Claimants selling land for development — Claimants intending to benefit from overage provision in agreement — Defendant solicitors failing to ensure appropriate provisions contained in agreement — Extent of defendant’s duties under terms of retainer — Claim allowed
The claimants purchased land for investment purposes by way of a bank loan. They encountered substantial difficulties in marketing the land, which was contaminated and inaccessible, and subsequently became indebted to the bank. The claimants, who were advised at all times by the defendant solicitor, agreed to sell the property to a third party on the condition that they would receive an overage payment if the third party developed the land. However, the defendant failed to register the arrangement as a caution on the Land Register. It also omitted to advise the claimants that, under the terms of the agreement, they would receive no overage payment if the third party did not develop the land and sold it on, which, in fact, occurred.
The claimants sought damages in respect of the lost opportunity to: (i) negotiate with other parties; and (ii) secure the overage. The defendant submitted that it would have been impossible for it to protect the claimants’ interests by inserting any mechanisms into the agreement to protect the overage as the third party would have refused to countenance them and would have withdrawn from the purchase. It argued that, owing to the state of the market at the time, the claimants had no opportunity to enter into alternative negotiations.
Held: The claim was allowed.
The defendant’s retainer was to use all reasonable endeavours to obtain security for the overage. The duty went beyond that of giving advice so that the defendant was under an obligation to devise a suitable method of protecting the overage. The defendant had been wrong to advise that a caution against the title would be an acceptable form of security. The agreement reached between the parties imposed an obligation upon the third party to make payments on the overage. It was a personal arrangement; it did not relate to the use of the land and was not binding upon their successors in title. The Land Registry would have rejected a caution on those terms. Although the situation was fairly complex, the defendant could have provided other mechanisms to protect the overage payments (as illustrated in Jessel on Development Overage and Clawback), for example, by way of an express contractual provision protected by a restriction so that the third party could not have disposed of the land without the claimants’ consent. The defendant could have provided mechanisms to protect the overage payments, it had failed to do so, and it was therefore negligent in terms of the retainer.
It was clear that the third party had entered into the agreement in the expectation that it would satisfy the conditions and assume a liability to pay the overage payments, and it was unlikely that it would have withdrawn from the negotiations had the defendant insisted on amending the agreement to reflect that fact.
It was apparent that, at the time the agreement was finalised, the claimants were able to obtain extra borrowings from outside sources so that they were able to refinance the borrowings from the bank, and were not in an unduly pressurised position to enter into an agreement entirely upon the third party’s terms.
Between the period when the agreement was drafted and the date of the sale, there had been an upward shift in the property market. Even if the claimants’ determination to secure the overage had caused the deal with the third party to fall through, the claimants would have been able to successfully market the land, given that they were able to sustain themselves financially in the intervening period. The defendant’s negligence had caused the claimants to lose their ability to remarket the land and their entitlement to payments for overage.
Andrew Goodman (instructed by Gowen & Stevens) appeared for the claimants; Francis Tregear QC (instructed by Ince & Co) appeared for the defendant.
Vivienne Lane, barrister
