Value of indemnity clause on sale of land

bigadaj

My father has just sold some land and his solicitor has neglected putting in a covenant to the contract claiming a 30% charge on any uplift in land value based on planing permission being granted in the next 25 years.

There's a letter confirming this requirement from the estate agent and the solicitor isn't arguing about the mistake, currently he's referred it to his insurers and it's getting reviewed by an independent solicitor.

The purchaser of the land won't agree to this being retrospectively added though he was aware of the covenant potentially being included, which is fair enough.

It's 11 acres in a rural part of wales just outside a national park. In theory you could put hundreds of houses on it, though realistically no more than 6 would be practical with road frontage, several applications have been turned down in the village recently.

My thoughts would be to enquire to see what options there might be for a one off payment to agree no further claim on development value as whilst the probability is low the potential liability could, be extremely high. I think that removing that liability could be extremely valuable, and a lump sum payment offer could be attractive but my father is more inclined to accept an indemnity.

Would appreciate any thoughts or comments and can supply more information as required.

lincroft1710

From the info in your post, it doesn't seem likely that pp for development is likely to be granted in the near future, so your father may never gain from any uplift. So he could make quite a profit from the solicitor's negligence.

But as your father signed the contract and didn't check that the covenant was in place, I have to say think he is partially to blame.

bigadaj

lincroft1710 wrote: »

From the info in your post, it doesn't seem likely that pp for development is likely to be granted in the near future, so your father may never gain from any uplift. So he could make quite a profit from the solicitor's negligence.

But as your father signed the contract and didn't check that the covenant was in place, I have to say think he is partially to blame.

Fair points and that is broadly my opinion, it's just trying to quantify the actual cost of the potential liability in the insurers books.

I think he bears a very small amount of blame in relation to the clause being absent as the requirement for the covenant was confirmed in writing by the estate agent, after all if the solicitor can't be trusted to complete paperwork in accordance with written instructions then what is the point of using them and paying their fee?

lincroft1710

The problem is how to value the probability of planning permission being granted and forecasting when it may be granted and similarly forecasting the increased land value at that time.

The insurer may take the view that until pp is actually granted, your father has suffered no loss and no payout would be justified at the moment.

If a draft contract was not forwarded for your father's approval, I would agree with your comments regarding the solicitor.

Richard_Webster

If pp is very unlikely then the solicitors' insurers will argue for a very low payment because the loss is likely to be small or non-existent.

bigadaj

Richard_Webster wrote: »

If pp is very unlikely then the solicitors' insurers will argue for a very low payment because the loss is likely to be small or non-existent.

Possibly but it's quantifying it. My father seems happy with the covenant effectively being covered by the insurer, or the solicitor, but it's a long term and potentially a very high cost, even at a low probability. My thinking is that removing the potential from the liability side of the ledger could be disproportionately valuable.

In any case I've told him my views and suggested he look at both options if they are available, so well wait and see, they might not offer anything now.

ging84

i'm not sure i get the whole picture here

your father owned the land which already had an uplift clause on it, he then sold it on, but did not bind the successor into this covenant and is now worried that if the new owner benefits from planning gain the original owner will pursue your father for 30% ?

ValHaller

bigadaj wrote: »

My thoughts would be to enquire to see what options there might be for a one off payment to agree no further claim on development value as whilst the probability is low the potential liability could, be extremely high. I think that removing that liability could be extremely valuable, and a lump sum payment offer could be attractive but my father is more inclined to accept an indemnity.

The general remedy is to be put back in the position you would have been in had the mistake not been made. So the solicitor's Professional Indemnity Insurer should be offering to provide the uplift if PP is granted. You could argue that the small sum now is actually better than the chance at 25% which might never happen. So there should be no expectation of this as the resolution.