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Berkshire firm which broke undertakings must pay £1.35m

3 November 2009

A firm which failed to comply with its undertakings in a commercial property transaction must pay two housing associations a total of £1.35m, the High Court has ruled.

Willmett Solicitors, which has its offices in Reading, Windsor, Maidenhead and Woodley, was acting for Elegant Homes in the development of a site in Bray, Berkshire.

Giving judgment in Thames Valley Housing Association and others v Elegant Homes and others [2009] EWHC 2647 (Ch), Mr Justice Mann said that undertakings were an important part of the conveyancing process and a valuable protection for purchasers.

“A purchaser who accepts such an undertaking should be entitled to rely on it, and to know that the solicitor relying on it will have to comply with it,” he said.

The court heard that Elegant Homes secured a loan of over £6m from the Bank of Scotland to fund the development, in return for various charges over the land. Elegant later agreed to sell some plots of land to two housing associations for around £975,000, and Willmett gave undertakings that it would secure release of the relevant charge.

The charge was not removed, but the sale proceeds transferred by a former partner at Willmett, Jonathan Gilbert, to Elegant. The Bank of Scotland knew nothing about the sale and did not consent to it.

Mann J went on: “At the beginning of March 2009, Mr Gilbert sent his partners an email in which he apologised for the mess he had left them in relation to various matters and summarily resigned. Since then he has not been available to Willmetts [sic] to explain what happened in this transaction and why it happened.”

Mr Justice Mann said that the bank had indicated that it would be prepared to release the charge over the plots for around £1.35m.

“Willmetts accept they gave the undertaking, and they accept its effect in that at the end of the day they are going to have to procure the removal of the charge (at least while the bank is asking for sums of the order which it was asking for).

“However, they said that the bank was not necessarily entitled to ask for the full amount that it was asking for (£1.35m) and there should be an inquiry as to its entitlement in this respect.”

Mann J said the amount required by the bank could not be labelled as excessive, and had not been shown to be “in excess of, let alone greatly in excess of, the market value of the nine plots”.

He went on: “It would undermine the sensible practices and procedures of conveyancing if solicitors were entitled to delay compliance with their undertakings while they sorted out some dispute with the mortgagee, save perhaps in exceptional circumstances.

“The solicitor should have taken steps to make sure that there could be no such dispute. If he gives an undertaking without having done so, he cannot sensibly complain if the court requires him to take steps which he would otherwise regard as excessive in order to achieve compliance with the undertaking and to give the purchaser the title which the purchaser was legitimately entitled to expect.”

Mann J added: “The associations are innocent in this matter. It is Willmetts who are at fault. One does, of course, have sympathy with the other partners in Willmetts who seem, prime facie, to have been let down by Mr Gilbert, but there is no reason why the associations should be saddled with the consequences of that.”

He ordered that the court should enforce the undertakings.

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