so the lender won’t have to worry about additional costs. The receiver will also safeguard the property, including turning off the gas and electricity and draining the radiators if the property is unoccupied.

Assess the property

Once the property is insured and the policy’s terms have been met, the receiver will conduct a thorough assessment to determine the property’s value, condition and potential for realising capital or generating rental income. 

Recover the debt

Following their assessment and in consultation with the lender, the receiver will seek to recover the debt. There are several strategies they may implement, including:  

Making improvements to the property to improve its marketability
Managing the property while generating a rental income
Marketing and selling the property

The receivership ends

In most cases, the receiver will sell the property, potentially after making improvements, and use the money to repay the lender. Any remaining funds are returned to the borrower and the receivership concludes. 

Expert LPA receivership advice

At Eddisons, we act as LPA receivers for financial institutions and lenders throughout the UK and are experts in managing and securing vacant properties. Our RICS-registered team provides professional advice and practical guidance to realise the maximum value in distressed scenarios. Read more about our asset advisory, restructuring and recovery services and get in touch to discuss your requirements with our team.