Court Of Appeal Dismisses Borrower's Application To Control Sale Of Commercial Property In Place Of Lender's Appointed Receivers

The decision illustrates the scope of the court's discretion under s.91 of the Law of Property Act 1925 to order a sale of a mortgaged property and who should have the conduct of the sale

The Court of Appeal has dismissed a borrower's application seeking an order to take over the conduct of a sale of a commercial property, provided as security for a loan, in place of the receivers appointed by a lender: Fairmont Property Developers UK Ltd v Venus Bridging Ltd & Ors [2025] EWCA Civ 1513.

This is the latest in a line of cases considering a mortgagee's power of sale (see our previous blog posts here). The decision will be of interest to financial institutions seeking to exercise their power of sale as a mortgagee in realising their security as it illustrates how the court exercises its discretion under s.91 of the Law of Property Act 1925 (the Act) to order the sale of a mortgaged property and to determine who conducts the sale. It reaffirms that, as per Palk v Mortgage Services Funding plc [1993] Ch 330 and Cheltenham & Gloucester Building Society v Krausz & Anor [1996] EWCA Civ 780, the court will only intervene in exceptional circumstances, such as where the mortgagee's conduct frustrates a borrower's ability to redeem their mortgage or would cause manifest unfairness.

The decision highlights that the court will be slow to interfere with a mortgagee's exercise of its statutory and contractual power of sale where receivers are properly appointed. In the present case, the Court of Appeal confirmed that ordinary disputes over valuation and marketing strategy will not qualify as exceptional circumstances justifying the court's intervention in a mortgagee's sale process. Furthermore, there must be a real likelihood that the property will be sold at an undervalue or other compelling unfairness, before the court will consider exercising its discretion to intervene.

We examine the decision in more detail below.

Background

In 2023, the claimant borrower entered into a bridging loan with a company, secured by a second legal charge over a commercial property. The loan and charge were later assigned to the defendant lender. The borrower subsequently defaulted on its obligations on the loan. Consequently, the lender exercised its contractual rights under the loan agreement and appointed receivers to manage the charged property. The receivers obtained professional valuation advice and began marketing the property seeking offers in excess of £4.75 million. The borrower objected, alleging that the marketing price was too low and that the property was being sold at an undervalue.

The borrower subsequently commenced proceedings against the lender and receivers, applying under s.91 of the Act for an order allowing it to take control of the sale process. In support of its application, the borrower argued that the receivers' approach was unfair and would cause it significant loss.

At first instance, the High Court dismissed the borrower's application. The High Court found that: (i) no exceptional circumstances existed to override the mortgagee's rights; (ii) the mortgagor did not suffer any identifiable unfairness, nor did the evidence show that the proposed sale was likely to be at an undervalue; and (iii) a delay would prejudice the lender and the receivers.

The borrower appealed.

Decision

The Court of Appeal dismissed the borrower's application.

The key aspects of the decision which will be of interest to financial institutions are set out below.

Exercise of discretion under s.91 of the Act

The Court of Appeal agreed with the High Court that, although s.91 of the Act provides an unfettered discretion, it should be exercised only in exceptional circumstances (as per Palk and Krausz). And that the court should be slow to interfere with the statutory and contractual rights of a mortgagee in a case where all the parties accept the mortgagor was in default, receivers have been appointed and the mortgagee is entitled to exercise its rights over the property.

In the present case, the Court of Appeal noted that the borrower had granted a second charge which was now vested in the lender. That agreement gave the mortgagee the usual powers to realise its security in the event of default, including the power to appoint receivers to sell the property. In terms of the duties owed by receivers, the court emphasised that: (i) although appointed as agents for the mortgagor, receivers have a primary duty to try and bring about repayment of the secured debt; and (ii) do not manage the mortgagor's property for the mortgagor's benefit, but rather manage the security which belongs to the mortgagee, for the benefit of the mortgagee (as per Silven Properties Ltd & Anor v Royal Bank of Scotland Plc & Ors [2003] EWCA Civ 1409).

The Court of Appeal also said that, in circumstances where the borrower had contractually agreed that if it defaulted receivers could be appointed to sell the property for the benefit of the mortgagee, it was difficult to see why the court should override the well-understood contractual scheme which the borrower had agreed to and take away from the receivers the right to sell the property which the borrower had (via the lender) conferred on them. The court would need to find something out of the ordinary before it could do that. The Court of Appeal went on to highlight that,as per Palk, the court should exercise its power if refusing to do so would result in manifest unfairness. In a case such as the present one, where the mortgagee (or its appointed receivers) sells the property after the mortgagor defaults, the court does not characterise this as manifest unfairness.

Unfairness

The Court of Appeal considered and rejected the suggestion that the High Court erred in finding that the borrower failed to demonstrate it would suffer unfairness, and in requiring the borrower to prove on a balance of probabilities that the price at which the receivers proposed to sell would be an undervalue.

The Court of Appeal agreed with the High Court that, as per Palk, unfairness requires a likelihood (rather than a risk) of a sale at an undervalue. And that this does not require the court to determine the actual value, but does require the court to be satisfied that a sale by the receivers is likely to realise too low a price.

In the present case, the Court of Appeal found that the borrower had not established that the proposed sale was likely to be at an undervalue. Unless the borrower shows this, the threshold for intervention is not met, as the court cannot conclude that allowing the receivers to conduct the sale is demonstrably or manifestly unfair.

Prejudice to mortgagee

The Court of Appeal considered and rejected the suggestion that the High Court erred in finding that restraining the imminent sale of the property would prejudice the lender.

The Court of Appeal said that in the absence of sufficiently manifest unfairness to displace the lender's rights under the mortgage, the question of prejudice does not in fact arise. However, the Court of Appeal did not find the High Court wrong on this point. The receivers already had a buyer who was ready to proceed. If the court made the order and allowed the borrower to find a buyer at a higher price, no guarantee would exist that the receivers' buyer would remain available, and the receivers would face a real risk of having to start again. That process would involve costs, including the receivers' own fees and a net increase in liabilities.

Accordingly, the Court of Appeal dismissed the borrower's application.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.