A property developer whose multi-million-pound plan to build a palatial residence in the Surrey green belt came disastrously unstuck has failed in a legal campaign to stop mortgage lenders taking over the property and selling it from under him.
The lenders had agreed to advance £12.6 million to fund the project, £3 million of which was used to pay off an existing mortgage debt. The developer received about £7.8 million of the total sum before the lenders went into administration. The rest of the money was not forthcoming and the property remained half-built.
The developer, who was left lacking the financial means to repay the loan, argued that each payment made by the lenders was persistently and systematically late and that this had contributed to the project’s failure. However, a judge refused him permission to set off his own damages claim against the mortgage debt.
He was permitted to proceed with a claim that he was entitled to rescind the loan agreement on the basis that the lenders had fraudulently misrepresented their financial status. However, the judge found that, regardless of that claim, he was immediately liable to repay the £3 million. On that basis, the lenders were entitled to appoint receivers to take possession of the property and to market it.
In dismissing the developers’ challenge to that decision, the Court of Appeal found that there was no defence available to him in respect of the £3 million. That sum had been used to discharge his existing mortgage and he would be ‘unjustly enriched’ if he escaped having to repay it. Remaining issues in the case were sent back to the High Court for hearing.