LPA Receivers in Development Finance: What Developers Need to Know

A Law of Property Act (LPA) receiver is a professional appointed by a secured lender under powers granted by Section 101 of the Law of Property Act 1925 and the terms of the mortgage deed. In the context of development finance, an LPA receiver is typically appointed when the borrower has defaulted on the loan and the lender wishes to take control of the development to protect and recover its security. The receiver is usually a licensed insolvency practitioner or a chartered surveyor with experience in managing distressed property assets.

The critical legal point about LPA receivers is that they act as agent of the borrower, not the lender. This agency relationship, established by Section 109(2) of the Law of Property Act 1925, means that the borrower — not the lender — is liable for the receiver's actions, fees, and any liabilities incurred during the receivership. This structure was designed to protect lenders from liability, and it has significant implications for developers whose projects are placed into receivership.

LPA receivership is distinct from administrative receivership and administration, which are governed by the Insolvency Act 1986. LPA receivership specifically relates to the recovery of secured property and does not require a court order. The lender can appoint an LPA receiver simply by executing a deed of appointment, provided the conditions in the mortgage deed and the Law of Property Act have been met. This makes LPA receivership a fast and relatively inexpensive enforcement mechanism for lenders, which is why it is the preferred route in development finance defaults.

An LPA receiver can be appointed once the mortgage money has become due — which in development finance typically means after the facility has been accelerated following a default event. The statutory conditions for appointment are set out in Section 101 of the Law of Property Act 1925, but most modern mortgage deeds expand these powers significantly, allowing appointment in a wider range of circumstances including breach of covenant, insolvency of the borrower, or material deterioration of the security.

The appointment process is straightforward from the lender's perspective. The lender's solicitors prepare a deed of appointment, which is executed by the lender (or its authorised representative) and the proposed receiver. Notice of the appointment is then given to the borrower and registered at the Land Registry. The entire process can be completed within a matter of days, and we have seen appointments executed within forty-eight hours of the lender's decision to enforce.

The borrower has limited grounds to challenge the appointment of an LPA receiver. The main challenges arise where the conditions for appointment have not been properly met — for example, if the lender failed to serve a valid demand notice or if the mortgage deed does not confer the power to appoint. In practice, successful challenges are rare because lender solicitors are experienced in ensuring the appointment process is properly executed. If you believe an appointment is invalid, seek specialist legal advice immediately, but be prepared for the reality that most challenges fail.

In our experience of working with developers across the UK, the decision to appoint an LPA receiver is rarely taken lightly by lenders. The typical pattern is that the lender will have made multiple attempts to resolve the default through negotiation before resorting to enforcement. Where we have seen rapid appointments, it has usually been in situations where the lender has lost confidence in the borrower's ability or willingness to complete the project, or where the development is at risk of physical deterioration. For more on the overall default process, see our guide on what happens when a development loan defaults.

Once appointed, the LPA receiver has extensive powers over the development. The statutory powers under Section 109 of the Law of Property Act include the power to demand and recover income from the property, to insure the property, and to manage and maintain the property. However, most modern mortgage deeds confer significantly wider powers, including the power to complete construction works, enter into contracts, market and sell the property, and take any action the receiver considers necessary or desirable to preserve or enhance the value of the security.

In a development finance context, the receiver's powers effectively allow them to step into the developer's shoes and complete the project. This means the receiver can appoint new contractors, negotiate with planning authorities, instruct sales agents, and manage the day-to-day operation of the development site. The receiver will typically carry out a thorough review of the project within the first week of appointment, assessing the state of construction, the remaining budget, the planning position, and the likely exit value.

The receiver owes duties to the borrower as well as the lender, but these duties are limited. The primary duty is to act in good faith and to obtain a proper price when selling the property — meaning the receiver must take reasonable steps to achieve market value. The receiver does not have a duty to maximise the return for the borrower; rather, the duty is to recover the lender's debt efficiently. This means the receiver may choose to sell the development at a stage or price that the developer considers suboptimal, provided the sale is conducted properly and achieves a reasonable price in the circumstances.

Receiver's fees are a significant cost that the borrower must bear. LPA receivers typically charge between £250 and £500 per hour, and a receivership of a development project can easily generate fees of £25,000 to £75,000 depending on the complexity and duration. These fees rank ahead of the borrower's equity, meaning they are paid from the sale proceeds before any surplus is returned to the borrower. When combined with the lender's legal costs, default interest, and the typically reduced sale price achieved on a distressed asset, the total cost of receivership can consume most or all of the developer's equity in the project.

The appointment of an LPA receiver has immediate and significant practical consequences for the development. Existing building contracts may be terminated or suspended — most JCT and bespoke building contracts contain provisions allowing either party to terminate upon the appointment of a receiver over the employer. This means the main contractor will typically down tools, and the receiver must negotiate new arrangements to continue the build, often at significantly higher cost.

The supply chain is similarly disrupted. Subcontractors and material suppliers who are owed money by the developer will have unsecured claims that are unlikely to be paid in full during the receivership. New suppliers will require payment terms that reflect the receivership status, which usually means payment on delivery or shorter credit terms. The receiver will also need to establish whether any plant or equipment on site is owned, hired, or subject to retention of title claims, which can further delay the restart of construction works.

We have seen receivership add between six and eighteen months to the completion timeline of a development, depending on the stage of construction at the time of appointment. A development that was at first fix stage might take twelve months to complete under a receiver, compared to six months under the original developer. The additional time, combined with higher construction costs and receiver's fees, can transform a profitable development into one that delivers no return — or even a shortfall — for the borrower.

Planning permissions and building regulations approvals are not directly affected by the appointment of a receiver, but practical complications can arise. If the planning permission is subject to conditions that require action within specific timeframes, the receiver must ensure compliance. Similarly, any planning obligations or Section 106 agreements transfer with the land and must be honoured. The receiver will typically instruct a planning consultant to review the planning position as part of their initial assessment of the project.

Once an LPA receiver is appointed, the developer's control over the project is effectively removed. However, the developer is not entirely without influence or options. The developer can cooperate with the receiver to achieve the best possible outcome — providing information about the project, introductions to contractors and consultants, and practical assistance that can help the receiver complete and sell the development more efficiently. A cooperative approach can reduce receiver's fees and improve the overall outcome for all parties.

The developer should also seek independent legal advice immediately upon learning of the appointment. A specialist solicitor can review the validity of the appointment, assess whether the lender has complied with all procedural requirements, and advise on the developer's rights during the receivership. If the receiver subsequently sells the property at an undervalue, the developer may have a claim against the receiver or the lender, although such claims are difficult and expensive to pursue.

If there is a mezzanine lender or other secured creditor involved in the capital structure, the developer should understand how the intercreditor agreement affects the receivership. The mezzanine lender may have rights to cure the senior default, step into the senior lender's position, or participate in the enforcement process. In some cases, the mezzanine lender can provide additional funding to the receiver to complete the development, which may improve the overall recovery and potentially preserve some value for the developer.

Finally, the developer should carefully monitor the receiver's conduct throughout the receivership. The receiver must account for all income and expenditure, and the developer is entitled to receive accounts of the receivership. If the developer believes the receiver is not acting in good faith or is failing to obtain proper value for the property, this should be raised formally — first with the receiver directly, then through legal proceedings if necessary. In our experience, however, most LPA receivers appointed over development sites are competent professionals who conduct the receivership properly. If you need help with a distressed facility, reach out to our deal room to explore rescue finance options.

The financial impact of LPA receivership on a development project is substantial and often underestimated. The direct costs include the receiver's professional fees (typically £25,000 to £75,000), the lender's legal costs for the enforcement process (£10,000 to £30,000), and default interest on the outstanding loan balance. On a £3,500,000 facility, default interest at an additional three percent per annum adds approximately £8,750 per month to the debt.

Indirect costs are equally significant. The disruption to the build programme means construction costs will increase — we typically see a fifteen to twenty-five percent uplift on the remaining build budget when a receiver takes over mid-construction. This is due to the need to re-tender works, mobilise new contractors, and deal with the practical consequences of a site that has been dormant for several weeks or months. Professional fees for quantity surveyors, architects, and project managers engaged by the receiver add further to the cost.

The combined effect of these costs is that receivership can consume £100,000 to £500,000 or more of the development's value, depending on the size and complexity of the project. For smaller schemes — those with a GDV under £2,000,000 — the costs of receivership can represent such a large proportion of the total value that there is little or no prospect of any surplus being returned to the borrower after the lender's debt is repaid. This is why we always emphasise the importance of early intervention and, where possible, refinancing a distressed development before enforcement begins.

Both borrowers and lenders have alternatives to LPA receivership that may achieve a better outcome for all parties. The most common alternative is a consensual sale, where the borrower agrees to sell the development (either in its current state or upon completion) and use the proceeds to repay the lender. A consensual sale avoids the costs and disruption of receivership and typically achieves a higher price because the property is not marketed as a distressed or receiver-managed asset.

Another alternative is refinancing with a specialist lender. Even when a default has occurred, there are lenders on our panel who will provide rescue finance to repay the defaulting facility and allow the developer to complete the project. The terms will be expensive — typically twelve to eighteen percent interest with arrangement fees of two to three percent — but the total cost is often significantly less than receivership. The key requirement is that the development must have sufficient value to support the new lending, and the developer must have a credible plan for completion.

In some cases, the lender and borrower can agree a standstill or forbearance arrangement, under which the lender agrees not to enforce for a specified period while the borrower takes steps to remedy the default. Standstill agreements are particularly useful where the default is temporary — for example, where sales have stalled but the market is expected to recover, or where a contractor has become insolvent but a replacement can be appointed quickly. The lender will usually require the borrower to pay default interest during the standstill period and to provide regular progress reports. For developers currently arranging finance, we can help structure facilities that minimise default risk — submit your project through our deal room for a confidential assessment.