enforced sale - council acquisition rather than disposal

Hi

Interesting debate internally where an enforced sale procedure is nearing its final stages ie could the council legitimately force a sale in favour of itself as both the enforcer and the purchaser, instead of following the accepted route of disposing by auction (or through private treaty to a preferrered third party).

Reading through previous posts I am fully aware that this is very much open to risk and challenge on the grounds that this is not a 'true sale' as such, despite the council undertaking competitive valuations to establish market value etc, but grateful for responses from anyone who might have actually done this before, or at least has some thoughts to offer please?

Thanks

Keith   

 

Forums: 
Enforced Sale

Keith

Following on from the post below.

https://www.ehnetwork.org.uk/forum-topic/enforced-sale-0

There is significant risk with this approach as a "sale to self" is considered no sale at all.

A mortgagee is generally free to decide when to exercise the power of sale; but when it does decide to exercise the power, it must take reasonable steps to obtain best price. Further the mortgagee does owe a duty to the mortgagor, and any other creditors with an interest in equity of redemption (other charge holders) to both act in good faith and use his powers for proper purposes – it is quite difficult to prove a mortgagee has acted in bad faith.

However, an example of this duty is that any sale must be a real sale and not a sham and it is for this reason that a mortgagee should not sell to itself or if selling to a connected person, then there are additional safe guards Farrar v Farrars Ltd 1888, Henderson V Astwood, Atwood v Cobbold, Cobbold V Astwood 1894  and Tse Kwong Lam V Wong Chit Sen 1983.

The burden of proof, for breach of the mortgagee's duties, lies with the mortgagor unless the mortgagee sells to a connected company / party in which case the burden of proof is reversed.

Generally, a mortgagee cannot sell to himself - unless the sale of the property is made by the court and the mortgagee has been given leave to bid. An application can be made under the provisions of Section 91 Law and Property Act 1925.

A sale to an employee may be permissible but only where the mortgagee can show that it has acted in good faith and has obtained the best price reasonably obtainable and the burden will be on the mortgagee to show it has done so Tse Kwong Lam V Wong Chit Sen 1983

There was also a more recent Court of Appeal case (December 2015) appeal by PK AirFinance and GECAS against the decision of the Commercial Court in Alpstream v. PK AirFinance, which provided a clarification of duties owed by mortgagees for financiers and lessors. It related to aircraft but would be relevant to mortgagees. The defendant argued that the sale of the Aircraft was void based on it being a "sale to self", the Court did not agree based on the individual circumstances of this case.

I would suggest that it would be more prudent to dispose of the property in the usual way or use the procedure under Section 91 Law and Property Act 1925.

Just from a perception of fairness from an owner’s point of view.

If your lender repossessed your home and sold it to themselves. The perception rightly or wrongly would be that there was something underhanded going on. It may therefore encourage a party to take issue with the approach.

There has been a number of cases in relation to certain Banks including Clydesdale, Lloyds and RBS allegedly driving thousands of businesses to the wall after making inappropriate loans, and then supposedly asset stripped those businesses for millions of pounds once they were insolvent.

RBS in particular has been singled out for criticism — its department set up to help businesses in trouble in fact dismantled 90pc of SMEs referred to it

It is a matter of risk both in monetary terms and reputational damage.

Better to come to the table with clean hands and be above approach.

As always this does not constitute legal advice and is only for general information.

You should seek legal advice your own Solicitors. If your Solicitors or anyone else has an alternative view, then please add to the post as the above is only my view.

Regards

Andrew Lavender

Housing Consultancy and Training Limited

 

Hi Andrew - thanks for this - having discussed with legal internally, they basically concur with your explanations, so back to the more conventional disposal routes I guess.  

best wishes

Keith