The High Court in Fairmont Property Developers UK v Venus Bridging Ltd & Ors (25/2/2025) was concerned with an application by a defaulting mortgagor under s.91 Law Property Act 1925 whereby it sought the opportunity to market for sale a commercial warehouse property (“the Property”) over which the mortgagee had appointed receivers (“the Receivers”).
Section 91(2) provides the Court with the power, in summary, to direct the sale of mortgaged property “on such terms as it thinks fit”. An application may be made by the mortgagee or any person interested in either the mortgage monies or in the right of redemption.
In this case, the Receivers had marketed the Property for sale, and received bids, but the applicant freeholder (“the Applicant”) sought to restrain the Receivers from selling the Property for a period of 180 days so that the Applicant could adopt a new marketing strategy in the hope of obtaining a higher price than the offers received. It seems that the Applicant was contending for a price almost £2.5m above the Receiver’s marketed price.
The Court concluded that:
- As per the authority of Toorv State Bank of India [2010] EWHC 1097, s.91 provided an “unfettered discretion to be used judicially”.
- However, in the context of commercial property in negative equity, that discretion should be exercised only in exceptional circumstances for the policy reasons identified by Phillips LJ and Millett LJ in Cheltenham & Gloucester v Krausz [1997] 1 WLR 1558 (a case concerning a residential property), namely:
- The risk a mortgagor is simply taking every opportunity to delay to put off the ‘evil day’ of having to vacate their property for a sale (meanwhile the deficit on the security account increases);
- The need not to undermine the mortgagee’s entitlement to possession; and
- That a mortgagee is likely to have a greater incentive to obtain the best price and the quickest sale.
- Additionally, courts had to be cautious of enabling a large number of applications under s.91 in respect of commercial property where the mortgagor considers a sale at an undervalue was likely.
- In this case, there were no exceptional circumstances warranting the exercise of the discretionary power under s.91: it was an ‘ordinary case’ of default by the mortgagor where all parties agreed the Property should be sold.
- The Receivers had taken steps to market the Property and as such this was not a case akin to Palk v Mortgage Services Funding Plc [1993] Ch 330 where the mortgagor had no plans to realise its security by a sale.
The Judge went on to note that even if he was wrong about the need for ‘exceptional circumstances’, all parties agreed there must be identifiable and more than trivial unfairness for the s.91 discretion to be exercised in favour of a mortgagor in a ‘negative equity’ case. A a greater shortfall in a sale was not in itself sufficient unfairness to justify an order under s.91.
This is a useful case for practitioners demonstrating that the seemingly ‘unfettered’ discretion in s.91 will in fact be sparingly exercised by the Court, which must be cautious of ‘opening the floodgates’ in every case where the mortgagor considers there is a risk of sale at an undervalue.
Written by Hannah Laithwaite.