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Leading Title Insurance

Like any good spring clean, we have applied the “Out with the old, in with the new” mantra to our Quarterly newsletters. Our decision to move to this format was not only to refresh the look and feel of the newsletter itself but also, to provide a better user experience for an increasing number of our subscribers who read our newsletter when out of the office. Our new platform is fully optimised for both desktop and mobile devices and newsletters can also be downloaded as PDFs to enable viewing without an internet connection. We believe that the content is still as compelling as always with contributions from Professor Paul Butt and Hill Dickinson’s Kevin Lee as well as a regular inclusion from our underwriting team. We hope that you like our new style. As always, if you have any comments or suggestions, please feel free to drop us a line at


Bona Vacantia A grey area? Bona vacantia also known as ownerless goods is when in accordance with section 1012 Companies Act 2006 the assets of dissolved companies are passed to the Crown.

Section 1012 Companies Act 2006 “1012 Property of dissolved company to be bona vacantia (1)When a company is dissolved, all property and rights whatsoever vested in or held on trust for the company immediately before its dissolution (including leasehold property, but not including property held by the company on trust for another person) are deemed to be bona vacantia and— (a) accordingly belong to the Crown, or to the Duchy of Lancaster or the Duke of Cornwall for the time being (as the case may be), and (b) vest and may be dealt with in the same manner as other bona vacantia accruing to the Crown, to the Duchy of Lancaster or the Duke of Cornwall.” Assets can generally be split into two different categories tangible assets and intangible assets: Intangible assets are nonphysical-resources such as copyrights or trademarks. Tangible assets are current and

fixed assets. Current assets include things such as the company’s inventory and fixed assets include land and equipment. For the purpose of this article only land assets will be discussed. What happens to the bona vacantia assets? The Treasury Solicitor, who collects the assets from dissolved companies on behalf of the Crown, can choose to disclaim any of this property or to sell to a third party. Disclaiming of property terminates the rights, interests and liabilities of the dissolved company. The existence of the disclaimer means the freehold title is extinguished; the land is therefore escheated to the Crown as the immediate lord. If the said dissolved company is subsequently restored it in effect comes back to life and bona vacantia no longer exists. What happens to the land that was escheated to the Crown? This very scenario was the topic of the case outlined below Fivestar Properties Ltd [2015] EWHC 2782 (Ch), [2015] All ER (D) 76 (Oct)


Background Fivestar Properties Ltd (“the Company”) took out loans secured against the freehold of their land with West Bromwich Commercial Ltd (“the Mortgagee”). The Company subsequently defaulted on these loans and the Mortgagee appointed receivers. The receivers pursued outstanding rents from occupational tenants of the land. However, it was determined that it would be best to appoint administrators who have wider powers of recovery. Once the payments of any claims and assets had been received, the administrators took appropriate actions to dissolve the Company, therefore, vesting its remaining assets in the Crown as bona vacantia.

The issue During the period of which the Company was dissolved, the occupational tenant of the land wanted to negotiate terms for a new lease. As the Company was dissolved, the tenant served notice on the Treasury Solicitor who had chosen to disclaim the Crown’s interest in the land resulting in it being escheated to the Crown. The issue this created for the Mortgagee was that they required the Company to be restored to enable a new lease to be granted to the occupational tenant allowing the land to be sold with the benefit of this lease. The Mortgagee had sufficient rights to restore the Company being a person of interest to the land under section 1029 of Companies Act 2006 2) An application under this section may be made by— (a) the Secretary of State, (b) any former director of the company, (c) any person having an interest in land in which the company had a superior or derivative interest, (d) any person having an interest in land or other property— (i) that was subject to rights vested in the company, or (ii) that was benefited by obligations owed by the company...


The Company was successfully restored however this brings about the question whether the restoration of the Company is sufficient to place the freehold title of the Land back to them and whether the disclaimer of the land by the Crown was a disposition?

The decision Section 1032 of Companies Act 2006 states: (1) The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register. Therefore, the Company would have remained as owner as if they had never been dissolved. The only caveat to this would have been if the Crown had disposed of the land before the company had been dissolved. As the Land Registry does not close freehold titles when land is escheated there is no subsequent need to re-register a title. To determine whether the disclaimer of the land was a disposition, the judge discussed the case of Allied Dunbar Assurance plc v Fowle & others (1994) BCC 422. This case involved a leasehold interest rather than a freehold. The determination of this case was that a disclaimer by the Crown was an extinguishment of the interest disclaimed rather that a transfer of the interest to the Crown and, therefore, would not be a disposition. The judge determined that there be no reason that the disclaimer of the freehold interest should differ to that of a leasehold interest and therefore, there had been no disposition of the land and the restoration of the Company places the freehold title back to them allowing the Mortgagee to dispose it at their will.

By Lauren Kay Commercial Underwriter


Duties to Lenders – a Reminder By Paul Butt LLB Solicitor and a consultant with Rowlinsons Solicitors, Frodsham.

Introduction The CML Lenders’ Handbook is a most important document – if you can call something that only exists online a ‘document’. However, whatever it is, we must always ensure that we comply with its terms. Quite simply, it comprises the instructions we receive from our most important clients – the lenders who fund most purchases. As the CML website states: The CML Lenders’ Handbook provides comprehensive instructions for conveyancers acting on behalf of lenders in residential conveyancing transactions.

If we are not on the major lenders’ panels, then this is going to lose us a lot of work so we must continue to strive to keep them happy – and comply with their instructions in all respects - to avoid a possible risk of panel removal. Indeed, when we send in our Certificate of Title to a Lender this is precisely what we are certifying to them – that we have complied with the lender’s instructions in all respects In 2014, we had the case of E.Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104, which considered our obligations under the CML Handbook in a rather unusual context. This decision has now been successfully appealed by Goldsmith Williams so we now have the Court of Appeal’s views on a conveyancer’s duties to lenders.


In the Goldsmith Williams case the particular CML Handbook requirement was as follows: 5.1 Surrounding Circumstances 5.1.1, Please report to us (See Part 2.) if the owner or registered proprietor has been registered for less than six months or the person selling to the borrower is not the owner or registered proprietor unless the seller is: a personal representative of the registered proprietor, or an institutional mortgagee exercising its power of sale; or a receiver, trustee-In-bankruptcy or liquidator; or developer or builder selling a property acquired under a part-exchange scheme. 5.1.2 If any matter comes to the attention of the fee earner dealing with the transaction which you should reasonably expect us to consider important in deciding whether or not to lend to the borrower (such as whether the borrower has given misleading information to us or the information which you might reasonably expect to have been given to us is no longer true) and you are unable to disclose that information to us because of a conflict of interest, you must cease to act for us and return our Instructions stating that you consider a conflict of interest has arisen.

The case itself arose out of a property being overvalued by valuers and the lender recovering its loss on a repossession sale from them. The valuers then sued the conveyancers seeking a contribution to the damages payable by them. The facts of the case were set out by the trial judge as follows: The surveyors’ case is that the solicitors failed, in breach of the express and implied terms of its contract with the lender, to advise the lender that the would-be borrower, a Mr David Gayler (“the borrower”), had been registered as proprietor of the property for less than 6 months and that the price he had paid for it as disclosed on the office copy entries, £390,000, was significantly less than the surveyors’ valuation as stated in the mortgage offer, £725,000. The


surveyors’ case is that had the solicitors done so then the lender would have requested the surveyors to reconsider their valuation in the light of that information, that at that point the surveyors would have realised that the borrower had misinformed them about the purchase price, and would have: (a) produced a significantly reduced valuation; and / or (b) informed the lenders about this misinformation, with the result, in either case, being that the lender would have declined to lend to the borrower and, thus, avoided the loss which it in fact incurred. At trial the judge (His Honour Judge Stephen Davies sitting as a judge of the High Court) held both that the conveyancers were in breach of duty in not reporting to the lender and that they should contribute £100,000 to the loss suffered by the lender on the basis set out in the above extract from the judgement.

The court of appeal decision Goldsmith Williams Solicitors v E. Surv Ltd [2015] EWCA Civ 1147 Goldsmith Williams appealed both parts of the judgement. They claimed they were not under a duty to report the discrepancy in the price and that even if they were in breach, no loss was suffered as a result of this. Most importantly for conveyancers, the Court of Appeal unanimously held that they were in breach of duty. However, most importantly for Goldsmith Williams, it also held that, on the facts, no loss had been suffered as a result of that breach. The facts of this case are unusual in that the lender was already in possession of information strongly suggesting that the valuation of the property was excessive. The borrower had stated in his application that he had bought the property a few months previously at the price of £450,000. It was highly unlikely that at the date of his application its value had increased by almost £300,000. Why then did the Lender approve the loan, even in principle? That information was not materially different from that

FIRST COMMENT which the solicitors should have reported to the Lender. Had they reported, would this have really made any difference to the decision to lend? As a result of this, Sir Stanley Burnton held: 49. In my judgement, the Surveyors did not prove that the Lender would have reacted to the information that the Solicitors should have provided on the purchase price and date of purchase of the property, which was not materially different from the information given to them by the borrower. I would allow the appeal on this ground.

Lord Justice Patten agreed. However, the important part was the clear statement by the Court that the conveyancers were under a duty to report both the recent acquisition AND the discrepancy in value, even though the discrepancy in value point was not expressly mentioned in the CML Handbook. The Court of Appeal had held this to be the case as long ago as 1996 in Mortgage Express v Bowerman [1996] 2 All ER 836 on very similar facts to the present case. In that case, as Sir Thomas Bingham MR put it at 842: “… if, in the course of investigating title, a solicitor discovers facts which a reasonably competent solicitor would realise might have a material bearing on the valuation of the lender’s security or some other ingredient of the lending decision, then it is his duty to point this out.” So there is nothing new here. However, Goldsmith Williams had argued that the Bowerman duty, as it was called had somehow been superseded by the CML Handbook. It was claimed that CML 5.1.2 only required disclosure in cases of suspected fraud because of the example of when disclosure was required given in brackets - (such as whether the borrower has given misleading information to us or the information which you might reasonably expect to have been given to us is no longer true). The Court of Appeal disagreed:

But they are not in terms exhaustive and I see no reason to construe them as limiting the preceding part of clause 5.1.2 to cases of fraud….. The duty to draw the differences between the price and the valuation to the lender’s attention was, therefore, a necessary incident of the Solicitors’ instructions to investigate and report on title I, therefore, agree with Sir Stanley Burnton that clause 5.1.2 properly and fairly read is not an exclusion of the general Bowerman duty and that the Solicitors were in breach of duty in this case. (Patten LJ). However, Sir Stanley Burnton did add: This does not mean that a solicitor instructed to act for both lender and borrower must act as a detective or bloodhound. The solicitor instructed on the terms of the CML Handbook was not required to carry out any work that was outside the scope of his instructions. It was only if, while carrying out that work, he came into possession of non-confidential information that a reasonably competent solicitor would realise adversely affected the title to the mortgaged property or the value of the security that he was under a duty to report it to the lender.

Conclusion Note that the decision reminds us of TWO obligations: to notify the lender of the short period of ownership AND also to notify of the disparity between the price paid and the present purchase price. However, these are hardly onerous – and may well be something that the buyer in a conveyancing transaction might well also be interested in! Of course, there will frequently be such a discrepancy between the present sale price and the price paid by the seller when he or she bought. House prices do go up! However, it is large increases over short periods of time that we are looking for here. These are unusual and suspicious. The sale to the seller might have been at an undervalue – with insolvency implications. Or, worse still, it might have been part of a criminal scheme to launder the


proceeds of crime. It must be sensible, though before reporting such a problem, to seek an explanation from the seller as to why there has been such an increase or why he or she is selling within six months. It might well be, for example, that the seller bought a run-down property and is now selling after giving it a complete renovation. This will still need reporting if the seller has not been registered for six months, but the explanation should reassure the lender and the loan will not be affected. Moreover, note that there is no obligation to make enquiries into matters that might affect the lender’s decision whether or not to lend – we just must report anything that comes to our attention. Occasionally, of course, clients will tell us things that we subsequently wish they had not. Like the client who was buying a house on a standard mortgage who let it slip in conversation that he was going to let it out immediately on completion. Alternatively, the client who, after exchange, told his conveyancer that he had just lost his job – but not to worry because mum and dad would help him out with the mortgage repayments. Both these were situations that required disclosure to the lender – but only with the buyer’s consent – client confidentiality, remember. The message we must take from this case is that we must ensure that our fee earners comply with the requirements of the CML Handbook (and the Building Societies Association mortgage instructions for those lenders who use them). They are not optional. They have been in use now for over 15 years and should be as well known to fee earners as the basic procedure in a conveyancing transaction.


Amendments to Part 1 of the Handbook are generally publicised, but individual lenders Part 2s are liable to change without notice and should always be checked in addition to Part 1. Do not rely on a printed version of the Handbook that you used perhaps only a few days ago – it might have recently changed.

Insurance One aspect of the CML Handbook that caused much angst in the past was the provisions with regard to property insurance. Basically, many lenders’ Part 2s required us to check the terms of the buildings insurance policy to ensure that it met Lenders’ requirements. This has now gone with regard to Certificates of Title issued on or after 30 November 2015. There is no longer an additional list of requirements from lenders relating to buildings insurance in part 2 of the Handbook. The Part 1 provision now provides that we have to make reasonable enquiries of the borrower that buildings insurance cover has been arranged for the property no later than completion. We must also remind the borrowers that they must: • Have buildings insurance in place in accordance with their mortgage conditions no later than completion • Maintain that cover for the whole of the mortgage term.


Mortgage Credit Directive changes to CML Handbook A more recent change to Part 1 is an amendment that was made to clause 10 of the Handbook on 1 February 2016. The amendment has been made to accommodate the requirement under EU law for prospective borrowers to be given a reflection period of at least seven days before they accept a mortgage offer. The borrower can, however, bring that reflection period to an end prematurely by accepting the mortgage offer. The amendment adds the wording in bold below into clause 10.2: 10.2 We shall treat the submission by you of the certificate of title as confirmation that the borrower has chosen to proceed with our mortgage offer and as a request for us to release the mortgage advance to you. Check Part 2 to see if the mortgage advance will be paid electronically or by cheque and the minimum number of days’ notice we require. Lenders will explain the concept of the reflection period to prospective borrowers, for example in the mortgage offer and mortgage terms and conditions. One does wonder, though, what is the point of a ‘reflection period’ that can be contracted out of in this way.

It is expected that lenders, say the CML, will either give a ten day reflection period or align the reflection period with the existing offer expiry date (which can be up to 6 months). Apparently the CML have consulted the ‘legal sector’ and the FCA on this Handbook provision, but we will need to think carefully about the implications of this on ourselves. Ignoring the interesting contract law question as to how we have authority to accept the offer on behalf of our client, we don’t want to risk any come-back from the mortgage lender because of this or from a client who has not formally accepted a mortgage offer and then finds himself / herself bound by the terms of the offer because we have submitted the Certificate of Title. Indeed, one has to ask why do the lenders see the need to put this into the Handbook, rather than just in the mortgage offer documentation sent to the client. It would seem sensible, however, for ourselves to get the client’s agreement that our submitting the Certificate of Title to request the mortgage funds will, whether or not the client has actually formally accepted the offer themselves, be treated by the lender as acceptance of the mortgage offer and bind them to the terms of the mortgage and that we can accept no personal liability in respect of this. Or am I just being paranoid?


Arnold V Britton (2016) :

When Common Sense Does Not Prevail By Kevin Lee Hill Dickinson LLP

The decision of the Supreme Court in ARNOLD V BRITTON ([2015] 2 W.L.R. 1593) has highlighted an important gap in the way the law governs the calculation and recovery of service charges in residential leases. It also provides important guidance about how the concept of “commercial common sense” fits into the task of interpreting contracts generally.

Background Sections 18 and 19 of the Landlord and Tenant Act 1985 states that service charges which are variable, (i.e. which vary according to the relevant costs of providing the services) are only be payable if they are “reasonable”. As such, tenants can apply to the First-tier Tribunal for a determination of whether the amount of such a variable service charge is reasonable or not. These applications are widespread and of particular attractiveness to tenants because they can usually be brought without exposing the tenants to any risk as to costs. However, there is no such right for tenants whose leases provided for payment of a fixed sum by way of service charge.


Now, normally long leases of flats contain variable service charge clauses, so no problem. But ARNOLD V BRITTON didn’t concern a flat; it concerned a chalet on a holiday park. It also concerned a fixed service charge, rather than a variable one.

The leases In the 1970s and 80s (when the court noted inflation was quite high) 99-year leases of chalets on the Oxwich Leisure Park on the Gower peninsular (a beautiful part of South Wales) were granted, usually at a premium of around £20,000. They all contained a clause requiring the lessee to pay a fixed service charge. Most of the leases provided as follows: “To pay to the Lessor without any deduction in addition to the said rent,


a proportionate part of the expenses and outgoings incurred by the Lessor in the repair maintenance renewal and the provision of services hereinafter set out the yearly sum of Ninety Pounds and Value Added Tax (if any) for the first three years of the term hereby granted increasing thereafter by Ten Pounds per Hundred for every subsequent three year period or part thereof.”

this year, 2015, and over £550,000 by 2072.”

But some of the other leases provided:

The result was particularly unattractive because annual inflation in over the last 15 years has hardly ever been above 4%. Indeed it has been under 3% for ten of those years, and has been falling recently almost to the point of turning negative, whereas under the leases the service charge over that period has increased, and will continue to increase, by 10% per annum.

“for the yearly sum of Ninety Pounds and Value Added Tax (if any) for the first Year of the term hereby granted increasing thereafter by Ten Pounds per hundred for every subsequent year or part thereof.”

This result, the lessees, argued was absurd, contrary to all common sense and could not be right and that the clause should be read as requiring them to pay a variable sum being a fair cost of the services with the specified sum being no more than a cap.

So, this meant that the service charge started at £90 and would then increase at a compound rate of 10% every three years or, in some cases, every year.

The findings

The consequences As Lord Neuberger observed “ the consequences of the annual sum of £90 being increased annually by 10% on a compound basis are plainly unattractive, indeed alarming” . …”If one assumes a lease granted in 1980, the service charge would be over £2,500

Lord Neuberger gave the lead judgement. He found that: 1. When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to “what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the



language in the contract to mean�, to quote Lord Hoffman in Chartbrook Ltd v Persimmon Homest Ltd (2009), focussing on the meaning of relevant words in their documentary, factual and commercial context. However, subjective evidence of any party’s intentions must be disregarded. 2. While reliance must be placed on commercial common sense, this should not undervalue the importance of the language of the provision. Commercial common sense cannot be invoked by reference to facts which arose after the contract was made; it is only relevant to ascertaining how matters would or could have been perceived as at the date of the contract. 3. The fact that an arrangement has worked out badly or even disastrously is not a reason for departing from the natural meaning of the language; neither is the fact that a certain term appears to be very imprudent. It is not the function of the court interpreting a contract to relieve a party from the consequences of imprudence or poor advice. 4. There exists no special principle of interpretation that service charge clauses are to be construed restrictively.

All of the above was readily explicable. The parties had assumed that the cost of providing the services would increase and they wished to avoid arguments as to the cost of the service and the apportionment between the tenants. The reasonable reader of the clause would see the first half of the clause as descriptive of its purpose, namely to provide for an annual service charge, and the second half as a quantification of that service charge.

The lessons The practitioner can draw the following from this very interesting case:

1. You start with the language used in the document. If it is clear and not ambiguous, then the parties are taken to have agreed on the bargain they made.

2. Commercial common sense only comes into play if there is an identifiable problem with the drafting, not if there is a problem with the outcome.

3. Don’t buy a chalet on a holiday park without closely scrutinising the service charge provisions.

5. As a matter of interpretation The natural meaning of the clause was clear. The first half of the clause provides that the lessee is to pay an annual charge to reimburse the lessor for the costs of providing the services which he covenants to provide, and the second half of the clause identifies how that service charge is to be calculated, namely as a fixed sum, with a fixed annual increase.


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