When a rental property is in receivership —usually because the owner of the property has defaulted on their mortgage— the tenant can find themselves caught up in possession proceedings against their landlord. This article explains what are a tenant’s rights when their home is in receivership.
What is receivership?
Receivership is a legal process wherein a specified person (the receiver) is appointed, by a court or charge-holder (usually the mortgage lender), to be in charge of the assets of an individual or a business. A landlord typically goes into receivership when they fail to pay their mortgage or breach the terms of their mortgage agreement. A receiver’s objectives can vary, so we fill focus on the most common types of receivers that a residential tenant is likely to encounter:
- Law of Property Act receiver
An LPA receiver is appointed under the Law of Property Act 1925 and has the powers given to them by section 109 of that act. These include the power to grant or terminate a lease on the property, to collect rent from the tenant, to carry out the landlord’s duties, and to insure the property against fire. The LPA cannot exercise a power of sale. Note that if the landlord is a company, then the LPA receiver will also need to comply with the Insolvency Act 1986.
- Fixed-charge receiver
A fixed-charge receiver is appointed under the mortgage deed and has the powers of an LPA receiver along with the additional powers given to them by the mortgage agreement. These may include the power to sell the property, to take possession of the property, to carry out repairs or building works, to insure the property against various risks, to borrow funds and instruct solicitors etc. Note that many mortgage deeds empower a fixed-charge receiver to do anything that the owner of the property may do.
- Court appointed receiver
This kind of receiver is appointed by a court under the Senior Courts Act 198, and the receiver has the powers granted to them by the court order. These depend on what the court has instructed them to do e.g. to collect rent, to sell the property, to manage the property and carry out repairs. Note that the receiver can apply to court to have their powers widened if it is necessary.
Is the tenancy binding on the receiver?
The first thing to note here is that a mortgage lender can only appoint a receiver when they can exercise the power of sale. This means that selling the property is almost always on the table, but this is not always the route that the mortgage lender —and the receiver working as their agent— will take. Mortgage lenders are often banks or building societies, and they have many options available to them to realise the security.
Since the property itself is not a loan, but the security (aka collateral) that the landlord gave in exchange for the loan, a receiver may be instructed to (a) sell the property, or (b) keep collecting rent. The route the mortgage lender takes depends on the particular facts of the case. However, it is safe to say that the receiver’s main objective will be to maximise the payments owed to the mortgage lender.
If a mortgage lender wants to sell the property, they will likely need vacant possession of the property and will seek to evict the tenant. You can read about what this means for the tenant in Part 2.
On the other hand, if the mortgage lender wants to keep collecting rent from the tenant, the receiver will usually write to the tenant informing them of receivership and the situation with the rent. A receiver in rent essentially takes the position of landlord as far as the tenant is concerned: rent is paid to them, they are the first point of call if anything goes wrong unless they’ve hired a property manager, they will carry out essential repairs etc. When the fixed term of the tenancy ends, the receiver and the tenant will decide what happens next.
It is important to understand that although a receiver in rent will function a lot like the landlord, they legally do not become the new landlord; they simply take on the right to manage the property and receive income from it. Further, the tenants rights and duties under the tenancy agreement do not change when their rental is in receivership.
Read Part 2.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.