The Solicitors’ Code of Conduct requires solicitors to fulfil undertakings given in the course of their practice. The accompanying guidance augments the code. It states that undertakings are binding. Consequently, absent any 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. Failure to do so will be treated as misconduct, even though a solicitor has not acted dishonourably. In addition, the courts can require solicitors to comply with their undertakings.
Solicitors frequently give undertakings to procure the discharge of mortgages after the sale of a property. In theory, a buyer will require any charges affecting property to be discharged before parting with the purchase money. However, this can be difficult if the seller plans to use the proceeds of sale to redeem a mortgage because lenders generally refuse to execute discharges before being paid. The practical solution adopted by solicitors relies on the enforceability of their undertakings.
On completion, the seller’s solicitor provides the buyer’s solicitor with an undertaking to pay the lender and to forward the requisite discharges when they are received. However, this practice is risky. The risk involved in accepting an undertaking is that the discharge will fail to materialise; the risk involved in giving an undertaking is that the lender may refuse to execute a discharge, usually because of a dispute over the amount required to redeem the charge. These risks are particularly acute in the case of “all moneys” charges.
In Clark v Lucas Solicitors LLP [2009] EWHC 1952 (Ch); [2009] PLSCS 235, a buyer asked the court to enforce an undertaking to discharge an “all moneys” charge over a newly completed house forming part of a larger development. The lender asserted that no one had approached him for a discharge until after the property had been sold (by which time the builder had become insolvent) and required payment in full for the provision of a discharge.
The solicitor’s firm that gave the undertaking acknowledged its fault, but argued that the lender’s refusal to co-operate made it impossible for it to obtain a discharge. It asked the court to substitute an order for compensation in place of an order requiring compliance with its undertaking. The judge refused to do so. The buyer was entitled to rely on the undertaking given and it was not impossible to perform (even though the payment required was double the purchase price of the property).
Buyers will welcome the decision. If orders for compensation were routinely made in such circumstances, undertakings to discharge mortgages would amount to nothing more than a warranty limited to the value of the property itself.
The case highlights the care needed when giving and accepting undertakings to discharge “all moneys” charges. Enquiries should be made of lenders and agreements reached regarding the provision of discharges before contracts are exchanged and undertakings are given.
Allyson Colby is a property law consultant
