Purchaser of leasehold and plaintiff instructing defendant solicitors – Defendant giving negligent advice – Plaintiff advancing loan – Rent increased under rent review clauses – Plaintiff taking possession and surrendering flat to freeholder – Defendant admitting negligence – Whether plaintiff suffering loss – Whether plaintiff failing to mitigate damages – Judgment for plaintiff
In April 1970 a headlease of 126 Hamilton Terrace, London NW8, was granted for a term of 60 years at a rent subject to review. In September 1977 an underlease of flat 5 at 126 Hamilton Terrace was granted for a term of 55 years from June 24 1974 at a premium and at a rent of £320 pa subject to annual review. The rent review provisions in the underlease were linked to those in the headlease. In February 1986 the defendant, a firm of solicitors, was instructed by both a prospective purchaser and the plaintiff, as the purchaser’s lender, in relation to the purchase by assignment of a long underlease of flat 5. The defendant was unable to obtain a copy of the headlease and was unaware of the full extent of the rent review provisions. Completion took place in March 1986. The plaintiff advanced £76,000 of the purchase price of £86,000.
Following the rent review in October 1991 the rent of each of the flats was increased from £320 pa to £4,918 pa. The plaintiff agreed to accept reduced mortgage repayments from the purchaser. However, in January 1992 the keys to the flat were left at the plaintiff’s offices without explanation. In February 1992 the plaintiff took possession. The flat was valued at £115,000 and £120,000 and put on the market. In May 1992 an offer was received for £77,000, but was subsequently withdrawn. Subsequently the freeholders issued forfeiture proceedings against the head landlords for non-payment of ground rent. The tenants of the flats at 126 Hamilton Terrace claimed Rent Act protection against the freeholders. The plaintiff, after taking counsel’s advice, withdrew its application for relief from the forfeiture proceedings because, the flat having been valued at £20,000 and the sum due to the freeholder being £29,649, it decided that it was more prudent to surrender the flat to the freeholder. The plaintiff brought an action against the defendant solicitors who admitted negligence but contended that the plaintiff had suffered no loss thereby, or, alternatively that, if the negligence had caused loss, the plaintiff had failed to mitigate any loss because it had surrendered the flat, which the defendant claimed was worth £80,000.
Held Judgment was given for the plaintiff.
1. It was not appropriate to adopt a midway course between the plaintiff’s valuation of the flat at £20,000 and the defendant’s valuation at £80,000 since that approach was facile and wrong in the circumstances. The plaintiff’s valuation had been the more realistic since the rent was extremely onerous and would have deterred a large proportion of the market. Therefore the plaintiff had taken all reasonable steps to mitigate its loss by surrendering the flat: Kennedy v KB van Emden and others 27 March 1996, unreported, distinguished.
2. The defendant had failed in its duty to supply information and accordingly was liable for all foreseeable loss resulting from that breach of duty. Since the plaintiff would not have made the loan had it been properly advised, the plaintiff was entitled to the sum advanced less the amount received from the purchaser see South Australia Asset Management Corporation v York Montague Ltd [1995] 1 EGLR 219 applied.
Derek Holwill (instructed by Hammond Suddards) appeared for the plaintiff; Anthony Connerty (instructed by Wansbrough Willey Hargrave) appeared for the defendant
