Monthly Archives: November 2015

Payment of lease extension completion statement did not oust LVT’s judgement on costs

By section 60 of Leasehold Reform Housing Urban Development Act 1993 (the 1993 Act) it is the enfranchising residential tenant who must pay the costs of the extension lease. Where those costs are in dispute there is a mechanism for completion to take place without resolution of that dispute. This is provided by section 56(3) of the 1993 Act.

Whether the Leasehold Valuation Tribunal (LVT) has jurisdiction depends, to some extent, on section 91(1) of the 1993 Act. It says the LVT only has jurisdiction “in default of agreement” as to the amount of costs recoverable under section 60.

In the Upper Tribunal (Lands Chamber) case of Friends Life Ltd & Anor v Jones [2014] the central issue was whether a binding agreement as to the amount of the solicitors’ conveyancing fees occurred, or was made, when the residential tenant’s solicitor paid, without demur, the completion monies requested by the intermediate and head landlords, at completion of the extension lease, on 22 March 2013.

The Tribunal determined that there was no agreement as to costs because by its surveyor the residential tenant had five weeks earlier issued an application in the LVT under section 92(1)(d) of the 1993 Act seeking determination of the reasonable costs payable and, a week prior to the completion of the extension lease, the LVT had issued directions without hearing requiring the intermediate and head landlords to send a detailed statement of the costs which they sought under section 60(1) of the 1993 Act.

Seen in that context, the payment of the completion monies could not amount to an unequivocal acceptance of the 22 March 2013 cost figure. Rather, the payment of the full completion fees accorded with section 56(3) of the 1993 Act, which requires that where the amount of costs is not agreed the tenant cannot require completion of the extension lease without tendering the amount “so far as ascertained” of the costs for which the tenant is liable under section 60. Here the amount of the costs was “ascertained”, and full payment had been tendered and made, even if the amount of the costs had not been “agreed” because any costs in excess of £722 plus disbursements and VAT were disputed as was clear from the residential tenant’s surveyor’s section 92(1)(d) application.

In short, the payment of the costs on 22 March 2013 was merely the provision of full “security” so as to enable completion of the extension lease to take place pending the outcome of the residential tenant’s surveyor’s section 92(1)(d) application to the LVT. The fact that the tenant was acting by two representatives, or agents, did not affect that conclusion. Their separate acts were to be treated as the joint acts of the principal i.e. the residential tenant.

So the LVT had jurisdiction to decide the cost issue. That jurisdiction had not been ousted by any “agreement” as to the amount of costs recoverable under section 60.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Solicitor should have disclosed price discrepancy to lender

In the Court of Appeal case of Mortgage Express Ltd v Bowerman & Partners [1996] Millett LJ said;

“…..A solicitor who acts for [buyer and lender in] a transaction owes a duty of confidentiality to each client, but the existence of this duty does not affect his duty to act in the best interests of the other client. All information supplied by a client to his solicitor is confidential and may be disclosed only with the consent, express or implied, of his client. There is, therefore, an obvious potentiality for conflict between the solicitor’s duty of confidentiality to the buyer and his duty to act in the best interests of the mortgage lender.”

No such conflict was found by the court to exist:

“It is the duty of a solicitor acting for a purchaser to investigate the vendor’s title on his behalf and to deduce it to the [lender’s] solicitor. He has the implied authority of his client to communicate all documents of title to the [lender’s] solicitor. In the present case, the information in question appeared on the face of the vendor’s title, which consisted of his agreement, subject to contract, to purchase the flat for £150,000. Had the [lender] instructed other solicitors, [the borrower’s solicitor] would have had to provide them with a copy of that agreement. It would then have been for those solicitors to consider whether they ought to inform their client of the price which [the borrower] was paying for the flat. In the present case [the borrower’s solicitor] was instructed to act both for the buyer and the [lender] and it was his duty to investigate the vendor’s title on behalf of each of his clients. He must, therefore, be taken to have been in possession of the documents of title, including [the vendor’s] purchase agreement, not only as solicitor for [the borrower] but also, with [the borrower’s] implied authority, as solicitor for the [lender]. He then came under a duty to the [lender] to consider whether he ought to disclose the information which that documentation contained to them.”

In the Court of Appeal case of Goldsmith Williams Solicitors v E.Surv Ltd [2015] the court said that the question whether the Solicitors were under the Bowerman duty in the present case depended on whether that duty was excluded by, or was inconsistent with, the terms of the solicitors’ engagement, as contained in the Council of Mortgage Lender’s (CML’s) Handbook.

On the contrary Clause 5.1.2 of Part 1 of the CML Handbook could only be explained on the basis that if:

1. a matter “comes to the attention of the solicitor dealing with the transaction which [the solicitor] should reasonably expect [the Lender] to consider important in deciding whether or not to lend to the borrower” and

2. that matter is not confidential to the borrower

then the solicitor should report it to the lender.

One of the matters then included under Rule 6(3)(c) of the Law Society’s Practice Rules 1990 as being a solicitor’s obligation to the lender was “making appropriate searches relating to the property in public registers … and reporting any results … which the solicitor considers may adversely affect the lender”.

A search of the Land Registry in this case was a search for the purposes of that sub paragraph and had resulted in the information that the property had been purchased recently at a lower price which strongly suggested that the current valuation was excessive. The search in this case had obviously been relevant to the value of the proposed security and the information should have been reported to the lender.

However the solicitors’ appeal was successful. Even if they had provided the information they should have on the purchase price and date of purchase of the property, it had not been proved on the balance of probabilities that the lender would have reacted to the information. This was because on their mortgage application the borrower had provided price history information which was not materially different.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Receivers owed no duty of care directly to bankrupt mortgagor

Where a mortgagor is subject to the appointment by the mortgagee of a receiver over the mortgaged property the receiver owes a duty to the mortgagor to look after the property if and to the extent that the mortgagor retains an interest in what remains of the property after the mortgage debt and the receiver are paid off {the equity of redemption).

Where the mortgagor becomes bankrupt, the mortgagor ceases to have any such interest. The equity of redemption becomes vested in their trustee in bankruptcy. Though the mortgagor retains a legal liability under the mortgage, that is limited in nature and duration. Upon his discharge from bankruptcy it is automatically extinguished. The mortgagor walks free from the mortgage and the benefit of the equity of redemption stays vested in the trustee in bankruptcy for the benefit of the general creditors.

In the event of a surplus in the bankruptcy, then under section 330(5) of the Insolvency Act 1986, the trustee must return that surplus to the bankrupt: But the bankrupt has no right to the mortgaged property as such and his interest in any possible surplus can be and is protected by the duties which both the receivers and the mortgagee will owe the trustee in bankruptcy as to their management of the property and its realisation.

The creditors and the bankrupt mortgagor have a shared interest that the property should be managed and disposed of for the best price reasonably obtainable but that does not mean that they are owed any duty by the receivers.

In the Court of Appeal case of Purewal v Countrywide Residential Lettings Ltd & Anor [2015] all the foregoing factors were in play. The residential property had been subject to water damage but the receivers had failed to take timely action to stop the problem, which the mortgagor had told them about, or to claim the insurance proceeds in time. On getting the property back the mortgagor had spent £16000 fixing it.

The court said no legal precedents suggested the receivers’ duty being owed to a bankrupt mortgagor nor was there any justification for imposing such a duty. The mortgagor has ceased to have any interest in the equity of redemption and his ultimate entitlement under s. 330(5) to any surplus in the bankruptcy did not require the imposition of a duty to anyone beyond the trustee in bankruptcy so the receivers were not liable to him.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Promissory estoppel could not outflank statutory requirements for variation of land sale contracts

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act) says:

“(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each

(5) … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”

In Dudley Muslim Association v Dudley Metropolitan Borough Council [2015] the starting point was that the Dudley Muslim Association (“DMA”) were under an obligation to re-transfer land to the Council in the event of non-completion of a Mosque development by a contractual deadline.

They alleged that the Council had made representations that they be allowed an extension of time beyond the Scheme getting planning permission and that this amounted to a variation of the contract or was the basis of a promissory estoppel.

The Court of Appeal held that an obligation to re-transfer land to the Council was a contract for the disposition of an interest in land and therefore caught by section 2 (1).

Although the obligation to re-transfer was in the nature of a covenant, it made no difference. It was an executory (and initially conditional) commitment to transfer the freehold to the Council in exchange for a specified sum of money. So the obligation to transfer was within the scope of section 2.

Any variation of a contract that falls within the scope of section 2 must itself comply with the required formalities of that section: McCausland v Duncan Lawrie Ltd [1997]. The DMA could not show that the correspondence from the Council alleged to be the source of the estoppel did comply.

McCausland left open the possibility that estoppel might get round the section, though it would be surprising if one could do by promissory estoppel what one could not do by informal contract.

An “estoppel by convention” arises where parties to a transaction act on an assumed state of facts or law, where that assumption is either shared by both, or, made by one party and acquiesced in by the other party. Here, so long as the assumption is communicated by each party to the other, then each is prevented, or estopped, from denying the assumed facts or law if it would be unjust to allow them to go back on the assumption. Godden v Merthyr Tydfil Housing Association (1997) subsequently held that an allegation of an estoppel by convention could not circumvent section 2.

A “proprietary estoppel” involves something being done by a person which that person believes will give him rights in or over land. For example, putting up a building or making improvements to the land. Here the landowner may be estopped from denying the right or title which that person has assumed to exist. Yaxley v Gotts [2000] held that a proprietary estoppel claim could be brought despite section 2 (1) because such a claim fell within the exception in section 2 (5). But the observations of Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008] later cast doubt on this:

“The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute.”

Though the observations were made as an aside and were not essential to the decision, three other Law Lords in the case had agreed with Lord Scott’s speech.

In the present Dudley case, the Court of Appeal was prepared to assume, for the purposes of argument, that a claim in proprietary estoppel is capable of outflanking section 2. But only because it might fall within the express exception within subsection (5) which was itself part of section 2.

A “promissory estoppel” usually involves a promise, given by one party during the performance of a contract, not to hold the other party to the strict terms of the original contract.

Where, as here, a defence was raised based not on proprietary estoppel but on promissory estoppel there was no question of a constructive trust of land arising. Furthermore since the DMA already owned the land, there was no relevant property which was capable of being held on constructive trust for the DMA.

Unless a case fell within section 2 (5), to admit a defence based on promissory estoppel would be effectively to repeal the section by judicial legislation.

So, even if the DMA had been able to plead and prove a defence of promissory estoppel it would not have overcome the extension of time being void for non compliance with the formalities required under section 2 (1) of the 1989 Act.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.