Buying a property in the usual way can be complex, but acquiring a property from a receiver appointed by a lender under the terms of the Law of Property Act 1925 can be even more so and therefore more stressful. In such circumstances, the warning “caveat emptor” or “buyer beware” has never had more significance.
The practical reality is that the purchaser is typically buying a “distressed asset” which may appear to represent a bargain due it being at a competitive price. However in acquiring the said “bargain”, the purchaser is expected to assume certain risks.
The lender will usually have suffered a loss on the property and will want to dispose of it as soon as possible to minimise that loss. They will want to sell the property as it stands, and will try to avoid incurring any extra expenses. Once appointed by the lender, the receiver will take possession of the property and dispose of it by way of sale. The receiver has a duty to obtain the best price possible.
In a standard purchase, the purchaser’s solicitors will raise enquiries with the seller and replies will be provided. The contract for sale would contain certain warranties and representations from the seller. With a receivership, the contract will limit the purchaser’s rights to make standard enquiries and will exclude many of the warranties and representations that a purchaser would generally expect.
There is likely to be very little co-operation or contact between the registered owner, who would have direct knowledge of the property, and the receiver. The lender or receiver themselves will usually have very little personal knowledge of the history of the property and will be unwilling to spend time providing information to a purchaser.
The result is that the onus to have certain matters investigated will pass from the seller to the purchaser instead. The purchaser, assuming that a mortgage is required to buy the property, will also have to convince their own lending institution that all matters such as planning and title are in order.
This usually means that the purchaser will have to instruct an architect, engineer or surveyor to carry out a full survey and issue appropriate certification to enable the purchaser to satisfy their lending institution. The documentation on a receivership sale differs slightly from a standard transaction with particular formalities concerning the appointment of the receiver and how it signs off documents and these need to be checked by the purchaser’s solicitor.
The timeframe is often much reduced compared with a standard transaction, as the receiver needs to realise the assets as quickly as possible. This means there is a potential conflict between the purchaser needing to carry out sufficient due diligence and the receiver putting pressure on the purchaser for a quick completion but unwilling or unable to provide due diligence information.
Once the available due diligence information is obtained, the purchaser and its advisers can review the nature and extent of the risk it is being required to assume. The purchaser will then be able to take an informed, commercial decision as to whether or not to accept those risks..
- Instruct a reputable solicitor experienced in commercial property.
- Do not make a hasty decision based on the lowest price.
- Gain as much local knowledge as possible.
- Instruct a competent architect, engineer or surveyor to reduce the risk of unexpected problems over matters such as condition, access, planning, building or boundary issues.