Prime Noble Properties Limited (in administration) – Unlocking the value in property subject to fractional selling

James Williams and Sam Baines of JMW’s Restructuring and Insolvency team have assisted Begbies Traynor (Paul Stanley) and Mazars (Patrick Lannagan) in overcoming deadlock at a development site at Ford Lane, Salford, obtaining orders for sale against 53 registered leasehold properties. 

The site was owned by developer Prime Noble Properties Limited, which sold 78 of 119 apartments off-plan on a leasehold basis, while the freehold of the site was sold by FSL to another company. However, the developer entered administration before the development could be finished.

Subject to fractional selling, the site was encumbered by a long headlease, 53 residential leases and 23 unilateral notices. Case law has established a route through the existence of the unilateral notices by way of the procedure in paragraph 71 Schedule B1 Insolvency Act 1986. However, the residential leases posed a problem for the officeholders in that such persons hold a registered interest in land, and not security to which paragraph 71 could be applied.

In this case, there was also a historic charging order over the freehold which devolved down each subsequent leasehold title and held the key to unlocking value in the site. The officeholders were able to obtain the benefit of the charging order and obtain orders for sale over titles not expressly encumbered by it.

James Williams, Restructuring and Insolvency Partner at JMW, said: “This site is typical of many where investor funds are taken for leases ‘off plan’ at a discount to the value of the finished apartments. In situations where the proposed scheme fails before the building has got out of the ground, there are complex issues surrounding title, security and priority which render the site unsaleable whilst the leases are still in place. “

On 18 February 2022 HHJ Davies sitting in the Business and Property Courts in Manchester handed down judgment and granted orders for the sale of 53 registered leasehold properties, allowing disposal of the site to proceed and subsequent funds to be repaid to stakeholders.

The application drew together a complex web of legal issues involving the Charging Orders Act, Law of Property Act, Land Registration Act and Insolvency Act to resolve the title issues. At the same time use of s105 Law of Property Act and the principles in Berkley Applegate were applied to permit deducting of the officeholders’ fees and costs as a first ranking priority.

Paul Stanley, Regional Managing Partner at Begbies Traynor says: “Cases of properties subject to fractional selling are becoming increasingly common. In situations where actual leases are granted, there is often a deadlock position which cannot be overcome by the various stakeholders. After analysing the head lease, sub-leases and various charges with James Williams of JMW solicitors and after considering various Acts and a multitude of relevant legal cases, we were able to formulate an innovative strategy which we felt would be acceptable to the court and the vast majority of the stakeholders.

“Communicating the solution to leaseholders early, along with an upfront estimate of costs, resulted in around 50% of the leaseholders consenting to the application and the costs. The court orders granted will now allow the property to be marketed and sold, eventually releasing funds to pay the various stakeholders.”

James Williams added: “Properties subject to fractional selling can present a wide range of difficulties for which legal solutions are required. In the current case, it was necessary to combine a real understanding of security law, Land Registry priority provisions and a wide range of statutory and case law provisions to come up with a solution that would be attractive to the Judge.

“The application was complicated both in terms of the need for orders as to service out of jurisdiction and in its subject matter. However, we were able to present these complicated matters in a simple and compelling way, which ultimately resulted in the order being granted on the exact terms sought.”

The full judgment can be found here.