Sale of land – Solicitor’s undertakings – Release of charges – Sale of plots forming part of site over which vendor granting all-moneys charge – Defendant solicitor undertaking to procure release of all charges on sale – Whether claimant purchasers entitled to summary enforcement of undertakings
The first and second claimants were associated companies; both were housing associations. In 2008, they agreed to purchase, for £675,000, nine plots on the first defendant’s development of 30 houses. The third claimant solicitor acted for them on the transaction; the first defendant instructed the second defendant. The nine plots were to be sold bare, after which the first defendant was to construct houses on them under a JCT contract.
That arrangement did not accord with the third defendant bank’s understanding of the basis on which it was financing the development. It had lent the cost of the land and part of the development costs on the security of an all-moneys fixed charge over the site and it envisaged that the loan would be repaid in stages from the proceeds of sale of each completed house. However, the documents did not provide for a staged release of the charge.
In response to requisitions on title, the second defendant gave undertakings to discharge any charge affecting the property. The sale to the first and second claimants was completed in April 2008. However, the second defendant did not send the purchase moneys to the third defendant or procure the release of the charge.
In December 2008, the claimants brought proceedings to enforce the undertakings and applied for summary judgment on that claim. The second defendant accepted liability under the undertakings but resisted the summary judgment. It contended that a full inquiry was required as to the third defendant’s entitlement since it was not necessarily entitled to the full repayment of all liabilities, having anticipated that it would receive less than the full amount charged on the sale of each plot. Instead, it paid the purchase price to the first defendant and the third defendant was not informed of the sale.
The third defendant took the view that the charge covered all the first defendant’s liabilities to it, which amounted to several millions of pounds, but was willing to release the charge over the nine plots on payment of £1.35m, which represented the sum that it had expected to receive from the sale of those plots, less deductions.
Held: Judgment was given for the claimant.
The second defendant could procure the discharge of the charge by paying the amount required by the third defendant. It had not raised any serious question over the third defendant’s strict entitlement such as to justify postponing the enforcement of the undertakings to facilitate an inquiry into the matter. The third defendant’s internal documentation, envisaging repayments from the sale of each house, indicated only its own expectations and did not amount to evidence of any agreement to that effect operating between it and the first defendant as its customer. Nor had the parties signed a document to that effect, such as would be required under the Law of Property (Miscellaneous Provisions) Act 1989 for a binding contract as to the terms for release of a charge.
Moreover, the third defendant’s internal documents showed that it was expecting to receive moneys from the sale of each plot as and when it had been built on, rather than plots being sold bare as had actually happened.
Further, although as a matter of law it might be entitled to require all the moneys owed to it by the first defendant, it was not insisting on that. The sum that it required was less than it had expected to receive, being net of certain payments. It did not exceed the balance of the facility in respect of the development site and was less than the aggregate of the price paid by the first and second claimants and the amount paid to build the houses on the plots. The defendants did not suggest that the amount that the third defendant demanded exceeded a proper valuation for the nine plots. The third defendant’s demand seemed reasonable. The second defendant would be ordered to perform the undertakings: L Morgan & Co v Jenkins O’Dowd & Barth [2008] EWHC 3411 (Ch) and Angel Solicitors v Jenkins O’Dowd & Barth [2009] EWHC 46 (Ch); [2009] 1 EGLR 71; [2009] 14 EG 88 considered.
Per curiam: Solicitor’s undertakings formed an important part of the conveyancing mechanism and a valuable part of the protection for purchasers. A purchaser that accepted such an undertaking should be entitled to rely on it and to know that the relevant solicitor would have to comply with it. It would undermine the sensible practices and procedures of conveyancing if solicitors were entitled to delay compliance with undertakings while they resolved some dispute with the mortgagee, save perhaps in exceptional circumstances. The solicitor should have taken steps to ensure that such a dispute could not arise. Accordingly, even if there had been an issue of the kind suggested by the second defendant, it was likely that the court would still have concluded that the amount demanded by the third defendant ought to be paid in order to procure the discharge of the charge.
Adrian Pay (instructed by Andersons) appeared for the claimants; John Taylor (instructed by Ahmed & Co) appeared for the first defendant; David Halpern QC (instructed by Barlow Lyde Gilbert LLP) appeared for the second defendant; the third defendant did not appear and was not represented.
Sally Dobson, barrister
