Even Acts of Generosity Should Be Properly Documented – Cautionary Tale

David Watson profile

Even acts of generosity can lead to litigation if the basis for them is not professionally documented. That was sadly so in the case of a businessman who stepped forward to rescue close family friends from the threat of homelessness. Litigation Executive Dave Watson looks at the case.

A couple with five children found themselves in dire financial circumstances. After the man was made bankrupt, an enforced sale of the family home was threatened. Their repeated attempts to obtain loan finance were rejected. The businessman came to their rescue by himself raising a £205,000 mortgage against the property.

Pursuant to an informal agreement between them, the property was transferred into the businessman’s name and the mortgage advance was paid to the couple, who used it satisfy their creditors and stave off possession proceedings. The couple thereafter met the mortgage repayments and continued to live in the property.

About eight years later, they sought to buy back their home from the businessman for the unchanged sum of £205,000. In resisting their request, however, he asserted that it had been agreed at the time that their entitlement to repurchase the property from him at that price would lapse two or three years after the transaction.

Ruling on the matter, the High Court noted that all involved had acted in great haste to face down the imminent financial peril that the couple faced. The businessman generously found a solution that could be implemented speedily and that secured the couple’s ability to carry on living in their family home.

In nevertheless upholding the couple’s case, the Court found on the evidence that the buyback agreement was open-ended and not time limited. Whilst that would be a very surprising outcome in a commercial context, it reflected the imminence of the possession proceedings and the close and affectionate relationship that the couple and the businessman had enjoyed at the relevant time.

It would, the Court found, be unconscionable for the businessman to go back on his assurance that the couple could, at any time, buy back their home from him for £205,000. They had relied on that assurance to their detriment. The ruling opened the way for the couple to repurchase their home from him at that price, plus any costs associated with discharging the mortgage and transferring title to the property.

It is vital to seek legal advice before entering into any kind of financial agreement, even with close friends. Contact us for expert guidance.

We asked Litigation Executive David Watson for his expert insight –

This case demonstrates the importance of formally documenting what the parties’ intentions are when entering any transaction, but particularly a transaction involving property. The costs of having a legal document drafted are a drop in the ocean compared to the costs involved in asking the court to intervene in a dispute. We regularly see disputes between family members as client’s do not document the agreement believing there would never be a dispute between the family. We would always advise agreements are formally documented and drafted by a Solicitor to ensure they meet prescribed formalities and reduces the risk of any disputes or disagreements at a later date.

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