Royal Institution of Chartered Surveyors: Property Act Receiverships

Debate between Jo Stevens and Phillip Lee

Tuesday 18th April 2017 Westminster Hall

[The Parliamentary Under-Secretary of State for Justice (Dr Phillip Lee)]

It is of course a great pleasure to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Cardiff Central (Jo Stevens) on bringing the important topic of the regulation of Law of Property Act receivers back to the Chamber, and I congratulate other hon. Members on their contributions. This debate was postponed from March the 22nd because of the dreadful events on that day, and I am sure that I speak for everyone in the Chamber when I say that our thoughts are with the victims’ families even now.

This debate follows on from a debate that the hon. Member for Cardiff Central secured in September 2015 relating to concerns raised by one of her constituents, Mr Kash Shabir, about the appointment of fixed charge receivers by Lloyds bank and the conduct of the individual appointed. I understand that since then there have been separate investigations by the Serious Fraud Office and the Royal Institution of Chartered Surveyors into the treatment of her constituent by Lloyds Banking Group and Alder King, the firm of chartered surveyors used by the bank, but no further action has been taken against those investigated. She is dissatisfied with that outcome and, as a result, with the current regulation of LPA receivers. Law of Property Act receivers are also referred to as “receivers of rent” and “fixed charge receivers”. I will refer to them simply as “receivers”.

The Act in question is the Law of Property Act 1925, the key provisions of which in relation to receivers are sections 101, 109 and 110, which define the relationship of the receiver with the mortgagor and the mortgagee and set out the powers of the receiver. However, the Act provides that those provisions may be varied or extended by the mortgage agreement, and most modern mortgage deeds contain express provisions that replace or supplement the statutory provisions. The relationship of the mortgagor, mortgagee and receiver is therefore, as a general rule, governed by the contract creating the security for the agreed finance, not by the default provisions in statute. The terms of agreements vary from case to case but are likely to require the borrower to allow a person appointed by the lender to take over the management of the mortgaged property when the loan is in default, usually to collect rental income for the lender to service the arrears but with the right to sell the property if necessary.

On that basis, the appointment of a receiver provides a relatively straightforward way for the lender to protect its position. The ability to do that would seem, indirectly, to help keep the cost of borrowing low and the availability of credit greater than it would otherwise be. Those are clearly desirable objectives, but giving contracting businesses the right to decide the terms of their own contracts does not mean that the receiver has carte blanche as to how he or she exercises his or her powers. Receivers are under legal obligations. They must act in good faith and use their powers for proper purposes, and although their primary duty is to the lender in securing repayment of the secured debt, they must manage the mortgaged property with due diligence and have regard to the borrower’s interests.

There will be cases where lenders and receivers do not act properly, and the hon. Member for Cardiff West—I mean the hon. Member for Cardiff Central, not Cardiff West—described circumstances in Mr Shabir’s case where questions must at least be asked. In such cases, borrowers may have the right to seek compensation by an action for damages against the lender or the receiver in respect of the wrongs alleged to have been committed. Determining the rights and wrongs of such cases is a matter for the courts, and I can only recommend that borrowers caught up in such situations should take legal advice about their rights and remedies and how best and most economically to proceed.

[Jo Stevens]

The Minister has referred to the prospect of litigation, but does he not accept that in this situation—where a small business owner has lost their entire business, has no money and is up against the might of a financial institution—it is simply not possible for them to enter litigation? That is why some alternative form of redress and a scheme is necessary.

[Dr Lee]

Of course, in a difficult situation where all of someone’s funds have been exhausted, I recognise that litigation would be a problem. It would not be appropriate for me as a Minister to comment on an individual case, but I hear what the hon. Lady says and will take away her suggestions.