Are receivers obliged to obtain the best price when selling property?

13th September 2018

The case of Centenary Homes Ltd v Jon Howard Gershinson and Victoria Liddell [2017] highlights the relatively high threshold that must be overcome by a borrower seeking to bring a claim against receivers if they believe that they have sold property for less than market value.

In a nutshell, Centenary Homes Limited defaulted on a loan which was secured against several properties, including one property (Warne Court) which comprised a number of residential flats.

The lending bank appointed receivers who proceeded to sell several properties within the borrower’s portfolio realising sufficient funds to discharge the debt owed to the bank in full and the receivers’ appointment ended. Warne Court was sold as a single block for £3.25 million rather than as individual flats which the borrower contended would have achieved a higher price.

Centenary Homes Ltd subsequently issued a claim against the receivers alleging that they had acted in breach of their duties. The company claimed that the receivers had a duty to take reasonable steps to obtain the best price reasonably obtainable. The company’s argument was that Warne Court should not have been sold as a block but as individual flats and that the combined market value for the flats sold separately was £3.885 million representing a loss of £635,000.

The receivers applied for summary judgment and strike out of the claim arguing that sale of the flats as a block was preferable due to factors such as the increased length of time it would take to sell the flats individually and the risk that market conditions could worsen over that time.

What did the court decide?

The court found in favour of the receivers and in doing so set out existing case law restating the duties owed by receivers including:

• a receiver’s primary duty is to realise the security in the best interests of the bank
• a receiver has only a secondary duty to the borrower to exercise care to avoid preventable loss
• a receiver is only required to protect the interests of the borrower where doing so is consistent with the primary duty to realise the security
• a receiver is free to sell a property in the condition it is in
• in exercising a power of sale, a receiver will owe a duty to the borrower to take reasonable care to obtain the best price reasonably obtainable at the time of sale and to exercise his powers in good faith and for a proper purpose.

On the basis of the above, the master concluded that it was not enough for the borrower to simply identify alternative strategies or decisions that the receivers might have made. The master was not convinced that the borrower could obtain any expert opinion that could sufficiently establish at trial a breach of duty and therefore struck out the claim.

WM comment

Receivers will welcome the decision as recognition that the primary duty of receivers is to realise the security to recover the secured debt. In order to protect themselves however, receivers should ensure that they document any decisions as to sale strategy and that they give appropriate consideration to the all the options available.