Monthly Archives: March 2016

Mortgage clause did not sweep up all borrower’s present and future assets

In the Land Registry Adjudicator case of Bonsu v Flex Mortgages Ltd [2016] the borrower had charged the Property, and any rights they may have relating to it, to the lender with full title guarantee by way of legal mortgage. In the same Clause 3 the borrower agreed “that this mortgage is extended to cover any legal or equitable estate which [they] or any one of [them] own[ed] now or acquire[d] at any time in the future.”

However in the mortgage “Property” was not given any extended definition, to include other or after-acquired land – it’s only meaning was the Ground Floor Flat.

The Adjudicator said Clause 3 of the 2006 Charge created a mortgage over the Ground Floor Flat (both as regards the legal estate and any equitable interest). It did not purport to or actually create a fixed or any other form of charge, legal or equitable, over any other property, whether owned contemporaneously with the 2006 Charge or subsequently acquired by the borrower.

The words ” extended to cover” were inappropriate to create an immediate charge over unidentified property. Moreover such a charge was not a usual or standard term of a normal mortgage. If the lender wished to create such a charge, the words of charge would have to be express and entirely clear.

In fact the additional words had been intended to operate as an “all estate” provision. The ” legal or equitable estate” referred to had to relate to the mortgaged ground floor flat defined as “the Property”.

The clause aimed to subject to the 2006 Charge any lesser or different interest owned by the borrower in that Property. So if, at the date of execution, the borrower had a defective legal estate, but a valid equitable interest in the Property, that interest would automatically become subject to the charge.

Also, if the borrower has a defective legal title at the date of the charge, but subsequently got a valid legal estate, that too would be subjected to the charge.

Any other interpretation was implausible because:

1. The clause did not identify the property in which the borrower had a present or future legal or equitable estate. The only property referred to in clause 3 was the Property as defined.

2. It would otherwise create or purport to create a mortgage not only over all after-acquired property, but over every single asset owned by the borrower at the date of the 2006 Charge. So that interpretation was quite against commercial common sense.

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

Solicitors’ application to Land Registry was negligent misstatement

What follows is a cautionary tale.

In Chief Land Registrar v Caffrey & Co [2016] clients sent their solicitors a Form DS1 Land Registry discharge purportedly signed on behalf of their bank to discharge a mortgage.

It was a forgery.

The clients told the solicitors that the bank was represented by another firm of solicitors, but that was untrue too.

The solicitors did not contact the bank or the so-called bank’s solicitors to verify the DS1 or that the “bank’s solicitors” were actually instructed on it. They submitted the Form DS1 to the Land Registry with a Form AP1 to apply to delete the mortgage.

The Land Registry asked for evidence that the person signing the DS1 had authority to do so on behalf of the bank.

The client supplied the solicitors with a purported power of attorney seemingly appointing four individuals, including the apparent signatory to the Form DS1, as the bank’s attorneys.

The solicitors sent a certified copy of the purported power to the Land Registry. The Land Registry acted on the application, the copy power and the Form DS1, and removed the mortgage from the property’s land register.

Later Santander UK plc lent money on the security of a charge on the property.

When the original Bank discovered that it’s mortgage had been removed, it applied to reinstate it to the register, but Santander objected. A Land Registry adjudicator decided that the original bank’s mortgage should be reinstated, but ranked it after Santander’s mortgage. The original bank then sought and obtained an indemnity for it’s loss from the Land Registry. The Land Registry then sued the solicitors to recoup their outlay under that indemnity.

The first basis of claim was negligence for having assumed a duty of care to the bank and then having breached it. The Land Registry claimed to be subrogated, by Land Registration Act 2002, s 103, Schedule 8, paragraph 10, to that claim of the bank against the solicitors.

But the High Court Master pointed out that the solicitor was acting for the borrowers in the discharge of the bank’s mortgage, and not for the bank, which had conflicting interests. The solicitors had been told that the bank had its own solicitors and so had no reason:
– to think that the bank was relying on it in any way,
– to disclaim any duty towards the bank or,
– to advise it to take its own advice.
Nor was the bank unsophisticated.

The solicitors were never asked to act on behalf of the bank, and never thought they were doing so. They thought that the bank was independently advised. The solicitors were acting for the borrowers, not the bank. The borrowers were not giving instructions to the solicitors on behalf of the bank, but on their own behalf.

The actual act which caused the loss was the act of the Land Registry in removing the charge, not the act of the solicitors in supplying the information to the Land Registry. Facilitating the causing of harm by another person was only grounds for negligence liability in exceptional cases e.g. where someone supplies a dangerous object to, or creates a dangerous situation for, someone else who is known to be irresponsible, or where someone’s job is to take reasonable care to prevent someone else’s actions.

“A solicitor asked to do something for his or her client and against the interests of another person is necessarily doing something capable of harming the other person. If it is done carelessly, it may harm that person even more. But that hardly militates for imposing a duty of care.

The solicitors were responsible for submitting the documents to the Land Registry without making checks. But that is what they were asked to do and their clients could have complained had they not done that. That contractual duty was undertaken to the clients alone.

“The act (of submitting the documents without first making checks) would have been easy to avoid, but at the price of not acting for the clients, or at any rate of greater expense to the clients. Moreover, the bank also has another remedy, i.e. against the [Land Registry].”

Registered land was known to property lawyers and to others, at that time, to be insufficiently secure against that kind of fraud. That was not the solicitors’ fault. The real question was how the law should allocate the risks of such fraudulent activity.

The Land Registry claimed to be subrogated to the rights of the bank. So the issue was to be determined as between the bank and the solicitors. The solicitors had not designed or run the system and it was not fair just or reasonable to make the solicitors responsible to the bank for the risk of fraud within an inherently risky Land Registration system. So the claim failed so far as it was based on negligence.

The Land Registry’s second basis for claim was negligent misstatement i.e. that by completing and/or submitting the application to the Land Registry and/or certifying a copy of the purported power of attorney and/or supplying it to the Registry, the solicitors “expressly or impliedly represented to the Land Registry that they had taken sufficient steps or measures and/or knew of sufficient facts to satisfy [themselves] that” the discharge form had been properly executed, solicitors had been instructed, the power of attorney was valid, the bank wished to discharge the charge, and that the property was no longer charged in favour of the bank.

The Land Registry said that the relationship between the solicitors and the Land Registry was such that the solicitors “knew or ought to have known that the Land Registry would rely upon” those representations in dealing with the application to discharge the bank’s charge, and so “the [solicitors] owed to the [Land Registry] a duty to take reasonable care to ensure that the [representations] were true.” The Land Registry said the representations were false, that it had relied on them and that it had thereby been caused loss.

Unlike the first negligence ground where the Land Registry claimed to be subrogated to the rights of the bank, and the question therefore arose as between the bank and the solicitors, here the issues arose directly between the Land Registry and the solicitors.

The Land Registry had professional staff who might be expected to have systems for checking matters themselves. They did not just blindly accept whatever the solicitors told them.

However the High Court Master was narrowly persuaded that, on the peculiar facts of this case, the solicitors had assumed a duty to take care in the representations which they had made to the Land Registry.

So the Master gave default judgment to the Land Registry, on the second cause of action, for damages to be assessed.

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

Removal of planning condition abolished claimants’ loss

In the Court of Appeal case of Bacciottini & Anor v Gotelee and Goldsmith (A Firm) [2016], the appellants had acquired a residential property in May 2007. The respondent solicitors had negligently failed to advise them that there was a planning restriction attached to the property restricting it’s residential use. Later, after the purchase had been concluded, the appellants successfully secured the removal of the planning restriction.

The appellants claimed the sum of £100,000 (with interest) being the difference between the value of the property in May 2007 without the planning restriction and the value of the property at that date with the planning restriction.

But the trial Judge merely awarded the appellants damages of £250, being the cost of the application to the local authority to remove the planning restriction.

Dismissing the appellants’ appeal, the Court of Appeal said the measure of damages ordinarily is:

“….that sum of money which will put the party who has been injured, or who has suffered, in the same position as he would have been if he had not sustained the wrong for which he is now getting his compensation or reparation.”

(Lord Blackburn in Livingstone v Rawyards Coal Co.(1880)).

The Court of Appeal in Bacciottini said the core principle set out in Livingstone v Rawyards Coal Co. (cited above) would determine the outcome of the appeal.

In The New Flamenco [2015] Longmore LJ of the Court of Appeal had said:

“The important principle which emerges from these citations is that, if a claimant adopts by way of mitigation a measure which arises out of the consequences of the breach and is in the ordinary course of business and such measure benefits the claimant, that benefit is normally to be brought into account in assessing the claimant’s loss unless the measure is wholly independent of the relationship of the claimant and the defendant. That should be a principle sufficient to guide the decision of the fact-finder in any particular case.”

Mr Bacciottini and Ms Cook had had no realistic option but to make an application for the planning condition to be lifted by way of mitigation. That was the course that any sensible owner and occupier in their position would have taken.

So the act of mitigation, in applying to the council to get the restriction removed, which generated the benefit, “arose out of or was sufficiently connected with [the solicitors’] breach [of duty to the appellants as] to require [it] to be brought into account in assessing damages.” (Mance J in The Fanis [1994].)

By reason of the subsequent removal of the restriction the appellants had suffered no loss and there was nothing in respect of which they could require to be compensated.

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

Affordable housing contribution could be removed despite occupation of all residences

Section 106BA of Town & Country (Planning) Act 1990 (“the Act”) says an English planning obligation that contains an affordable housing requirement can be modified, replaced, removed or discharged by the planning authority so that the development becomes economically viable.

In Medway Council v Secretary of State for Communities and Local Government & Ors [2016] the permitted development comprised 332 residential units (which had already been built) and 5,738 sq m of commercial floorspace divided into 16 units (which had yet to be built), public open space, new and modified accesses and car parking at Chatham Quays.

Under the related Section 106 Agreement the Developer was to make affordable housing contributions, which the council had agreed be deferred until after the 300th residential unit was occupied. This had happened some time earlier.

The development, taken as a whole, was unviable even without having to make the contribution, as the affordable housing contribution being removed (around £1.3M indexed to October 2014) would be insufficient to off-set the loss (around £12.3M).

With the houses already built and occupied was it too late to get the requirement to contribute removed from the Section 106 Agreement?

The High Court said the development must be seen as a whole, and was still on-going, and not complete, as to its second commercial phase.

In the circumstances the fact that the residential element was already complete and in excess of the trigger number of habitations did not prevent the Developer applying under Section 106BA of the Act.

Whilst the modification applied for would not make the scheme viable, it would improve the viability of the scheme and make it’s completion more likely.

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

Initial assessment valuation was not interim payment application

In Jawaby Property Investment Ltd v The Interiors Group Ltd & Anor [2016] the issue arose whether a valuation amounted to an interim payment application by the contractor (“TIG”).

The High Court said that the valuation was described only as TIG’s “initial” assessment. So the valuation was not TIG’s firm or final assessment.

For that reason it was not, and could not objectively be interpreted to be, a statement by TIG of what it considered was due to it for the purpose of Clause 4.8.1 of the Contract.

Rather it was only what TIG considered might be due to it, subject to further consideration.

TIG said that the word “initial” meant that it was TIG’s “first” valuation, intended to “get the ball rolling” for valuation purposes. The court said that was not remotely a statement by TIG of the sum that it considered to be due to it for the purpose of clause 4.8.1 of the Contract such as to carry the draconian consequences of the payment regime that followed the service of an interim payment application.

The reasonable recipient of the valuation would not have regarded it as unambiguously telling it that this was an interim payment application for the purpose of Clause 4.8.1.

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

Tenant assigning to Guarantor void and no release

Were it possible, on an assignment of a typical post 1995 lease by a tenant (“T1”) to its guarantor (“G1”):

1. T1 would be released from the tenant covenants of the tenancy, with effect from the assignment: section 5(2)(a) of the Landlord and Tenant (Covenants) Act 1995 (“the 1995 Act”) .

2. G1 would be released from the tenant covenants of the tenancy, with effect from the release of T1: section 24(2).

3. It would be the effect of section 24(2) that “as from the release of [T1]”, ie on the assignment to the assignee (“T2”) (formerly G1), G1 would be released from its liabilities as guarantor under the lease.

4. However, as from the assignment to T2 (formerly G1), T2 would become bound by the tenant covenants of the lease: section 3(2)(a).

So the assignment would release G1 from the tenant covenants of the tenancy but, at the same instant, would bind G1 (but now as T2) with the tenant covenants of the tenancy.

This would mean in practice there would be no release at all for G1 from its liabilities under tenant covenants. For the liabilities under the tenant covenants would simply be taken up again by the guarantor, but this time as an assignee (and not as a guarantor).

Moreover where the guarantor is also primarily liable in respect of the tenant covenants, the liability re-assumed by G1 as T2 might be the very same. The objective effect of the assignment would be that G1 re-assumed precisely the same liability in respect of the tenant covenants as a result of becoming T2 under the assignment.

In the case of EMI Group Ltd v O & H Q1 Ltd [2016], where these facts applied, the High Court said that “frustrated” the operation of section 24(2)(b) and meant the assignment was rendered void by section 25(1)(a), an anti-avoidance provision which was to be interpreted “generously”. The guarantor was therefore absolutely precluded from becoming the assignee, on an assignment by the tenant whose tenant covenants he was guaranteeing.

The consequences of section 25(1)(a) were that the assignment was void and would not take effect to vest the lease in the Claimant, as an assignee, and that the Claimant remained bound as Guarantor of the Original Tenant’s obligations under the lease and had not been released from its obligations under the Guarantee by the operation of the 1995 Act.

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

Owner liable for guest’s nuisance

Can someone be liable in nuisance to the owners of a next door property even though they do not occupy the property from which the nuisance emanates?

A landlord has restricted liability for nuisance since the tort blames the person or persons who cause(s) the nuisance. Where nuisances arise after the tenancy has begun, a landlord will not cause the nuisance unless he directly participates in it, or must be taken to have authorised it. He neither controls nor possesses the property from which the nuisance comes. The fact that he could, but did not, bring proceedings against the nuisance is not a ground for holding the landlord liable.

To be liable for nuisance, a landlord or their agent must participate directly in the act of nuisance, or the landlord must be taken to have authorised the nuisance by letting the property. The mere fact that a landlord does nothing to stop a tenant from causing the nuisance cannot be equated with participating in it, or authorising it.

An occupier is in a different position. Usually they will be responsible for a nuisance even if they did not directly cause it, since they are in control and possession of the property. Here a non-occupying owner may be regarded as an occupier of property if they have allowed others to live or carry out activities on their property, as licensees.

In Cocking & Anor v Eacott & Anor [2016] a Mother had allowed her Daughter to live in a house she owned, but did not live in. The barking of the Daughter’s dog caused a nuisance to neighbours. The Daughter never had more than a bare licence to occupy the property. She had no right to exclude her Mother from the property, Was the Mother “an occupier” for these purposes?

The Court of Appeal acknowledged that there might be cases where an arrangement might be called a “licence” but was in fact either a tenancy, or so much like a tenancy that the owner was not an “occupier” in the relevant sense. But this was not one of them.

Here the Mother was in possession and control of the property throughout her daughter’s stay there. The Mother could have abated the nuisance but chose to do nothing. The nuisance could readily have been abated by the Mother removing the dog and the occupier. The 9 months the neighbours allowed the Mother to abate the nuisance had been sufficient. The Mother was therefore liable for the nuisance.

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