Risk management

Advising a client who is in a hurry

Dan acted for Gianni, the owner of a chain of amusement arcades.

Gianni had found a vacant pitch at a popular seaside resort and wanted to buy it quickly to take advantage of the imminent holiday season.

He told Dan that completion had to take place within seven days.

The sellers were sub-tenants of the plot under a head lease.

Dan examined the position and noted that the head landlord's consent was required for any assignment of the sub-lease.

He also saw that the sellers themselves held through an assigned sub-lease; the head landlord's consent would also have been required for that.

Dan had to move fast, or Gianni would lose money.

He wrote to Gianni, saying: 'Because time is short, I have not been able to report to you fully on the terms of the original head lease.' He added that 'as far as he was aware' there were no matters which would affect Gianni's investment.

Gianni was satisfied.

Contracts were exchanged and completion went ahead in time.

As spring turned to summer Gianni made a tidy profit from the new site.

Later that year Gianni came to see Dan.

He was in a distraught state, clutching a letter from a property company that had bought the freehold of the site.

The letter said they had forfeited the head lease.

This meant that Gianni's sublease was also forfeited.

The new owners did not acknowledge Gianni's leasehold interest.

They claimed he was in illegal occupation.

Dan kept his cool.

He advised Gianni that he could apply for relief from forfeiture proceedings.

In the meantime, they negotiated with the landlord on terms for a new lease.

Dan succeeded in bringing the new landlord down to far below their original demand.

But the new lease was on less favourable terms than the old.

Gianni sued Dan, who was unable to avoid liability.

Dan should have advised Gianni that if the landlord had not consented to the previous assignment his investment might have no value.

He should also have explained that in the time available before exchange he had little chance of finding out if that consent had been obtained.

Alternatively he could have asked the sellers to provide written assurances that consents had been obtained, but should have advised Gianni of the dangers of completing on this basis.Dan's mistake had deprived Gianni of the chance to assess the true risks of the deal.

Where your client is in a hurry, you should always advise them of the risks of going ahead without full information.

l For information on claims prevention, contact the risk management team at St Paul International, tel: 020 7645 6918.