Category Archives: Estate Agents

Court: Trustees could sell estate to that buyer at that price

Where a property is subject to a trust and the trustees are in doubt whether they should proceed with a propose sale, they can protect themselves from future actions by the beneficiaries by seeking court approval.

Since the giving of such approval will deprive the beneficiaries of their remedy, the legal precedents emphasise the requirement for caution by the court before approving trustees’ decisions to carry out “a momentous transaction”. The court will not approve a trustee’s decision without a proper evidential basis for doing so. Equally the court should not withhold approval from trustees “without good reason”.

One of the main tests is whether the trustees can show that their decision to enter into and complete the intended sale was “one which reasonable trustees could properly take in the interests of the beneficiaries”.

In the Court of Appeal case of Cotton & Anor v Brudenell-Bruce & Ors [2014] the court had to decide whether or not to approve a “momentous decision” made by trustees.

The case concerned Tottenham House, Savernake, Wiltshire (“Tottenham House”) which was the main asset of the Savernake Estate. It had been unoccupied since the 1990s, and was rapidly deteriorating. It was on English Heritage’s register of ‘at risk’ properties. Should the court approve the proposed sale to the existing buyer?

The trustees wanted the court to approve the intended sale. One of the main beneficiaries of the trust, Lord Cardigan opposed the intended sale.

For the trustees the intended sale price was a good one that presented an opportunity not to be missed. For Lord Cardigan the price was inadequate and was the outcome of an ineffective and inadequate marketing exercise.

The intended purchaser would originally have been able to walk away from the sale contract by now but had given the trustees an extension to the long-stop date to enable these proceedings.

The court was much concerned that the trust would be put “in an impossible bind” if court approval were withheld. The effects were potentially dire.

The trust had no money, and had to spend large amounts on insurance and maintenance. The trust had already defaulted in paying the bank, and the bank would probably enforce the security it held against three of the smaller properties on the estate.

The trustees would be thrown into an open marketing campaign, against the advice of their estate agent, GVA. They would risk losing the specially interested buyers who had meticulously assembled their bids.

The court had to be cautious to ensure that the trustees were indeed justified in proceeding with the sale but it was not the job of the court to place insurmountable hurdles in the path of trustees as badly placed as the Savernake Trustees were. “Caution cut both ways.”

The court confirmed to the trustees, that in acting on GVA’s professional advice to sell to that buyer at that price, the trustees would be fulfilling their duties to the trust beneficiaries.

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

Service Charge covered Management Company’s Directors’ expenses

In the case of uncertainty or ambiguity, payment provisions in leases are generally to be interpreted in a way that favours the paying party. What follows is a case where common sense dictated that they be resolved in favour of the billing party.

In the Upper Tribunal (Lands Chamber) case of Solarbeta Management Company Ltd v Akindele [2014], the Management Company (“the appellant”) claimed to include its directors’ expenses in flat service charges relying on clause 6.2.1 of the Leases, which enabled the Management Company to “discharge all proper fees salaries charges and expenses payable to such agents or such other persons who may be managing the Estate.”

This was not thought wide enough to cover directors’ expenses by the first Tribunal. The directors managed the company, not the Estate.

On appeal by the Management Company, the Upper Tribunal (Lands Chamber) had other ideas:

The Management Company was a single-purpose tenant-owned company which by clause 6.2 of the leases was required to manage the Estate and to “provide and perform the Services”.

It had no source of funding other than the Service Charge.

If it could not defray the costs of running itself and of performing those functions which it could not delegate to a managing agent, it would become insolvent and therefore disabled from discharging its contractual obligations under the leases.

To be able to manage the Estate it had to manage itself and stay in existence.

Not being a human being, a company could only operate and perform its contractual obligations through the agency of its directors.

So the directors performed two functions:

1. They represented the company in considering and discharging its contractual duties under the leases, and in managing the Estate whether that be appointment and supervision of a firm of managing agents or doing some or all of the work itself or in some other way.

2. Managing the company itself in ensuring compliance with the Companies Act and other company regulations and the filing of all appropriate annual returns failing which it would be stuck off and no longer able to comply with the leases. This would all have been in the contemplation of the person who drafted the leases as was to the Upper Tribunal self-evident from the leases, though it’s not clear how that might have been the case.

No interpretation of clause 6.2.1 could draw any sensible distinction between the management of the Estate and the management of the Management Company. There could not be one without the other. The Management Company’s obligations and functions overlapped and were all integral to the management of the Estate.

It was too restrictive to interpret the clause as:

– allowing the Estate to be managed only by one firm of managing agents and

– the appointment of such firm as precluding the Management Company from recharging it’s administration costs of any of it’s retained functions or obligations provided of course such were reasonable.

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

Court draws line under property solicitor’s liability

In deciding whether a law firm has been negligent towards a property client the court must decide what was the scope of the law firm’s engagement?

Secondly if the engagement covered the relevant service was the law firm negligent in its performance of that service?

Thirdly, if the law firm was in negligent breach was that breach the cause of the claimant’s loss?

Fourthly even if the law firm is on the hook for the above the claimant must not rack up unnecessary additional losses by acting unreasonably in the mistaken belief that the solicitor or his insurers will simply foot the bill.

In the High Court case of Rentokil Initial 1927 Plc v Goodman Derrick Llp [2014] Taylor Wimpey had taken a strong line over the terms of a planning condition when negotiating a conditional purchase agreement for the claimant’s property.

The claimant said the respondent’s negotiation of that clause had left Taylor Wimpey too much latitude to reject the planning permission obtained on the grounds of excessive infrastructure agreement costs when the claimant had been led to believe that the only infrastructure agreement costs to be taken into account were those under the Section 106 Agreement.

The court accepted that the reference to Section 106 Agreement costs was fairly standard short hand embracing all the infrastructure agreement costs associated with the planning stage.

The court also accepted that the respondent’s engagement was limited to advising on the legal issues that did or might arise from the terms of the contract, and not on the planning or commercial issues that did or might arise from it.

Here the planning issues had been devolved to a firm of planning consultants retained by the claimant and the claimant was itself commercially very experienced and sophisticated. Indeed one of the main contacts there was himself a solicitor. Both the planning consultant and the claimant had been kept copied in and informed during the negotiation stage.

The court found the respondent solicitors’ draftsmanship and advice adequate.

The court also accepted that the draftsmanship and advice had not caused any loss because it was generally known that Taylor Wimpey would not have agreed to any different terms and the claimant exchanged contracts with them with that knowledge.

In fact the conditions, imposed by the planning permission, that Taylor Wimpey were using the contract to rail against were to be expected in the circumstances and not such as to prevent the sale from proceeding. Indeed the claimant would have won its case had the issue gone to arbitration under the contract as it should have done.

Given the state of the property market in 2008 and Taylor Wimpey’s financial position it had been inevitable that Taylor Wimpey would have sought to “chip” the original contract price.

In any event the amount of the reduction the claimant had agreed to induce Taylor Wimpey to complete the purchase was too great and reflected an excessive anxiety to get the property off its hands to Taylor Wimpey.

So the claim was not surprisingly dismissed.

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

Social property introduction – VAT followed

When liability to VAT is dependent on a service being provided “in the course of a business conducted” by the service provider, Tribunals and Courts are required to give a very broad meaning to the notion that the service must be rendered in the course of a business.

The cases suggest seven features to be considered in assessing whether supplies were made in the course of business:

1. whether there was a serious undertaking earnestly pursued;

2. whether there was a serious occupation, not necessarily confined to commercial or profit-making undertakings;

3. whether the activity was an occupation or function actively pursued with reasonable or recognisable continuity;

4. whether the activity had a degree of substance as measured by the quarterly or annual value of taxable supplies made;

5. whether the activity was conducted in a regular manner and on sound and recognised business principles;

6. whether the activity was mainly concerned with the making of taxable supplies to consumers for a return; and

7. whether the taxable supplies were of a kind which, subject to differences of detail, are commonly made by those who seek to profit by them.

The First-tier Tribunal (Tax) case of Spencer -Churchill v Revenue & Customs [2014] concerned mainly whether a supply of a service by the Appellant, consisting of assisting the vendor of very valuable London house sell it, was a service made “in the course of a business” run by the Appellant.

Before the house was formally offered for sale, the Appellant knew that the owner, Mr. Lyons, wished to sell the house, and the Appellant had dinner at Scott’s of Mayfair with both Mr. Lyons and a man, the Appellant had recently been introduced to, called Jean Luc (“Jean Luc”). A wealthy Russian, Mr. Andre Goncharenko (“Mr. Goncharenko”) was looking to purchase a very substantial house in London, and Jean Luc knew Mr. Goncharenko. Mr. Goncharenko was dining at the same restaurant. Mr. Lyons and Jean Luc spoke to Mr. Goncharenko and indicated that Lyndhurst Road was available to purchase. Mr. Goncharenko had apparently seen the house and offered to purchase it for £43 million.

Various agents became involved and even though some of the others hadn’t produced the sale the Appellant arranged the division of the agreed fee so that Aylesfords, Knight Frank, Jean Luc and the Appellant were all to receive £125,000 each.

A question later arose whether the appellant should have accounted to HMRC for VAT on his receipt.

The Tribunal found that there had clearly been some deal between Mr. Lyons and the Appellant, dating right back to November 2009 at least, in which it was implicit that the Appellant would perform some introductory role in relation to the sale of the property, and that if the Appellant’s role did result in a sale, then the Appellant would be entitled to a substantial cash payment.

Technical legal questions as to whether there was sufficient certainty as to the terms of the handshake deal to establish an enforceable contract at law did not matter. Clearly for VAT purposes the Appellant rendered a service to Mr. Lyons, for which he was to be remunerated whether or not that service was intended to be remunerated from the outset.

Going back to the tests at paragraphs 1-7 above, some were satisfied and others (mainly continuity) were not. The main distinguishing factor in this case was that the activity did appear to have been pursued quite deliberately from at least November 2009 in a commercial and “business-like” manner. Significant also was the early indication by Mr. Lyons that the Appellant should receive a fee for his services, and e-mails seen which suggested that the Appellant and one of the agents were competing jointly to preserve their fee expectations.

It was not only the other Agents who were competing for the entitlement to receive fees, leaving the Appellant to receive a gratuity. The Appellant was involved in the fee battle involving the others.

The wide meaning to be given to the notion of “business” meant that there should be a liability to VAT where any supplies are made in “an economic activity”. So the tests at 1-7 above could be satisfied even if the business encompassed only the one activity, if the activity had been conducted in an entirely business-like manner.

All the other parties were plainly acting in the course of business, and all would have been accounting for VAT. That made it odd to suppose that the Appellant alone was not conducting an economic activity. It could not be said that the Appellant’s activity had been merely in the course of “social engagements” or pleasure.

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

Agent’s Breach of Fiduciary Duty to Vendor Entitled Vendor to Agent’s £744,035.02 Commission on the Resale

To cite the Judge in the case that follows: ‘Many commercial property transactions involve local agents and developers and they will tend to know each other. An agent (A) will frequently have a contact book that he can exploit for the benefit of a vendor (V). Many of the contacts in that book, who might become purchasers (P), might also be former clients of the agent. In one sense it is therefore in the interest of the vendor to use an agent who has strong local connections and who can, through using his local contacts and goodwill, identify potential purchasers and introduce them to the property in question. And of course once the sale is over there may very well be ongoing work for a good and competent agent now acting for a new client, viz., the purchaser.

But this conceals a problem which is that an agent who has an interest in the transaction from both sides of the negotiating table has a clear conflict of interest. The vendor wants to sell for the highest price; the purchaser wants to buy for the lowest price. The incentives operating upon the agent can depend upon the nature and structure of the fee arrangement. A fee structure can operate to create a powerful incentive on an agent to favour the Vendor or P and he might fashion his advice accordingly. From V’s point of view if A is also advising P then A might not loyally be seeking the highest price possible. He might also be using information of a commercial or confidential nature which belongs to V and which A has acquired only by virtue of acting for V, but which could be of real value if communicated to P.

This value could lie in P negotiating a lower price in the sale from V and/or at a later stage when P wishes to sell the property on, or develop it, or otherwise exploit it for commercial gain.

It is important also to recognise that the point in time at which a conflict might arise can be well before A actually negotiates a fee arrangement with P. If A seeks, speculatively, to procure P as a client then A might well promote himself upon the basis of the “inside track” knowledge that he has of V. That information might be valuable to P in deciding upon the optimal level of offer to make to secure the purchase; but the information might be proprietary to V and be in the possession A only because of his retainer from V. For instance it might relate to problems that V is facing in negotiations with individual officials in the planning authority or financial pressure imposed on V by its bank or creditors, which make it anxious to sell and prepared to accept a low offer.

If A is actively soliciting instructions from P then he risks putting himself in a position of conflict because his personal interest runs in the opposite direction to his duty of loyalty to his principal (his existing client).

The solution to the conflicts which arise is full disclosure by A so that all parties become fully aware of the position that their agent is in. Disclosure might enable V to impose limitations or conditions upon A’s dealings with P. If the principals accept the position then the agent is secure from an allegation of breach of fiduciary duty.

Because of the advantages that can accrue from an agent who uses his skill and contacts to bring sellers and buyers together, the respective principals might well be content to approve the agent’s dual role possibly subject to conditions. Generally, it will be the consent of the first principal (usually V) that is critical because the second principal (P) will almost invariably be fully aware that A is instructed for the vendor and indeed that might be the very reason that makes A attractive to P in the first place. But the key is disclosure – “sunlight bleaches”.’

In the case of The Northampton Regional Livestock Centre Co Ltd v Cowling & Anor [2014] V advised by A had sold the site to P for £2.25m. P again advised by A had on the same day completed the site’s sale to Kilmartin Ltd for £5m. So P turned a profit of £2.75m on the same day without any material outlay on their part.

A had during August 2005 been providing information belonging to V to P that would have been of use to them in formulating their offer to V for the Site; and (ii), on 31st August 2005 A made a fee agreement with P which entitled A to one third of the difference between the price at which P bought off V and P’s resale price. So as a result of the sale, A had became entitled to one third of the uplift, i.e. £744,035.02.

The Court was quite clear that A should have made full disclosure of all these facts to P.

This was necessary because had that been disclosed in advance V might have taken a number of protective steps. It might, for instance, have objected upon the basis that in providing this information and advice he would be divulging commercially valuable information that he had only acquired by virtue of this long association with V by virtue of his partnership in the Estate Agency.

He thereby risked compromising the ability of V to obtain the best price from P for the Site. They might, by way of further example, have terminated his agency to act for V.

A placed himself in breach of his duty when he placed himself in the position of conflict and before and irrespective of any loss by V.

A was accordingly liable to V for the amount of his commission on resale i.e. £744,035.02.

V also sued A’s former partner but under the Partnership Act 1890 but it was found that A’s unauthorised conduct in relation to P was” sufficiently divorced from the ordinary business of” the partnership to not be “in the ordinary course of it’s business. This is closer to the “frolic of own” cases and to cases of dishonesty or malpractice where case law suggested were outside the scope of vicarious liability in cases of negligence etc. Therefore the former partner was not vicariously liable for the breach of fiduciary duty on the part of A.

This blog is posted out of general interest and does not replace the need to obtain proper legal advice in individual cases.