Phil Sheard Successful in Complex Loan Case

C agreed in 2015 to loan to D, a friend, £182,000 to purchase a leasehold flat in London and to buy a joint share in the freehold with the owner of the flat above. A loan agreement was signed with the loan repayable after 12 months and a charge was registered against the property over the leasehold title in favour of C.

D failed to repay the loan after 12 months but it was agreed that D could continue to repay the standard monthly interest until the property was sold or remortgaged. No agreement was reached in respect of the default interest that began to accrue after the 2016 repayment date. In breach of agreement D later let the flat to tenants.

D also attempted to get C to release the charge and C refused and demanded repayment. D failed to make payment and C appointed Receivers and issued proceedings.

D defended the claim and argued that:

1. The claim was statute barred as more than 6 years has passed since the 2016 repayment date;
2. An agreement had been reached to freeze interest at the standard rate so that default interest did not accrue from 2016;
3. In 2019 C agreed to treat D’s monthly interest payments as capital repayments towards the loan; and
4. C refused to negotiate settlement of the loan and/or renegotiate the terms of the loan agreement.

The tenants moved out of the flat and the Receiver obtained possession of the property which C then marketed for sale. D refused to transfer title to the freehold to C to increase the market value of property. C subsequently sold the leasehold flat and recovered net proceeds of £169,000.

C successfully applied for summary judgment in respect of the original loan amount and also obtained a strike out of the limitation argument given that the limitation period for secured debts is 12 years. Judgment was entered for the loan less the net proceeds of sale and the matter proceeded to trial in respect of the dispute regarding interest.

D attempted at trial to raise arguments previously determined at the summary judgment hearing and new arguments that the loan was an unfair relationship and that the default interest was excessive/penal.

At trial following cross examination of C and D the Judge found in favour of C that there had been no agreement to freeze interest, interest was not excessive and C was entitled to judgment for £46,000 plus costs to be assessed by way of detailed assessment. The judge also ordered D to pay £59,000 as a payment on account of costs.

A big thank you to Karina Champion of Oriel Chambers for her assistance on this case.

To discuss any of the above further, please contact Phil: philsheard@bexleybeaumont.com  |  07780 937624