In this article Ruby Keeler-Williams of Elysium Law considers actions in relation to failed fractional off-plan developments. The article takes a look at the courses of action together with the potential heads of loss.
During the past 5 years we have had the privilege of representing a number of large, multi-national groups in claims for professional negligence, breach of trust and breach of contract against conveyancing solicitors relating to various off-plan fractional residential development schemes.
These cases have inevitable followed a similar formula, in that a Developer markets and sells an off-plan project, predominantly to overseas buyers. These buyers intend to let the units upon completion. The development use a fractional sales model and buyers typically pay large deposits of 50%-80% of the total purchase price. These deposits were due to be used to fund completion of the project and were held on trust within a ‘buyer company’, usually with the Sellers solicitor as director, pursuant to a legal charge.
The money held within the buyer company was all spent on construction and more pertinently marketing and the buyers lost all of their deposits with little to no building work completed.
The Potential Defendants
There were 3 potential defendants to consider in these matters: the Developer, the Seller’s Solicitor and the Buyer’s Solicitor.
The Developer in these cases inevitably went into administration, with the freehold of the development site as the only asset. The buyers were creditors, however the typical recovery tended to be between 10 to 20 pence in the pound of their loss.
Action against the Seller’s solicitor was contemplated, but ultimately not pursued. This was because the funds were being held by the buyer company in accordance with the Agreements for Sale, upon which the Buyer’s Solicitor had been instructed to advise. Further, the release of funds was in accordance with the authority given by the Buyer’s Solicitor. This matter was contemplated in detail in the case Various North Point Pall Mall Purchasers v 174 Law Solicitors Ltd  EWHC 4 (Ch)
This left the Buyer’s Solicitor as the relevant party to pursue in obtaining recourse. The Buyer’s Solicitors were often on a ‘panel’ of solicitors presented by the developer and/or the sales agent. The buyers, who were almost all based overseas, typically received a ‘legal report’, which was brief in it’s explanation and was not expanded upon in meetings with the clients. The clients invariably did not understand that the transaction they were entering into was not a standard conveyance.
Causes of Action
There were 3 grounds pursued in the claims against the Buyer’s Solicitors. These were:
- Professional Negligence in failing to conduct due diligence into the contracts and other documentation which were contained in the ‘Seller’s pack’ (such as the Agreement for Sale, the Lease, the Management Agreement);
- Breach of Contract, in failing to properly advise their client and failing to properly carry out due diligence under the letter of retainer; and
- Breach of Fiduciary Duty and/or Trust in allowing the monies to be paid over to an unregulated ‘buyer company’ account.
The Legal Issues
During the course of these matters, various legal authorities were considered. These included (but were not limited to):
- Barker v Baxendale Walker Solicitors and another  EWCA Civ 2056 in considering the solicitors specific duty to warn as to the risks inherent in the purchase;
- BPE v Hughes Holland  UKSC 21 in relation to the approach to assessing damages for loss of chance in a professional negligence claim;
- SAAMCO in considering whether the solicitors were retained to provide information or advice;
- Dreamvar (UK) Limited v Mischcon de Reya; P&P Property Ltd v Owen White & Catlin LLP  EWCA Civ 1082 in considering the buyers entitlement to equitable compensation.
Elysium Law has been successful in obtaining many multi-million pound recoveries for client groups based across the globe in this area of law.
If you have been involved in a failed development similar to this, please call us on 0151 328 1968 or contact us via email@example.com to see if we can assist you.