Receivership: Open Market Sale Not Required?
Summary of the Court of Appeal decision in Kingsley and another v Kingsley and another, published on May 12 ( EWCA Civ 297)
In brief, a Judge was found able to order a sale of trust land at a price that he fixed, without testing the price by exposure to the market. It was held that an order for sale without full market testing did not undermine the rights to protection of property of those with a beneficial interest in the land.
A brother and sister had farmed land in partnership; the land was owned by them beneficially in equal shares, but it was not held as a partnership asset. The partnership traded from the land, and the profits were shared two thirds to the brother and one third to his sister. No rent passed.
When the brother died, his executors sought an order for sale claiming dissolution of the partnership.
The Judge found that the sister should have the chance of buying the land at what he determined to be the value, without exposure to an open market sale. The appeal dealt (among other things) with whether this was correct or whether he should have made an order for an open market sale, giving the sister the right to bid with others.
The executors claimed that Article 1 of the First Protocol to the European Convention on Human Rights (dealing with a prospect of taking away a beneficial interest in property) was contravened where there was a perceptible risk of an undervalue.
The Judge found that there was no breach because there was no deprivation of the executors’ property and they would receive value as properly and fairly determined by the Court.
In James v United Kingdom ((1986) 8 EHRR 123) the European Court of Human Rights considered the Leasehold Reform Act 1967, which allows the compulsory acquisition of freeholds by tenants. There the Court found that taking property without payment of an “amount reasonably related to its value” was not justifiable. Those words did not connote an absolutist approach to questions of value that would require testing the market in all cases of sale. They were consistent with a proportionate approach to valuation that entitled states to put in place a system for providing proper value short of full market testing.
The Court of Appeal found that there was nothing in Article 1 of the First Protocol requiring the Court to require full market testing in these cases.
Both in our work as receivers, and Strettons’ litigation & expert witness valuation practice, we are often in a position where one or more parties in a dispute want to buy property. Of course, a view of value can depend on whether one is buying or selling. In receivership, this can sometimes happen if the lender wants to buy.
Usually, our approach is to suggest a sale by public auction, with the caveat that no sale before auction will be contemplated. That way, all interested parties can bid up to their perceived view of value (or extent of pocket), and no one can complain if they don’t get it.
This is especially the case where (as occasionally happens), a lender wants to buy. Notwithstanding the judgement in Devon Commercial Property Ltd v Barnett which supported the ability of a receiver to sell to a lender, it is vital not only to do the right thing but to be seen to be doing the right thing.
Please feel free to contact me with any questions at all.