The client was a guarantor, alongside another individual, for a loan facility of £1,437,500 advanced by a lender to a development company. The facility was secured by a first legal charge over a property in Whitley Bay, an equitable charge over a supplementary property, and fixed and floating charges over the company’s assets. A JCT building contract was entered into shortly after the loan was agreed, with completion expected in August 2023. By July 2023, the lender raised concerns about delays and expenditure levels, treating these as events of default and requesting additional security. A Notice of Default was served, repayment was not made, and receivers were appointed in September 2023 under the terms of the legal charge.
The client instructs that the receivers changed the locks and proceeded to sell the property despite it being occupied. The property was sold for £140,225, significantly below the valuations of approximately £218,000 to £220,000 provided by local agents. The client asserts that the property had undergone refurbishment costing around £40,000 and that the sale price was at least £60,000 below market value, causing substantial financial loss. The client also notes that the sale proceeds could have reduced mortgage liabilities on the supplementary property. The client further instructs that an eviction date has been set for tenants currently residing at the property. She wishes to prevent or delay the eviction to allow the tenants time to secure alternative accommodation. She also raises concerns about the level of interest accruing under receivership, which she estimates at approximately £30,000 per month, and attributes earlier financial strain to delays caused by the lender and its quantity surveyor during the loan drawdown process.
The primary issues concern whether the sale of the property by the receivers constitutes a transaction at an undervalue, whether the eviction can be delayed or prevented, and whether there is any legal basis for recovering interest incurred as a result of delays attributed to the lender. A transaction at an undervalue requires evidence that the property was sold for significantly less than its market value and that the transaction prejudiced the interests of the client. Although the sale price appears substantially lower than the valuations obtained, any claim would require establishing the true market value at the time of sale and demonstrating that the receivers acted in breach of their duties.
In relation to eviction, the receivers, acting under the powers granted by the legal charge, are entitled to seek vacant possession to realise the security. The client, as mortgagor, has limited ability to intervene once receivers have been appointed. The timing of the eviction also raises practical considerations, as enforcement delays within the county court system may already provide the tenants with additional time. Regarding interest, the client attributes significant financial loss to delays caused by the lender and its agents. However, the facility agreement does not appear to contain provisions enabling recovery of interest arising from administrative or procedural delays, and the contractual position is likely to govern.
Counsel advises that while there is an arguable basis for alleging a transaction at an undervalue, the practical benefit of pursuing such a claim is limited. Even if the sale were set aside or damages awarded, the client’s mortgage arrears exceed the potential recovery, and any damages may be offset against outstanding liabilities. The receivers’ duty is to obtain the best price reasonably obtainable, but their primary obligation is to the lender, not the mortgagor. It may nevertheless be worthwhile to request a written explanation from the receivers setting out their valuation methodology and rationale for accepting the sale price. In relation to eviction, the client has no direct ability to prevent or delay the process, as the receivers act in her name and are entitled to seek possession to satisfy the secured debt. Although an application could theoretically be made, it is unlikely to succeed. The client may take some reassurance from the fact that county court bailiff delays often result in lengthy enforcement periods, giving the tenants additional time to relocate.
As to interest, there is no clear contractual basis for recovering sums paid or accrued due to delays in the loan process. The facility agreement appears to permit interest to accrue irrespective of administrative delays, and there is no obvious cause of action against the lender. Counsel concludes that the client should carefully consider the cost‑benefit implications of any litigation, as the likely financial recovery does not justify the legal expenditure. The most pragmatic step is to seek clarification from the receivers regarding the sale price and to focus on managing the consequences of the receivership rather than pursuing claims with limited prospects of success.
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