Fixed Charge Receiver Appointed – What Next? Personal Consequences

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Fixed Charge Receiver Appointed – What Next? Personal Consequences

A lender will appoint a Fixed Charge Receiver over charged property when the lender of any property funding scenario sees a risk to their loan. For example, a material change in the loan to value provision or cost overruns.

The lender will lay out the full terms of the loan in the loan document. Provisions for such instructions and the terms will then be there for the FCR to use as their appointment, with reference to S101 – 110 of the Law of Property Act 1925.

Very often the appointment is a surprise. The FCR may change the locks and those involved in the property such as tenants, contractors etc may be the first to realise what is going on BEFORE YOU!.

From the date of the appointment, the FCR now controls and runs the asset and everything with it.

Events that typically culminate in the appointment of the FCR include:
    • Breaches of Covenant, the safest investment can go wrong,
    • Cost overruns on a project, for whatever reason,
    • Non-payment of instalments of the mortgage,
    • Promised sales do not materialise,
    • Downward price and market movements, and
    • All the above are at the behest and decision of the lender who must do the best to alleviate any risk to their loan and security.
For any borrower the risks and concerns cover:
    • No notice and the embarrassment,
    • If there is personal exposure, in say the individual name or any Personal Guarantee given as Security to the Loan,
    • Loss of potential profits and rentals, plus
    • Many others, including the grief that may stem from outstanding contractor payments due etc.
The roles of the Fixed Charge Receiver include:
    • Taking control of the asset/property,
    • Ensure they receive the rents generated if any,
    • Insure the property,
    • Take the commercial view on what to do with the property with the lender, ultimately selling the property,
    • Deal with any issues, such as title problems or irate contractors, and
    • Report regularly to the lender and advise accordingly.
All of the above is fine but if your lender appoints a Fixed Charge Receiver it has a huge effect on the borrower and the people involved.
How do you conduct yourself and how do you look to protect yourself in these instances:
    • The issues of Personal Guarantees are dealt with under that section of our website. These are in the main not called upon until the sale is concluded,
    • Being realistic is vital. If you are in denial, then you will cause problems further down the track. ‘It’s not my fault – Guv!’ will not work,
    • That said know your position and rights and get the best specialist advice as soon as you recognise the problem/or when you believe a FCR will be appointed.
    • Fully understand and look to calculate any personal loss position,
    • Be reasonable and work with the lender or FCR but be under no illusions it will not eradicate any losses you may face. We have any number of cases where ‘promises’ have been made by the lender to ‘go easy’ if you perform certain tasks and roles, but rarely does it work like that.
The costs involved in the appointment of a FCR can be frightening. These include:
    1. The loss on any sale as the appointment of a FCR, plus the fact that any sale will refer to their appointment will see buyers looking for bargains,
    2. The FCR and their advisors’ costs can be frightening. The FCR has carriage of the case and may see it fit to appoint specialists to assist them. FCR costs are always a huge point of controversy, and
    3. Excessive interest, lender costs or exit fees.

In conclusion, whilst we say this about many of the areas, we work in, dealing with any FCR appointment and your personal exposure is a complex area of work. That said you have rights and whilst the lender appoints a FCR, they have to work in a diligent way.

For example, if you expected a profit from the development then this needs to be computed reasonably, then all stakeholders are aware of your expectations. Doing that should then ensure the FCR is focused on you/your company’s needs.

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