Mr R was the owner of mixed commercial and residential premises which were subject to mortgage lender repossession after Mr R defaulted on mortgage repayments because of a downturn in his business. After the premises were repossessed, the lender appointed receivers to sell the property to pay the outstanding borrowing.
Mr R tried in vain to keep control of the premises by seeking to arrange re-financing with a new lender in the hope that this would allow him to buy the premises back from the receivers. Unfortunately before contracts could be exchanged for Mr R’s repurchase of the premises, the receivers agreed a sale with another buyer.
Mr R later discovered that the new buyer had only paid half the estimated valuation he was given when he was trying to get refinancing. Mr R was obviously concerned that the receivers had under sold the premises, so he contacted Meade King’s dispute resolution team to discuss whether he had professional negligence claim against the receivers.
How We Helped
When it comes to marketing and selling mortgaged property, the duty of a receiver to a borrower is not to achieve the best possible price and receivers are not automatically negligent if a better price could have been achieved. The case, Aodhcon v Bridgco  suggested that a receiver could be in breach of their duty if the achieved price was ‘plainly on the wrong side of the line’ and a receiver marketing a property that is subject to repossession should obtain the best price ‘reasonably obtainable’. The burden of proof is on the borrower to establish that in selling the mortgaged property the receiver has breached this duty.
But the case law also said that where the amount achieved is just sufficient to pay off the outstanding borrowing owed to the lender, as was the case in Mr R’s claim, the Court may review the transaction particularly closely. A combination of this and the stark difference between the refinancing valuation and the sold price resulted in our advice to Mr R that a claim was justified.
In the High Court proceedings that followed, we made a claim on behalf of Mr R that the receivers had failed to adequately advertise the premises for sale so hadn’t exposed the property to the market. In particular, we alleged that the receivers had failed to consider the substantial improvements that Mr R had made to the property during the receivership, and that they hastily accepted an offer which was well below the open market valuation.
We instructed an experienced valuation surveyor to help us determine the true market value of the premises. Our expert provided a detailed and technical report giving their opinion of the value of the premises taking into account a number of factors, including a review of comparable properties and the marketability of the commercial and residential units. We claimed that Mr R was entitled to the difference between the expert’s valuation and the price achieved by the receivers. The receivers instructed their own valuation surveyor and, despite a shared approach, the expert valuations were several hundreds of thousands of pounds apart.
Because of the parties’ contrasting expert evidence, the case was long running and hard fought with the solicitors acting for the receivers doggedly defending their clients. However about three months before the trial was due to start, the receivers’ solicitors made an offer of approximately £150,000 to Mr R. This offer included damages for the alleged under sale and payment of his legal costs.
Mr R accepted the offer, which was paid by the receivers’ insurers, and he recovered all of the legal costs he paid, without having to go to trial.
If you are involved in a receivership, remember that you can still call the receivers to account if you think you are not being treated fairly.
Please call the professional negligence team now on 0117 926 4121 or make a free enquiry online to discuss a potential professional negligence claim or an insolvency related matter.