Receiver contracts involve a sale of an asset by a receiver who is usually appointed by a bank pursuant to a mortgage or charge where the mortgage has gone into default.
Because of the receiver's limited knowledge of the property, it is common for such contracts to include onerous special conditions. However, it is necessary to strike a balance between the rights of the receiver, given their limited knowledge and dealings with the property, and the rights afforded to a purchaser.
Conveyancing Committee's Practice Notes
The Conveyancing Committee of the Law Society issued practice notes on receiver contracts on 29 January 2019 and 31 May 2019. These provide helpful guidance on some of the issues that both purchaser and receivers might encounter in these types of sales / transactions.
- Where a receiver is selling a distressed asset they cannot give all of the normal warranties and exclusions which a private seller would be expected to give. However, absolute exclusions of representations and warranties, resulting in the purchaser receiving no protection are not appropriate. Where warranties are given, they should be limited to the receiver's knowledge, information and belief and be from the date of his / her appointment.
- It is not acceptable to have a special condition in the Contract which binds a purchaser prior to completion but binds the vendor at a subsequent date. This highlights the balancing act between the rights of the parties and the Committee advises that should a special condition be required to prevent the receiver from being bound until completion, then the Committee recommends that the purchaser should similarly not be bound until completion.
- For residential property, where Local Property Tax, Non Principal Private Residence confirmation and Household Charges applies, these should all be discharged prior to completion in line with good practice and statutory requirements. The Local Government (Charges) Act 2009, the Local Government (Household Charge) Act 2011 and the Local Property Tax Act, 2012 govern these requirements and the regulations provide that the vendor (the definition of which includes an agent of the vendor) receiving proceeds of the sale, shall pay any NPPR and Household Charge prior to the completion of a sale. The regulations also state that it is an offence to fail to discharge these charges prior to closing and there are various penalties for the offence. It is normal practice however, to receive undertakings to discharge the liabilities from the sales proceeds and the Committee consider this to be recommended practice. It is imperative that all undertakings are clear as to the terms in relation to time and limitation of liability language should not be used. It is also important to bear in mind that a receiver is personally liable under a receiver undertaking.
- It is permissible for a receiver to exclude personal liability, except in relation to receiver undertakings to discharge liabilities as per the above. The receiver is personally liable under a receiver undertaking.
- Where unregistered property is being sold, the receiver must still provide maps / plans which are Land Registry compliant and suitable for first registration purposes. These maps/plans can be furnished without representation and warranty, which runs parallel with the exclusion of representations as to the boundaries of the property. In receiver sales the receiver contracts that he / she gives no warranty as to boundaries. This is because he/she has no personal knowledge of the property. It is always advisable for the purchaser to inspect the property and its boundaries prior to completion of the sale as under the contract, the purchaser is deemed to have done so. A purchaser may need, at their own expense to engage their own experts (architect / surveyor) to confirm same.
- Where the property is within a multi-unit development or otherwise part of a scheme of development and where service charges are payable, the usual pre-contract requisitions and associated documents must be provided.
- Although a planning warranty is highly unlikely to be provided in the Contract, all planning documents relating to the property, including any document in the receiver's possession or held by the mortgagee, should be provided with the contract.
- Receivers should provide evidence from the local authorities and Irish Water confirming the position as to whether the roads and services abutting or servicing the property are in charge.
- The usual conveyancing declarations, such as the family law declarations, the section 72 burdens declarations and any further declarations depending on the title produced, should be furnished on closing by the receiver. These declarations will usually be limited to the actual knowledge, belief and information of the receiver having made appropriate enquiries.
- The Committee state that the following documents should be furnished by the receiver:
- A “certified copy” of the receiver's deed appointment
- The original mortgage / charge over the property. Where part only of the secured asset is being sold, a certified copy of the mortgage/charge is acceptable along with an undertaking to produce the original in the Land Registry to procure registration
- Evidence of the right to appoint a receiver having arisen, usually as per the general conditions attaching to the mortgage, however if not clear, a demand letter or declaration ( appropriately redacted) by a suitably qualified person on behalf of the lender confirming that a demand was made and not met
- a paper release / discharge of the mortgage / charge.
- The Committee have advised against the deletion of general condition 25 of the 2019 Conditions of Sale which deals with the vendor providing an undertaking to assist with land registry queries post completion. The practice note specifically mentions receiver sales as any post completion query regarding the execution of documents can only be dealt with by referring those queries back to the receiver or the bank in question.
One of the duties of a receiver is to obtain the best price for the asset which they have been appointed over and an argument can be made that in order to achieve this, the receiver should provide the best title available. However, it is interesting to see how persuasive this argument is given the property market at the moment and the real estate demand.