Where receivers take steps in the course of receivership, for the benefit of a chargeholder, it is unreasonable to impose on them personal liability.
The Court of Appeal has dismissed an appeal against a refusal to order specific performance of repairing obligations in Alma Property Management Ltd v Crompton and another [2023] EWCA Civ 849.
The case concerned a 22-storey building in Salford – a hotel with flats above – constructed in the 1960s. Under the complicated leasehold structure, designed to ensure that the freeholder bore no obligations to carry out repairs or charge and recover service charge, the lessee of the common parts was responsible for carrying out repairs to the structure and exterior of the building as well as the common parts. The cost of the works could be recovered from the freeholder and tenant of the residential headlease.
Alma was registered as freeholder of the building in 2005. The defendants were appointed receivers in 2011, when Alma defaulted on a loan secured by a charge over the building. In order to preserve the asset for sale, the common parts lease of the building was vested in the receivers in 2013. They took preliminary steps to carry out repairs but then decided to sell the building. The receivership was discharged in 2016 but the common parts lease remained vested in the receivers.
In 2019, Alma brought an action against the receivers for specific performance of the repairing obligations in the common parts lease. The receivers counter-claimed for a declaration that consent had been unreasonably withheld to a proposed assignment of the lease. The judge found that the receivers had acquired the common parts lease in exercise of their powers as receivers and as agents for Alma, from whom they were entitled to an indemnity. It was inappropriate to order specific performance against them. Alma’s requirement for the receivers to provide an authorised guarantee agreement as a condition for consent to assign was unreasonable.
Alma appealed. The Court of Appeal concluded that the receivers were acting within their powers when they took the common parts lease, both under the powers in Schedule 1 to the Insolvency Act 1986 and under the conditions of the charge. They held the common parts lease as bare trustees for Alma. Once the charge was redeemed, Alma was both landlord under the common parts lease and beneficiary under a trust of the lease. While an argument on breach of trust may have defeated the counterclaim, the case was run as a landlord and tenant dispute and the judge’s decision was not wrong.
Louise Clark is a property law consultant and mediator
