Always check for meaning
Construction Law Journal, September 2009: The range of possibilities which PCSA attempts to cover is so wide some provisions have to be couched in somewhat ill-defined terms
LNB News 07/09/2009 30
Published date: 7 September 2009
Author: Michael Phipps
Journal name: Construction Law Journal
Journal date: 1 September 2009
Journal citation: (2009) 20 7 Cons.Law 12
Jurisdiction: England; Wales
Summary: Analyses of the JCT Pre-Construction Services Agreement (PCSA). The article also welcomes the arrival of consultation documents for Project Bank Accounts from the JCT. As far as wording is concerned, it does not seem to be a good policy to use terms which do not appear as definitions in 1•1 in upper case letters. Even though their meaning might seem to be obvious it will discourage users from checking the precise meaning.
Is completion practically understood?
Construction Law Journal, September 2009: Practical completion is a contentious issue in a recession
LNB News 07/09/2009 32
Published date: 7 September 2009
Author: Hamish Lal
Journal name: Construction Law Journal
Journal date: 1 September 2009
Journal citation: (2009) 20 7 Cons.Law 14
Jurisdiction: England; Wales
Summary: Analyses the meaning of practical completion. The problems are compounded when there is a related but independent concept of 'Completion' under the development agreement/agreement for lease. Practical Completion is perhaps easier to recognise than to define; no clear answer emerges from the authorities as to the meaning of the term. It would be mutually beneficial to define in express terms (in the building contract) exactly what 'practical completion' is intended to certify.
Why is the OFT so unfair?
Building, 28 August 2009: Bid-rigging is completely different to cover pricing and it is about time that our competition watchdog understood that difference
LNB News 04/09/2009 25
Published date: 4 September 2009
Author: Tony Bingham
Journal name: Building
Journal date: 28 August 2009
Journal citation: Building, 28 August 2009, 42
Jurisdiction: England; Wales
Summary: Explains the Office of Fair Trading (OFT) can act like a police force, the crown prosecution service, a judge and a jury. It decides the sentence and can also do deals. Bid-rigging is a criminal offence and nobody, in real life construction, regards giving a cover price as a criminal offence.
A straw in the wind
Estates Gazette, 29 August 2009: Enforcements of planning permissions are set to rise as the public's understanding of the system increases
LNB News 02/09/2009 53
Published date: 2 September 2009
Author: Harry Spurr
Journal name: Estates Gazette
Journal date: 29 August 2009
Journal citation: Estates Gazette, 29 August 2009, 78
Jurisdiction: England; Wales
Summary:Considers the decision in a case in which a dwelling-house was disguised as a barn. A combination of rising land values and a wider public understanding of the planning system has led to a rash of appeal decisions involving houses that have been disguised to evade enforcement. Most notable was the bold but unsuccessful attempt by a Mr Fidler to establish the lawfulness of a house built behind a screen of straw bales.
A wise approach while waiting for the upturn
Estates Gazette, 15 August 2009: The importance of revisiting Section 106 agreements during the financial downturn
LNB News 25/08/2009 21
Published date: 25 August 2009
Author: Karen Mason and Caroline McDade
Journal name: Estates Gazette
Journal date: 15 August 2009
Journal citation: Estates Gazette, 15 August 2009, 67
Jurisdiction: England; Wales
Summary: Suggests that Section 106 agreements should be revisited to protect an asset's value, even if the development is delayed. Section 106 agreements are contractual agreements between an applicant and the local planning authority to allow planning consent to be granted. The downturn has left many developers unable to implement their planning consent, but they will want to retain that consent given the time and costs involved in pursuing it.
Articles
Amendment to a planning agreement would be an abuse of process. Evelyn Reid talks to Shabana Anwar, solicitor, Bircham Dyson Bell LLP
LNB News 11/09/2009 93
Published date: 11 September 2009
Jurisdiction: UK
Related legislation: Highways Act 1980; Town and Country Planning Act 1990
Related cases: Benedictus v Jalaram [1989] 1 EGLR 251; The Mayor and Burgesses of the London Borough of Waltham Forest v Oakmesh Ltd and another [2009] EWHC 1688 (Ch), [2009] All ER (D) 166 (Jul)
Analysis: The defendant companies in The Mayor and Burgesses of the London Borough of Waltham Forest v Oakmesh Ltd and another [2009] All ER (D) 166 (Jul) sought an amendment to the planning agreement to construct a footbridge on the ground that the agreement did not comply with the requirements of the Town and Country Planning Act 1990 (TCPA), s 106, since the provision of the footbridge was to be constructed in land set outside the land identified in the agreement.
Anwar, solicitor and contributor to Butterworths Planning Law Service says: "The judge held that it would be an abuse of process if the defendants were allowed to dispute the validity of its obligation in that its primary effect would be to overturn the result of their previous unsuccessful appeal."
Livesey QC sitting as a deputy judge said that it was clear from the correspondence that the defendants had accepted their obligation to build the footbridge on numerous occasions and that the claimant authority had changed its position in reliance on those representations by agreeing for the date of the completion of the footbridge to be changed. Additionally, there was never any misunderstanding between the parties as to the identity of the land over which the obligation was to be performed.
"The Council successfully argued that the defendant could not 'approbate and reprobate'. That is, it could not make an application under s 106A(3) of TCPA to vary the obligation (and in doing so, accept that the obligation was enforceable against it), then later assert that the obligation was not enforceable against it, see Stocker LJ in Benedictus v Jalaram [1989] 1 EGLR 251," says Anwar.
Furthermore the judge said that an application to amend the defence "at this stage in the proceedings to allege the contrary of what was accepted over the years was too late".
An alternative argument by the defendant companies was that since the council had adopted management of the roads and the footways on the development under the Highways Act 1980 (HA 1980), s 38, it was obliged to provide the footbridge and was not entitled to enforce the covenant against the defendant as the Council was itself in breach of the obligation to provide the footbridge.
The judge rejected that argument. He held that the Council was not a person deriving title under the defendant companies since its title vested in it for the purpose of the performance of its functions as a highway authority and by operation of HA 1980, s 263(2), and that such title was not one 'deriving' under the defendant companies within the meaning of the TCPA, s106. Nothing other than the surface of the highway vested in the Council and only by virtue of the operation of s 263(2).
In addition, says Anwar, "The judge pointed out that the Council was the local planning authority and also the highway authority so one legal entity, and thus could not take enforcement proceedings against itself."
The obligation to build the footbridge remained with the defendants.
Financial services industry gears up for mortgage regulation review
The Financial Services Authority is being urged not to over-regulate mortgage lending practices by setting limits on loans. Andrew Strange of the Association of Mortgage Intermediaries talks to Neasa MacErlean.
LNB News 08/09/2009 14
Published date: 8 September 2009
Jurisdiction: European Union; UK
Abstract:
Analysis: The Financial Services Authority (FSA) is being urged to hold back from introducing strict limits on the amounts that can be leant to mortgage borrowers. A major review of mortgage regulation will begin in early October when the FSA, the chief City regulator in the UK, launches a discussion document.
Summary: A lot of work has been going on in the background in the City in preparation for this consultation procedure. And there will undoubtedly be discussion over whether the FSA should limit the amount that can be leant on each property (at, for instance, 90 or 95 or 100 or 105 per cent of the value). Additionally, there will inevitably be discussion over whether amounts should be very precisely limited for individual borrowers--at, for instance, a fixed multiple of annual earnings or annual disposable income.
The Association of Mortgage Intermediaries (AMI) is, however, "urging caution" on the FSA as it considers such options. The AMI is publishing a series of three reports on the UK mortgage market in the run-up to October. Its first report, The UK Mortgage Market--a Comparative Study Reflecting US and European Influences, sought to isolate the real factors behind the recent UK property boom and bust cycle. It concludes that the macro-economic situation (especially shortage of housing supply) influences house prices far more than regulatory issues such as limits on mortgage loans. "Housing supply is very important in this," says AMI policy director Andrew Strange. "Fiddling with conduct of business regulation isn't going to impact on big boom and bust cycles."
Strange says that the UK has been seen as having a property market with many similarities to that of the US. In fact, such similarities are vastly overstated, he says. In the US there are greater incentives on homeowners to hand back the keys on mortgaged properties in difficult times because "no-recourse" loans (in which the remaining mortgage debt is wiped off when the keys are handed in) are commonplace. In the UK virtually all loans are recourse loans and lenders do indeed pursue their borrowers for repayment if they vacate the property.
Many of these issues will have to be teased out not just for the FSA's mortgage review but also in the run-up to an expected mortgages directive which the European Commission is thought to have within its sights. "The Commission is now looking at responsible lending, and that will lead to a mortgages directive in the next five years," says Strange.
Thinking about the FSA's review, the AMI accepts that some limits are needed and are helpful but not necessarily in the form that the man in the street might immediately understand them. "There are already limits in place anyway," says Strange. "Lenders have to hold more capital for risky business." He thinks that weighting risks by capital requirements is "more sensible" than putting a limit on an individual's ability to borrow. Having said that, the AMI is much keener on the idea of using borrowers' disposable income as a guide on how much they should be leant, rather than gross income.
The next two AMI papers will consider regulatory issues and affordability.
The FSA will probably be urged, from some quarters, to toughen considerably its regulation of mortgage lenders. For instance, the FSA Consumer Panel is also working on a report "on the actions necessary to improve the way regulation works for consumers". Its chairman Adam Phillips, in July, in his introduction to the Panel's 2008/09 annual report, highlighted regulatory weaknesses as a cause of the financial crisis. He said: "Underlying the crisis were poor lending practices, encouraging consumers to borrow money for home ownership ... And it is [in] the end customers who ultimately bear the cost of this disaster ... It is important that in moving forward, the regulator keeps the needs of consumers at its heart."
Court orders compliance of an undertaking
The High Court has said that where there is an absence of evidence that the undertaking in a case was impossible to perform, performance of the undertaking would usually be required. Evelyn Reid talks to Malcolm Dowden, solicitor and LexisPSL property author about the decision
LNB News 04/09/2009 53
Published date: 4 September 2009
Jurisdiction: UK
Related cases: Clark and another v Lucas Solicitors LLP [2009] EWHC 1952 (Ch)
Related digests: Consultation Paper: Solicitors Acting For Seller and Buyer LNB News 27/04/2007 11
Relevant companies: NatWest
Analysis: Solicitors' undertakings play a vital role in conveyancing transactions, says Dowden, solicitor and LexisPSL property author: "They provide a practical solution to the problems that arise when the property is subject to a mortgage. The buyer must be satisfied that the property will be sold free of the mortgage before it will release the sale price nor will the lender execute a discharge before its debt is paid off. Where the seller has to use the sale proceeds to pay off the debt, this could lead to stalemate. To deal with this issue solicitors frequently undertake to procure the discharge of mortgages after completion."
A solicitor's failure to perform an undertaking was the central issue in Clark v Lucas [2009] All ER (D) 11 (Aug). Two charges were secured on the land in question the defendant solicitors undertook to discharge both charges, believing that the proceeds of sale would be sufficient. However, NatWest, whose charge took priority, exercised its right to demand all moneys due to it from the seller, leaving the third party charge unpaid. NatWest executed a discharge in Form DS3, but the third party did not. The claimants sought specific performance.
The defendant accepted that it was in breach of its undertaking, but argued that performance was "impossible" because the lender demanded full payment of the debt due to him, which was approximately double the value of the property.
The court emphatically rejected that argument. It said that the case was not one of impossibility. That the undertaking was to pay off both charges on completion and that had the seller's solicitor obtained a redemption figure before completion, it would have known that NatWest would exercise its right to claim the entire proceeds and could therefore have modified its undertaking.
Dowden says: "The third party was willing to provide a discharge on settlement of the debt due to him, and so the matter could be resolved by paying a cheque--albeit a much larger one than had been anticipated, and a much larger one than might have been needed if the question had been addressed and an agreement reached before completion.
"However, the court ordered compliance with the undertaking. It refused to take the alternative step of ordering the solicitor to compensate the buyer for the loss caused by the breach of undertaking. That alternative is available where compliance with the undertaking is impossible, or where it would for some other reason be inappropriate to order performance. The crucial role played by undertakings in the conveyancing process, and the need to be able to trust and rely on them, militated strongly in favour of an order for full compliance."
He adds: "The ruling in the instant case reflects the Solicitors' Code of Conduct that undertakings are binding and unless there is clear wording to the contrary, a solicitor who undertakes to make a payment out of the proceeds of sale of an asset must make that payment, even though there may be insufficient funds to do so."
Reviewing rent
Landlords should beware of using "without prejudice" and "subject to contract" headings in rent review notices following a recent High Court ruling. Lucy Trevelyan reports
LNB News 24/08/2009 27
Published date: 24 August 2009
Jurisdiction: UK
Related cases: Maurice Investments Ltd v Lincoln Insurance Services Ltd [2006] All ER (D) 402 (Feb),[2007] 1P&CR 14; Lancecrest Ltd v Asiwaju [2005] All ER (D) 174 (Feb), [2005] EWCA Civ 117
Analysis: A landlord's letter which was headed "without prejudice and subject to contract" did not trigger a rent review process because a reasonable recipient might believe the landlord was merely trying to reach a quick agreement and not bringing into operation the formalities under the lease, the High Court has ruled.
Joe Copping, an associate in Hammonds' property litigation team, says the decision in Maurice Investments Ltd v Lincoln Insurance Services Ltd [2007] 1P&CR 14 was perhaps a harsh one since the wording in the letter was unequivocal and it was clear that the landlord was starting the rent review process.
She explains that it was a case where the rent review was to be triggered by notification by the landlord in writing specifying a proposed rent. In the absence of a response from the tenant, or the election of a third party determination, the tenant would be stuck with the rent as notified by the landlord.
"The recipient was in no doubt that the landlord had initiated the rent review process. Three months passed and no agreement was reached over the new level of rent. The landlord started proceedings for declaratory relief and the tenant took the point that the words 'without prejudice and subject to contract' meant that the trigger notice was of no legal effect and as such, it was not stuck with the rent stated in the trigger notice.
"The judge took the view that the reaction of the actual recipient was to be ignored and instead asked the question of how a reasonable recipient would have interpreted the notice."
A notice, Copping says, would be effective only if it left the reasonable recipient in no doubt.
"A reasonably minded tenant with the rent review provisions in mind and with knowledge of the previous correspondence might think that the landlord was instigating the rent review machinery in the lease, but it might recognise the possibility that the landlord was putting forward a sum in the hope of a quick agreement whilst reserving the right to invoke the formal rent review provisions later."
This case, she says, to that extent follows the guidance set by the Court of Appeal in Lancecrest Limited v Asiwaju[2005] EWCA Civ 117.
"The key point to note is that guidance seems to be coming from the courts that it is not the reaction of the actual recipient that is important but the reaction of a reasonable recipient to a notice served," she says.
Surveyors, and lay clients, she says, who perhaps too readily head letters and documents "without prejudice and subject to contract" without necessarily giving thought to the implications of those words may have to consider alternative wording.
"There is a possibility, following this case, that notices so headed may not be of legal effect" she says. "Parties in future should not so readily head documents, which are important and which may need to be referred to in court proceedings, 'without prejudice and subject to contract'. If there is any doubt, legal advice should be taken."
Construction Law Journal, September 2009: The range of possibilities which PCSA attempts to cover is so wide some provisions have to be couched in somewhat ill-defined terms
LNB News 07/09/2009 30
Published date: 7 September 2009
Author: Michael Phipps
Journal name: Construction Law Journal
Journal date: 1 September 2009
Journal citation: (2009) 20 7 Cons.Law 12
Jurisdiction: England; Wales
Summary: Analyses of the JCT Pre-Construction Services Agreement (PCSA). The article also welcomes the arrival of consultation documents for Project Bank Accounts from the JCT. As far as wording is concerned, it does not seem to be a good policy to use terms which do not appear as definitions in 1•1 in upper case letters. Even though their meaning might seem to be obvious it will discourage users from checking the precise meaning.
Is completion practically understood?
Construction Law Journal, September 2009: Practical completion is a contentious issue in a recession
LNB News 07/09/2009 32
Published date: 7 September 2009
Author: Hamish Lal
Journal name: Construction Law Journal
Journal date: 1 September 2009
Journal citation: (2009) 20 7 Cons.Law 14
Jurisdiction: England; Wales
Summary: Analyses the meaning of practical completion. The problems are compounded when there is a related but independent concept of 'Completion' under the development agreement/agreement for lease. Practical Completion is perhaps easier to recognise than to define; no clear answer emerges from the authorities as to the meaning of the term. It would be mutually beneficial to define in express terms (in the building contract) exactly what 'practical completion' is intended to certify.
Why is the OFT so unfair?
Building, 28 August 2009: Bid-rigging is completely different to cover pricing and it is about time that our competition watchdog understood that difference
LNB News 04/09/2009 25
Published date: 4 September 2009
Author: Tony Bingham
Journal name: Building
Journal date: 28 August 2009
Journal citation: Building, 28 August 2009, 42
Jurisdiction: England; Wales
Summary: Explains the Office of Fair Trading (OFT) can act like a police force, the crown prosecution service, a judge and a jury. It decides the sentence and can also do deals. Bid-rigging is a criminal offence and nobody, in real life construction, regards giving a cover price as a criminal offence.
A straw in the wind
Estates Gazette, 29 August 2009: Enforcements of planning permissions are set to rise as the public's understanding of the system increases
LNB News 02/09/2009 53
Published date: 2 September 2009
Author: Harry Spurr
Journal name: Estates Gazette
Journal date: 29 August 2009
Journal citation: Estates Gazette, 29 August 2009, 78
Jurisdiction: England; Wales
Summary:Considers the decision in a case in which a dwelling-house was disguised as a barn. A combination of rising land values and a wider public understanding of the planning system has led to a rash of appeal decisions involving houses that have been disguised to evade enforcement. Most notable was the bold but unsuccessful attempt by a Mr Fidler to establish the lawfulness of a house built behind a screen of straw bales.
A wise approach while waiting for the upturn
Estates Gazette, 15 August 2009: The importance of revisiting Section 106 agreements during the financial downturn
LNB News 25/08/2009 21
Published date: 25 August 2009
Author: Karen Mason and Caroline McDade
Journal name: Estates Gazette
Journal date: 15 August 2009
Journal citation: Estates Gazette, 15 August 2009, 67
Jurisdiction: England; Wales
Summary: Suggests that Section 106 agreements should be revisited to protect an asset's value, even if the development is delayed. Section 106 agreements are contractual agreements between an applicant and the local planning authority to allow planning consent to be granted. The downturn has left many developers unable to implement their planning consent, but they will want to retain that consent given the time and costs involved in pursuing it.
Articles
LNB News 11/09/2009 93
Published date: 11 September 2009
Jurisdiction: UK
Related legislation: Highways Act 1980; Town and Country Planning Act 1990
Related cases: Benedictus v Jalaram [1989] 1 EGLR 251; The Mayor and Burgesses of the London Borough of Waltham Forest v Oakmesh Ltd and another [2009] EWHC 1688 (Ch), [2009] All ER (D) 166 (Jul)
Analysis: The defendant companies in The Mayor and Burgesses of the London Borough of Waltham Forest v Oakmesh Ltd and another [2009] All ER (D) 166 (Jul) sought an amendment to the planning agreement to construct a footbridge on the ground that the agreement did not comply with the requirements of the Town and Country Planning Act 1990 (TCPA), s 106, since the provision of the footbridge was to be constructed in land set outside the land identified in the agreement.
Anwar, solicitor and contributor to Butterworths Planning Law Service says: "The judge held that it would be an abuse of process if the defendants were allowed to dispute the validity of its obligation in that its primary effect would be to overturn the result of their previous unsuccessful appeal."
Livesey QC sitting as a deputy judge said that it was clear from the correspondence that the defendants had accepted their obligation to build the footbridge on numerous occasions and that the claimant authority had changed its position in reliance on those representations by agreeing for the date of the completion of the footbridge to be changed. Additionally, there was never any misunderstanding between the parties as to the identity of the land over which the obligation was to be performed.
"The Council successfully argued that the defendant could not 'approbate and reprobate'. That is, it could not make an application under s 106A(3) of TCPA to vary the obligation (and in doing so, accept that the obligation was enforceable against it), then later assert that the obligation was not enforceable against it, see Stocker LJ in Benedictus v Jalaram [1989] 1 EGLR 251," says Anwar.
Furthermore the judge said that an application to amend the defence "at this stage in the proceedings to allege the contrary of what was accepted over the years was too late".
An alternative argument by the defendant companies was that since the council had adopted management of the roads and the footways on the development under the Highways Act 1980 (HA 1980), s 38, it was obliged to provide the footbridge and was not entitled to enforce the covenant against the defendant as the Council was itself in breach of the obligation to provide the footbridge.
The judge rejected that argument. He held that the Council was not a person deriving title under the defendant companies since its title vested in it for the purpose of the performance of its functions as a highway authority and by operation of HA 1980, s 263(2), and that such title was not one 'deriving' under the defendant companies within the meaning of the TCPA, s106. Nothing other than the surface of the highway vested in the Council and only by virtue of the operation of s 263(2).
In addition, says Anwar, "The judge pointed out that the Council was the local planning authority and also the highway authority so one legal entity, and thus could not take enforcement proceedings against itself."
The obligation to build the footbridge remained with the defendants.
Financial services industry gears up for mortgage regulation review
The Financial Services Authority is being urged not to over-regulate mortgage lending practices by setting limits on loans. Andrew Strange of the Association of Mortgage Intermediaries talks to Neasa MacErlean.
LNB News 08/09/2009 14
Published date: 8 September 2009
Jurisdiction: European Union; UK
Abstract:
Analysis: The Financial Services Authority (FSA) is being urged to hold back from introducing strict limits on the amounts that can be leant to mortgage borrowers. A major review of mortgage regulation will begin in early October when the FSA, the chief City regulator in the UK, launches a discussion document.
Summary: A lot of work has been going on in the background in the City in preparation for this consultation procedure. And there will undoubtedly be discussion over whether the FSA should limit the amount that can be leant on each property (at, for instance, 90 or 95 or 100 or 105 per cent of the value). Additionally, there will inevitably be discussion over whether amounts should be very precisely limited for individual borrowers--at, for instance, a fixed multiple of annual earnings or annual disposable income.
The Association of Mortgage Intermediaries (AMI) is, however, "urging caution" on the FSA as it considers such options. The AMI is publishing a series of three reports on the UK mortgage market in the run-up to October. Its first report, The UK Mortgage Market--a Comparative Study Reflecting US and European Influences, sought to isolate the real factors behind the recent UK property boom and bust cycle. It concludes that the macro-economic situation (especially shortage of housing supply) influences house prices far more than regulatory issues such as limits on mortgage loans. "Housing supply is very important in this," says AMI policy director Andrew Strange. "Fiddling with conduct of business regulation isn't going to impact on big boom and bust cycles."
Strange says that the UK has been seen as having a property market with many similarities to that of the US. In fact, such similarities are vastly overstated, he says. In the US there are greater incentives on homeowners to hand back the keys on mortgaged properties in difficult times because "no-recourse" loans (in which the remaining mortgage debt is wiped off when the keys are handed in) are commonplace. In the UK virtually all loans are recourse loans and lenders do indeed pursue their borrowers for repayment if they vacate the property.
Many of these issues will have to be teased out not just for the FSA's mortgage review but also in the run-up to an expected mortgages directive which the European Commission is thought to have within its sights. "The Commission is now looking at responsible lending, and that will lead to a mortgages directive in the next five years," says Strange.
Thinking about the FSA's review, the AMI accepts that some limits are needed and are helpful but not necessarily in the form that the man in the street might immediately understand them. "There are already limits in place anyway," says Strange. "Lenders have to hold more capital for risky business." He thinks that weighting risks by capital requirements is "more sensible" than putting a limit on an individual's ability to borrow. Having said that, the AMI is much keener on the idea of using borrowers' disposable income as a guide on how much they should be leant, rather than gross income.
The next two AMI papers will consider regulatory issues and affordability.
The FSA will probably be urged, from some quarters, to toughen considerably its regulation of mortgage lenders. For instance, the FSA Consumer Panel is also working on a report "on the actions necessary to improve the way regulation works for consumers". Its chairman Adam Phillips, in July, in his introduction to the Panel's 2008/09 annual report, highlighted regulatory weaknesses as a cause of the financial crisis. He said: "Underlying the crisis were poor lending practices, encouraging consumers to borrow money for home ownership ... And it is [in] the end customers who ultimately bear the cost of this disaster ... It is important that in moving forward, the regulator keeps the needs of consumers at its heart."
Court orders compliance of an undertaking
The High Court has said that where there is an absence of evidence that the undertaking in a case was impossible to perform, performance of the undertaking would usually be required. Evelyn Reid talks to Malcolm Dowden, solicitor and LexisPSL property author about the decision
LNB News 04/09/2009 53
Published date: 4 September 2009
Jurisdiction: UK
Related cases: Clark and another v Lucas Solicitors LLP [2009] EWHC 1952 (Ch)
Related digests: Consultation Paper: Solicitors Acting For Seller and Buyer LNB News 27/04/2007 11
Relevant companies: NatWest
Analysis: Solicitors' undertakings play a vital role in conveyancing transactions, says Dowden, solicitor and LexisPSL property author: "They provide a practical solution to the problems that arise when the property is subject to a mortgage. The buyer must be satisfied that the property will be sold free of the mortgage before it will release the sale price nor will the lender execute a discharge before its debt is paid off. Where the seller has to use the sale proceeds to pay off the debt, this could lead to stalemate. To deal with this issue solicitors frequently undertake to procure the discharge of mortgages after completion."
A solicitor's failure to perform an undertaking was the central issue in Clark v Lucas [2009] All ER (D) 11 (Aug). Two charges were secured on the land in question the defendant solicitors undertook to discharge both charges, believing that the proceeds of sale would be sufficient. However, NatWest, whose charge took priority, exercised its right to demand all moneys due to it from the seller, leaving the third party charge unpaid. NatWest executed a discharge in Form DS3, but the third party did not. The claimants sought specific performance.
The defendant accepted that it was in breach of its undertaking, but argued that performance was "impossible" because the lender demanded full payment of the debt due to him, which was approximately double the value of the property.
The court emphatically rejected that argument. It said that the case was not one of impossibility. That the undertaking was to pay off both charges on completion and that had the seller's solicitor obtained a redemption figure before completion, it would have known that NatWest would exercise its right to claim the entire proceeds and could therefore have modified its undertaking.
Dowden says: "The third party was willing to provide a discharge on settlement of the debt due to him, and so the matter could be resolved by paying a cheque--albeit a much larger one than had been anticipated, and a much larger one than might have been needed if the question had been addressed and an agreement reached before completion.
"However, the court ordered compliance with the undertaking. It refused to take the alternative step of ordering the solicitor to compensate the buyer for the loss caused by the breach of undertaking. That alternative is available where compliance with the undertaking is impossible, or where it would for some other reason be inappropriate to order performance. The crucial role played by undertakings in the conveyancing process, and the need to be able to trust and rely on them, militated strongly in favour of an order for full compliance."
He adds: "The ruling in the instant case reflects the Solicitors' Code of Conduct that undertakings are binding and unless there is clear wording to the contrary, a solicitor who undertakes to make a payment out of the proceeds of sale of an asset must make that payment, even though there may be insufficient funds to do so."
Reviewing rent
Landlords should beware of using "without prejudice" and "subject to contract" headings in rent review notices following a recent High Court ruling. Lucy Trevelyan reports
LNB News 24/08/2009 27
Published date: 24 August 2009
Jurisdiction: UK
Related cases: Maurice Investments Ltd v Lincoln Insurance Services Ltd [2006] All ER (D) 402 (Feb),[2007] 1P&CR 14; Lancecrest Ltd v Asiwaju [2005] All ER (D) 174 (Feb), [2005] EWCA Civ 117
Analysis: A landlord's letter which was headed "without prejudice and subject to contract" did not trigger a rent review process because a reasonable recipient might believe the landlord was merely trying to reach a quick agreement and not bringing into operation the formalities under the lease, the High Court has ruled.
Joe Copping, an associate in Hammonds' property litigation team, says the decision in Maurice Investments Ltd v Lincoln Insurance Services Ltd [2007] 1P&CR 14 was perhaps a harsh one since the wording in the letter was unequivocal and it was clear that the landlord was starting the rent review process.
She explains that it was a case where the rent review was to be triggered by notification by the landlord in writing specifying a proposed rent. In the absence of a response from the tenant, or the election of a third party determination, the tenant would be stuck with the rent as notified by the landlord.
"The recipient was in no doubt that the landlord had initiated the rent review process. Three months passed and no agreement was reached over the new level of rent. The landlord started proceedings for declaratory relief and the tenant took the point that the words 'without prejudice and subject to contract' meant that the trigger notice was of no legal effect and as such, it was not stuck with the rent stated in the trigger notice.
"The judge took the view that the reaction of the actual recipient was to be ignored and instead asked the question of how a reasonable recipient would have interpreted the notice."
A notice, Copping says, would be effective only if it left the reasonable recipient in no doubt.
"A reasonably minded tenant with the rent review provisions in mind and with knowledge of the previous correspondence might think that the landlord was instigating the rent review machinery in the lease, but it might recognise the possibility that the landlord was putting forward a sum in the hope of a quick agreement whilst reserving the right to invoke the formal rent review provisions later."
This case, she says, to that extent follows the guidance set by the Court of Appeal in Lancecrest Limited v Asiwaju[2005] EWCA Civ 117.
"The key point to note is that guidance seems to be coming from the courts that it is not the reaction of the actual recipient that is important but the reaction of a reasonable recipient to a notice served," she says.
Surveyors, and lay clients, she says, who perhaps too readily head letters and documents "without prejudice and subject to contract" without necessarily giving thought to the implications of those words may have to consider alternative wording.
"There is a possibility, following this case, that notices so headed may not be of legal effect" she says. "Parties in future should not so readily head documents, which are important and which may need to be referred to in court proceedings, 'without prejudice and subject to contract'. If there is any doubt, legal advice should be taken."
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