Alma Property Management Ltd v Richard George Crompton & Anor

The Court of Appeal upheld the High Court’s decision dismissing Alma’s claim for specific performance and allowing the Receivers’ counterclaim. The key legal conclusions were that the receivers acted within their powers in acquiring the common parts lease, notably under clause 15(4)(iv)(a) of the mortgage conditions as an act conducive to a sale, and that having taken the lease in exercise of their powers they held it for the benefit of the freeholder and were entitled to be indemnified. Because of that indemnity (and the agency/trust relationship), specific performance compelling the receivers to carry out repairing obligations was inappropriate. The court also held that the condition imposed by Alma (entry into authorised guarantee agreements) was unreasonable in the light of the receivers’ entitlement to indemnity, and therefore the receivers were entitled to assign the lease to NTRML without Alma’s consent.

Background and parties: The dispute concerned a mixed-use high-rise building in Salford. Alma Property Management Ltd (freeholder) sought specific performance against two former receivers (the respondents) to compel them to perform repairing obligations under a common parts lease which the receivers had caused to be vested in themselves after the original services company (NTMC) was struck off. The receivers counterclaimed for a declaration that Alma had unreasonably withheld consent to their proposed assignment of that lease to NTRML.

Procedural posture: The claim was heard in the Business and Property Courts in Manchester by Fancourt J ([2022] EWHC 2671 (Ch)), who dismissed Alma’s claim and granted the counterclaim. Alma appealed to the Court of Appeal; the appeal was dismissed.

Nature of relief sought: Alma sought specific performance of the repairing covenants in the common parts lease; the receivers sought a declaration that Alma had unreasonably refused consent to an assignment and that they were entitled to assign without Alma’s consent.

Issues framed:

• whether the receivers were acting within their powers when they acquired the common parts lease;
• whether specific performance should be ordered against them; and
• whether Alma’s condition for consent (authorised guarantee agreements) was reasonable.

Court’s reasoning: The Court of Appeal concluded the receivers acted within their powers. While Schedule 1, paragraph 17 of the Insolvency Act 1986 was directly relevant, the Court ultimately relied on clause 15(4)(iv)(a) of the mortgage conditions which authorised the receivers to do anything they considered incidental or conducive to the exercise of their powers, including realisation. The receivers had reasonable grounds (accepted by the judge) to think that taking the lease was conducive to sale because the original contractual structure made the common parts lease central to the service charge regime and therefore to marketability.

Because the receivers had acquired the lease in exercise of their powers they held it for the benefit of the freeholder (agency/trust relationship) and were entitled to indemnity for liabilities under the tenant covenants. On that basis the court held it was inappropriate to order specific performance against them; Alma could itself carry out works and the receivers were entitled to be indemnified.

On the counterclaim the judge had found the requirement to enter authorised guarantee agreements to be reasonable in the abstract but, taking account of the receivers’ indemnity, unreasonable because it would improve Alma’s position at the receivers’ expense. The Court of Appeal upheld that conclusion and the declaration permitting assignment without Alma’s consent.

Subsidiary findings: The judgment records the dissolution of NTMC, the making of a vesting order (DJ Matharu, 30 April 2013) vesting the common parts lease in the receivers, the subsequent novation to NTRML and the receivers’ handover of management in 2016–2017. The Court accepted the receivers’ evidence and the judge’s factual findings on why acquiring the lease was necessary to preserve value.

Appeal dismissed. The Court held that the receivers acted within their powers when they acquired the common parts lease (notably under clause 15(4)(iv)(a) of the mortgage conditions as acts conducive to sale), that having taken the lease they held it for the freeholder and were entitled to be indemnified, making specific performance inappropriate, and that Alma’s condition requiring authorised guarantee agreements was unreasonable in light of that indemnity, entitling the receivers to assign without consent.

Appeal from the High Court of Justice (Business and Property Courts in Manchester, Property, Trusts and Probate List), Fancourt J, [2022] EWHC 2671 (Ch). Appeal heard and dismissed by the Court of Appeal (Civil Division) [2023] EWCA Civ 849 (this judgment).