Adam Rosenthal KC and Mark Galtrey appeared in the Court of Appeal for the successful respondents in Alma Property Management Ltd v Crompton [2023] EWCA Civ 849
Adam Rosenthal KC and Mark Galtrey appear in the Court of Appeal in Alma Property Management Ltd v Crompton [2023] EWCA Civ 849, about the powers of fixed charge receivers who take a lease of property to assist with a sale of the charged asset.
This was an appeal from the decision of Fancourt J. in a claim by Alma, the freehold owner of North Tower in Manchester for specific performance of a repairing covenant in a lease. The defendant tenants were receivers who had been appointed when Alma defaulted on a loan secured against the freehold of the building. During the course of the receivership, a lease of the common parts, held from the freeholder, was disclaimed. Without this lease, the obligation to provide services (including the repair of the building) and the service charge machinery could not function. Therefore the receivers obtained an order vesting the common parts lease in them, so that they could pass it on to a purchaser and preserve the value of the freehold on a sale.
Before the receivers completed a sale, Alma redeemed the charge and the receivership came to an end. However they mistakenly remained registered as proprietors of the common parts lease (and therefore personally liable on its covenants). Some years later Alma brought a claim against the receivers for an order requiring them to undertake repairs at significant cost. The receivers resisted the claim and sought consent to assign the common parts lease to a company controlled by the underlessees of the flats in the building. Alma consented but only on condition that the receivers gave an AGA which they were not willing to do. The receivers therefore counterclaimed for a declaration that consent was unreasonably withheld to the proposed assignment.
The decision of the trial judge refusing specific performance and declaring that consent had been unreasonably withheld to the assignment of the lease was predicated on the receivers having taken the lease in the exercise of their powers as receivers and being entitled to indemnities from Alma in respect of their liabilities under the lease. It was this aspect of the decision which was challenged on appeal.
Alma argued that the receivers were acting outside their powers by taking this lease. The Court of Appeal rejected this argument, holding that although it might not have been strictly necessary to acquire the lease to enable the service charge machinery to work, the receivers had power to do all things which seemed to them to be conducive to the powers vested in them which included the power to sell the freehold. It was also within the scope of para. 17 of sched. 1 to the Insolvency Act 1986, expressly incorporated into the mortgage conditions.
The Court did not therefore need to deal with the arguments by the receivers that even if they had acted outside of their powers, specific performance should be refused and that the condition requiring an AGA was unreasonable. However, Alma also argued that if the Court held that the receivers were acting within their powers when they took the lease, this meant that it was held on bare trust for Alma once the charge was redeemed and therefore that Alma was entitled to direct how the lease ought to be dealt with. On this basis, Alma argued that the Judge ought to have dismissed the counterclaim for a declaration that consent had been unreasonably withheld.
This argument was rejected by the Court of Appeal because it wrongly conflated Alma’s status as landlord under the common parts lease (as freeholder of the building) and as beneficiary of the tenant’s interest held by the receivers. Since the counterclaim had proceeded as a claim between landlord and tenant rather than trustee and beneficiary, it was not open to Alma to argue that it should be dismissed because Alma, as beneficiary, had not consented to the receivers, as trustees bringing the counterclaim. Whilst in theory, Alma, wearing its hat as beneficiary, could have complained of a breach of trust, it did not do so and in any event, it would have been open to the receivers to rely on s.6(2) of the Trusts of Land and Appointment of Trustees Act 1996 or to make an application for an order permitting the assignment under s.14.
Adam Rosenthal KC and Mark Galtrey acted for the respondent receivers, instructed by Wedlake Bell LLP.
A copy of the judgment of the Court of Appeal can be found here.
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