Dispelling Receivership Myths

As receivers, we are seeing a rocketing number of appointments driven by current economic and market turbulence. Indeed, our instructions have increased threefold year-on-year. Not only are we experiencing a rapid rise in instructions, but so is the wider market, with NARA, The Association of Property and Fixed Charge Receivers, reporting a 38% increase from 2022 to 2023, and a 13% jump in the first half of 2024 compared to the same time last year. It appears the majority of distress is within the residential sector, making up 75% of all appointments. The Autumn Budget will likely make matters worse, with some of the measures introduced set to have a significant impact on businesses and property investors. 

While receivers are in high demand, the process of receivership and our role within it are still poorly understood, and several particularly misleading myths need to be addressed.

Fire sale

When receivership is mentioned, the phrase “asset fire sale” pops up in people’s minds. But whilst receivers have no obligation to improve and cannot delay the sale, the property must be properly marketed to get the best price.

Allsop runs a diligent process to ensure that we speak with local agents, establish the likely buyer, choose the best agent to market the property, and ultimately accept offers in line with the market. For example, we recently sold a mews house for a similar price to another mews that was not distressed. Listening to agents and understanding the local market is key to unlocking the full potential of the asset.

Discount

As night follows day, receivership and discounts are linked in many minds. However, properly marketed properties sell at market value. Whilst this might not seem so at first glance, dig deeper and you will find issues to justify the pricing, such as assets that are tricky to finance on standard terms, extinct planning consents, title issues or problems with the building itself. As receivers do not need to improve the properties, they are often sold subject to these issues and an astute buyer will discount accordingly.

Everything is auctioned

Allsop is known as the UK’s leading auction house, so it’s assumed that all our receivership properties are sold at auction. However, historically, Allsop’s receivership disposals by number of cases can be apportioned to a third via redemption, a third through private treaty, and only a third by auction. Recently, the redemption figure has increased to 68%, possibly reflecting a smaller pool of buyers, higher LTV ratios, and lenders' lack of appetite to take a loss with a sluggish market to sell into.

Receivers just kick people out of their homes

This is not true as receivers are bound by tenancy contracts. This means they can only gain possession through negotiation, and the courts as receivers are not above the law of the land, so they will not be banging down doors and turfing people out.

All rubbish goes to receivers while administrators get the good stuff

Receivers are more adept at dealing with complex property issues than administrators because they are surveyors and have considerable expertise, honed through general practice. This enables them to deal with a wide variety of property issues in-house, rather than using other professionals and incurring substantial fees. They can also make decisions without reporting to the courts, resulting in a faster and cheaper process.

Receivership is a complex process

Some people baulk at the idea of receivership, fearing a complex legal structure and process. But the process of receivership is simple: there is a breach in the mortgage terms, formal demand is served, it expires, and receivers are appointed by deed with the powers of the charge holder given to the them. The receivers then accept and begin the debt recovery process. There is no need to apply to court in most cases, and lenders can therefore use the receivership route to protect the asset from external issues, such as demolition or lease forfeiture.

Receivers have a variety of tools at their disposal to secure the best outcome for the lender. No case is the same, and some mandates require a truly creative approach, making it a highly dynamic and exciting sector to be in.

This blog was first published on 14th November 2024 by Property Week. You can see the full article here.