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 High Court has decided, refusing an order for specific performance of repairing obligations in Alma Property Management Limited v Richard George Crompton and Another [2022] EWHC 2671 (Ch).
The 22-storey building – a hotel with flats above – was built in the 1960s. Its complicated leasehold structure was designed to ensure that the functions of carrying out repairs and charging and recovering service charge were not borne by the freeholder. Alma was registered as freehold proprietor 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 – which required the lessee to repair the structure and exterior of the building as well as the demised premises – was vested in the defendants in 2013. The receivers took preliminary steps to carry out repairs but then decided to sell the building. Terms were agreed for the discharge of the receivership in 2016 but the common parts lease remained vested in the receivers.
In 2019, Alma required the receivers to carry out extensive works of repair. The receivers sought to assign the common parts lease to a company owned by the lessees of the flats, which was liable to contribute half of the cost of the works.
Alma consented subject to the receivers providing an authorised guarantee agreement. Alma sought specific performance of the receivers’ repairing obligations under the common parts lease: the receivers counterclaimed for a declaration that consent had been unreasonably withheld to the proposed assignment.
Specific performance can be ordered where there is adequate definition of the works to be done and where damages will not be an adequate remedy for the landlord (Rainbow Estates Ltd v Tokenhold Ltd [1999] Ch 64). However, Alma was responsible for half of the cost of the repair works and could step into the receivers’ shoes under the common parts lease and recover the remaining costs.
Additionally, the receivers were Alma’s agents, managing the security on its behalf in order to discharge their principal duty to the lender. Without the common parts lease the leasehold structure was compromised. Its vesting in the receivers was done for the purpose of the receivership and they were entitled to be indemnified against liability under it.
Section 1(3) of the Landlord and Tenant Act 1988 requires a landlord to specify conditions imposed for consent, not its reasons for them, and a landlord can only rely on reasons which actually influenced its decision. Alma’s solicitor’s letter simply required the receivers to enter into an AGA. While ordinarily – due to the poor covenant strength of the management company – it would have been reasonable for the receivers to give an AGA, because they took the lease for Alma’s benefit, it was unreasonable to require them to guarantee performance of the covenants in the common parts lease long after the receivership had ended.
Louise Clark is a property law consultant and mediator
