During the property boom in Northern Ireland a large number of investment properties were purchased. These were subsequently rented out by the property owners. Many of these properties were purchased using buy to let mortgages. However, the ensuing economic downturn has resulted in many owners finding it difficult, despite the receipt of rental income, to meet their liabilities to their mortgage companies. This has direct consequences for the tenants in these properties.
In most instances, when the borrower accrues arrears on a buy to let mortgage, the mortgage terms and conditions and legal charge permits the mortgage company to appoint a Receiver in respect of the property. The power to appoint a Receiver is also conferred on the lender by the Conveyancing and Law of Property Act 1881.
Purpose and Role of a Receiver
Lenders may appoint a Receiver to realise secured debts on real property. Receivers will generally have broad powers to realise assets such as the sale of property, and, in respect of rental properties, will have the power to collect rent. A lender may want to ensure that rental income is paid to the Receiver and not to the landlord. This income is used to pay what the borrower owes the mortgage company.
The Receiver's principal legal duty is to the lender who appointed him. However, the Receiver must
- act in good faith,
- take reasonable precautions and
- exercise due diligence in the sale process or the collection of rent.
Tenant’s position under Receivership
When a Receiver is appointed they will seek to ascertain whether the property is occupied. It is important that tenants engage with Receivers when requested. When a Receiver is appointed the following points must be noted:
- The Receiver is entitled to receive the rent and income of the property and to manage the property.
- The Landlord no longer has any right to receive the rent or income of the property or any authority to manage the property.
- Rent should no longer be paid to the Landlord.
- The Receiver does not become the Landlord. The Landlords obligations under the lease and the law remain the responsibility of the landlord and are not affected by the receivership.
- The appointment of the Receiver does not change the tenant’s obligations under the lease and under law.
Tenant’s security of tenure under Receivership
It is essential that tenants engage with the Receiver to confirm their legal right to reside in the property. If contact is not made by the tenant, the Receiver may proceed to seek possession by making an application to the Chancery Judge on the basis that the person in occupation is an illegal occupant. This application can be used to expedite vacant possession of the property and the costs of court proceedings could be sought against the tenant. Such an action may be defended by evidencing the existence of a tenancy.
In most instances, the Receiver can only terminate a tenancy under the same circumstances a landlord could. If the tenancy is a fixed term agreement then the Receiver could only end the agreement early if there is breach of the tenancy eg non- payment of rent. Once the tenancy comes to an end the Receiver has no obligation to extend the agreement. Importantly, if the tenancy is unauthorised, ie put in place by the landlord without the bank’s consent, the Receiver would have authority to disregard the lease. However, many Receivers shall proceed to honour the tenancy if rent is being paid.
Whether the tenancy is authorised or unauthorised, the Receiver shall be required to follow the due process of law. As such, the Receiver shall be required to service the relevant Notice to Quit and seek a Court Order to obtain vacant possession.
Repairs
The legal obligation to carry out repairs remains with the Landlord. However, while there is no legal obligation on the Receiver to carry out repairs, the Receiver may, with the banks permission, use rent collected to carry out urgent repairs and maintenance. Often a Receiver shall appoint a management agent in respect of the property, and they should be the first point of contact.
Insurance
The landlord is obliged by the mortgage agreement to insure the property. However, if this insurance has lapsed, the receiver must use the rent collected to keep the insurance required by the mortgage agreement in place. This insurance is unlikely to cover building and contents insurance and a tenant should contact the Receiver to confirm the adequacy of the cover for their needs.
Deposit
The landlord remains liable to return the deposit to you under the terms of the tenancy, the Receiver is not legally liable to repay the deposit paid to the landlord. However, if a tenancy is entered into when a Receiver is already in place, the tenancy agreement should be consulted to ensure that it is clear who has the responsibility to repay the deposit. If the Receiver enters into a new tenancy any deposit paid or transferred to the Receiver may have to be protected in line with the Superstrike judgment.
