Enforced Sale

We have carried out numerous enforced sales of empty in Liverpool to recover costs incurred from works carried out in default.  Normally, we would place the property in auction to acheive best price on the day.

We have one particular property in an area where all others are RP owned and are being extensively refurbised by the RP, as such we would like to see this property go into RP ownership.  I am hoping that someone on here has done similar in the past and can advise the best way to go about it.

I assume that we would need a number of valuations (I would think at least two), one of which would need to be independent and from those valuations set a price that the RP has to meet.  If anyone has any advice on this I would be most grateful.

Andrew Lavender, if you catch sight of this, I think we discussed this very topic briefly a number of years ago but unfortunately it was very brief and age dictates that I am unable to recall whether we came to a conclusion on this.  If you have any info/advice on the matter, I would be most grateful.

Regards

Terry Curnow

Liverpool City Council

Forums: 
Enforced Sale

I'd be grateful to find out thoughts on this too. We've just made an application to court for an Order for Sale on a property where the owner was previously engaging, but has since vanished. It was on the market with a local estate agent who put A LOT of work in, all at their own risk, and carried out over 25 viewings at the property.

If possible, rather than sell at aution, we'd like to list the property with this agent again, given all the work they have previously put in. Our legal guys are just keen to find out if there would be any issues with listing with a high st agent, rather than selling at auction?

 

Thanks!

 

Scott - Plymouth City Council

I have had a similar situation where i would have liked a property to go to a certain contractor as i know the works would be completed and to a good standard, however for Audit purposes i was advised that the property would have to go on the market (we put it on with an estate agent went with the highest valuation) and then sold to the highest bidder 9via closed bids)......by singling out individuals for properties (which in circumstances i completely understand as a LA we run the risk of getting into sticky situations if another person came to you and asked why they couldnt purchase the property over the prefered person)

Andrew may have another perspective...hope it helps!

Dear All

Building on the above comments.

If you are going to enforce the sale of the property for the purpose of recovering statutory debts. Then the LA has certain duties on how they handle the sale of the property under a charge. The duties are not specific to LAs but the case law relates to lenders (mortgage law). The duties are:

  • Duty to act in good faith (Downsview Nominees Ltd and First City Corporation 1992) – so LA should come to the table with clean hands.

    For instance if the LAs sold the property knowingly below market value to a particular party to enrich that individual,  then this may be construed as not acting in good faith.

    Section 104 Law and Property Act 1925 states that where a conveyance is made in exercise of the power of sale conferred by this Act, ……………., the title of the purchaser shall not be impeachable on the ground—

(a) that no case had arisen to authorise the sale; or

(b) that due notice was not given; or

(c) where the mortgage is made after the commencement of this Act, that leave of the court, when so required, was not obtained; or

(d) whether the mortgage was made before or after such commencement, that the power was otherwise improperly or irregularly exercised;

and a purchaser is not, either before or on conveyance, concerned to see or inquire whether a case has arisen to authorise the sale, or due notice has been given, or the power is otherwise properly and regularly exercised; but any person damnified by an unauthorised, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.

So that is an important section. As long as the LA acted in good faith (not fraud) and cover the following matters, a court will not interfere in the sale merely because the borrower objects. However, the court will have regard to any objections raised by those interested in the proceeds from the property such as a subsequent charge holder

  • Take reasonable steps to obtain a proper price for the asset (Cuckmere Brick Company v Mutual Finance 1971
  • Obtain best price reasonably obtainable (Den Norske Bank v Acemex Management 2003 and Dean V Barclays Bank 2007)

This is normally the market value of the mortgaged property at the date of sale not the market value at the time the decision to sell was made

  • Act Reasonable care and skill (Standard Chartered Bank V Walker 1982)
  • Act fairly towards the borrower (Palk v Mortgage Services Funding 1993

The questions raised primarily relate to the above duties.

To comply with the above duties, the LA will not be able to sell the property to themselves without a court order allowing them to do so under Section 91 (2) Law and Property Act 1925

The LA can decide when and whether to exercise their power of sale. It is not a relevant matter that the time of the sale may not be the most advantageous for the owner (recession). The LA is not under a duty to wait for better market conditions nor are they required to maximise or enhance the site value by waiting for planning permission to be granted (conversion into flats or the like).

Risk

The risk for the LA is that the owner of the property or a subsequent charge holder takes a claim for loses as a result on non-compliance with the above duties.

So how does a LA protect their position.

There is no obligation to market the property for any specific length of time. If the LA decided to accept an offer below the valuation price, then they will need to advertise the property widely and for a reasonable period of time.

A typical example is when you see in your local paper that the agent has received an offer of £72,000 on the property and asking for offers in excess of that price by a certain date usually 7 or 14 days. The LA has to consider any higher offer upto the exchange of contract, after exchange even if a higher offer comes through they can discount it.

Auction

If the property has been advertised for sale at auction, the mortgagee can feel fairly safe in accepting the highest bid at auction, but there is a requirement that the property is well advertised

  • Advertised sufficiently in advance
  • Enquiries from perspective purchasers are dealt with appropriately
  • Accurate sales particulars are produced

Is the LA under a duty to obtain valuation advice before selling the property?

Short answer is no but the LA have to comply with the above duties, selling it through a reputable agent does not relieve the LA of their duty.

Sale to a Preferred Partner

It is always a matter of handling the risk of a claim.

In some cases when I have wanted to ensure the sale of the property was to a suitable party ie Registered Social Landlord. The case was a high profile and I needed to ensure that the project was completed to a good standard.

In such a case I will instruct a RICs Surveyor (Independent and work to the red book 2017) and instructed the District Valuer – who is also independent. The RSL will also have a valuation but this would not be seen as independent as they are purchasing the property, so have a vested interest.

I will try and get both valuers to attend on site at the same time and as a result their valuations will usually come in at a similar level. They should be able to discuss the matter in detail and from a professional point of view (they are valuing the same property) would not want to be seen as miles apart.

That is not influencing the valuers, they are required to be totally independent but helps with consistency.

There would be an issue as to whether the cost of both surveyors are recoverable but in some cases the cost of the valuation is minimal when compared to the threat of a claim.

I will usually proceed with the sale of the property to the RSL at the top valuation.

Therefore, if any party tried to take a claim - I would have the RICS and District Valuer who are totally independent of the LA to support the case.

On that basis it would be difficult for the party to make a successful claim.

It is a matter for the LA to consider the best approach and to manage the risk.

If the LA are enforcing the sale of a property worth £30k, then you may consider the above approach excessive. Even if the valuation was out by 10% out (£3k) the money involved is minimal.

If your enforcing the sale of a £1M property to an RSL, then the above approach may be considered appropriate.

I have been asked by some LAs whether you can put conditions in the sale contract that the purchaser must renovate the property within a certain time period. I have known LAs to do it from time to time, but only on very low value properties.

My view would be that putting such conditions in the sale contract would not be appropriate, as it   may prejudice the ability to secure best price and hence open the LA up to a potential claim.

RAJA v Lloyds TSB 2001 the Court of Appeal held a mortgagee’s duties to the mortgagor arise in equity and / or at common law and therefore any such claim for breach of duty was subject to a limitation period of 6 years (Limitation Act 1980).

I hope the above is of assistance.

As always this is not legal advice and you should make your enquiries with your own Solicitors.

If anyone has alternative views or a different approach, then please add to the post as the above is only my view.

Regards

Andrew Lavender

Housing Consultancy and Training Limited

www.htlc.co.uk

Andrew

Thanks for that, I understand you are not answering from a legal point of view but your input was most appreciated.  The property in question is in a pretty poor state of repair and works to this property could not commence without works to the adjacent property, which is RP owned.  The RP is inerested in purchasing the property and we believe the risk is very low in this case.  We will obtain valuation from the District Valuer and from a RICs Surveyor and put that to the RP.  Thanks again for you input.

Terry Curnow

Terry Curnow

Liverpool City Council

Terry

If the property is low value and the Rics report is a comprehensive in that it includes  comparative data, rather than just saying it is worth XXXX.

If it includes recent sales in the area / street and that the property is of a very similar type.

I would suggest that you can get away with just the RICS valuation.

You would also save the owner the auctioneer fees in the above approach.

You can also take into account the conduct of the owner.

Have they been vociferous and challenging throughout the process or have they failed to engage.

You would want to be a more belt and braces approach in the first instance.

Let us know how you get on.

Regards

Andrew