Powers of entry for enforced sale S103

Hi, we are quite advanced in an enforced sale of a propertyto recover a Housing Act 2004 LLC'd debt. The notices have all expired and the debt registered, and we are now instructing auctioneers to sell. Do we have any Powers of Entry under the Law of Property Act 1925 to a) allow the auctioneer to take details, b) do an EPC, c) allow viewings by potential purchasers? Our legal services say we do not as we are mortgagees not in possession but I am hoping this is not the case if anyone knows otherwise. Thanks, Hannah

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Enforced Sale

Hannah
Your Legal people are correct.
At the moment you have a registered charge (similar to a mortgage).
You will have given the owner 3 months notice of your intention to sell the property under Section 103, Law & Property Act 1925 "as mortgagees not in possession".
The issue from a Legal point of view is that if you change the locks and enter the property then you become a mortgagee in possession and this places the LA under a number of obligations
A mortgagee who goes into possession becomes the manager of the charged property. He thereby assumes a duty to take reasonable care of the property. This requires him to be active in protecting and exploiting the security, maximising the return, but without taking undue risks. Silven Properties Ltd v Royal Bank of Scotland plc [2003] EWCA Civ 1409; [2004] 1 W.L.R. 997.
The above case law sets out some principles that are helpful in this regard (see bottom section of post)
If we looked at an extreme example in that the LA took possession and before you sold the property in auction the property suffered an arson attack as a result of the property being insecure. As you were in possession then the LA should have take steps to secure and insure the property. Therefore, potentially it opens the LA up to a claim.
If there were goods of value in the propert,y then you will be under a duty of care for those items. We can use the Torts (Interference with Goods) Act 1977 to resolve this issue
This is the rationale why banks appoint Receivers to deal with the property rather than get involved themselves (arms length). Its the potential liability that comes from being a mortgagee in possession.
Options
1. You could just advertsie the property in auction with a general description,  a photo of the front of the property and not allow any viewings. If you have any recent internal pictures of the property you could make them available on the auction website / auction pack.
2. Become a mortgagee in possession, but exercise this right as close to the auction as possible i..e only have two viewing periods a week or so before the auction. This would allow people to gain access and get a better idea of the condition and you could undertake the EPC etc.
The risk with this approach have been highlighted above
From a practical point of view assuming that the property sells in auction you are only exposed for a period of 4- 6 weeks. So there is minimal risk.
Remember that on exchange of contracts you will still be mortgagee in possession and it is not until the sale has completed and registered with Land Registry that the legel estate passes to the new owner.
If the property did not sell in auction, then your potential liability will run for a longer period.
3. Ways and means - use your powers under Section 239 Housing Act 2004 for the purpose of survey and examination to determine whether you need to exercise any functions under Part 1 (HHSRS) to 4 (EDMO)
No access provided - pursue a Warrant under Section 240 Housing Act 2004.
Once you have the warrant, it is valid until the purpose for which the warrant was granted  has been satisfied.
You may need to "change the lock" when you gain access as a result of you exercising the warrant (hint).
This would then provide you with the keys to the property in the short term.
In the thrid option, I would suggest that you are pursuing a statutory function and not acting in the capacity as a mortgagee in possession. So you would have no liabilities.
Of course, it is a matter for your Legal Services to provide the appropriate guidance
Hope that helps
Andrew Lavender
www.htlc.co.uk
The following points about the duties of mortgages are taken from Silven Properties Ltd v Royal Bank of Scotland plc [2004] 1 WLR 997 (CA), paras 13-20:

a. A mortgagee has no duty at any time to exercise his powers as mortgagee to sell, to take possession or to appoint a receiver and preserve the security or its value, or to realise his security. He is entitled to remain totally passive.

b. If the mortgagee takes possession, he becomes the manager of the charged property. He thereby assumes a duty to take reasonable care of the property secured. This requires him to be active in protecting and exploiting the security, maximising the return, but without taking undue risks.

c. A mortgagee has an unfettered discretion to sell when he likes to achieve repayment of the debt which he is owed. The mortgagee's decision is not constrained by reason of the fact that the exercise or non-exercise of the power will occasion loss or damage to the mortgagor. It does not matter that the time may be unpropitious and that by waiting a higher price could be obtained: he is not bound to postpone in the hope of obtaining a better price.

d. The mortgagee is entitled to sell the mortgaged property as it is. He is under no obligation to improve it or increase its value. There is no obligation to take any pre-marketing steps to increase the value of the property.

e. There is no duty on the part of a mortgagee to postpone exercising the power of sale until after the further pursuit (let alone the outcome) of an application for planning permission or the grant of a lease of the mortgaged property, though the outcome of the application and the effect of the grant of the lease may be to increase the market value of the mortgaged property and price obtained on sale.

f. The mortgagee is free (in his own interest as well as that of the mortgagor) to investigate whether and how he can “unlock” the potential for an increase in value of the property mortgaged (e.g. by an application for planning permission or the grant of a lease) and indeed (going further) he can proceed with such an application or grant. But he is likewise free at any time to halt his efforts and proceed instead immediately with a sale. By commencing on this path the mortgagee does not in any way preclude himself from calling a halt at will: he does not assume any such obligation of care to the mortgagor in respect of its continuance.

g. If however the mortgagee is to seek to charge to the mortgagor the costs of the exercise which he has undertaken of obtaining planning permission or of granting a lease, subject to any applicable terms of the mortgage, the mortgagee may only be entitled to do so if he acted reasonably in incurring those costs and fairly balanced the costs of the exercise against the potential benefits taking fully into account the possibility that he might at any moment “pull the plug” on these efforts and the consequences for the mortgagor if he did so.

h. The one method available to the mortgagor to prevent the mortgagee exercising the rights conferred upon him by the mortgage is to redeem the mortgage.

i. When and if the mortgagee does exercise the power of sale, he comes under a duty in equity (and not tort) to the mortgagor (and all others interested in the equity of redemption) to take reasonable precautions to obtain “the fair” or “the true market” value of or the “proper price” for the mortgaged property at the date of the sale.

j. The mortgagee is not entitled to act in a way which unfairly prejudices the mortgagor by selling hastily at a knock-down price sufficient to pay off his debt. He must take proper care, whether by fairly and properly exposing the property to the market or otherwise, to obtain the best price reasonably obtainable at the date of sale.

k. A mortgagee is under a duty to take reasonable care to obtain a sale price which reflects the added value available on the grant of planning permission and the grant of a lease of a vacant property and (as a means of achieving this end) to ensure that the potential is brought to the notice of prospective purchasers and accordingly taken into account in their offers.

l. The remedy for breach of this equitable duty is not common law damages, but an order that the mortgagee account to the mortgagor and all others interested in the equity of redemption, not just for what he actually received, but for what he should have received.

Thanks Andrew for the very thorough reply. We will probably stick to external viewings only. Hannah