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Mortgagee sale - ransom strip of land |
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The Court gives guidance on when a mortgagee should seek to obtain a price higher than open market value on the sale of a ransom strip.
Mrs Freeguard sought compensation from the Royal Bank of Scotland Plc (“RBS”) following the sale of a strip of land. RBS sold the land for £60,000 to the owners of a field. The land attracted a ransom value as it provided the only possible access to the field, which had planning permission for five houses. Almost immediately afterwards, the owners of the field advertised the field together with the ransom strip for sale by tender and received £527,000. Mrs Freeguard argued that RBS had acted in breach of its duty to her to obtain the best possible price. She claimed that RBS failed to obtain proper information as to the value of the ransom strip and surrounding land and that the usual price for a ransom strip was between a third and a half of the development value of the ransomed land, i.e. £260,000.
The Court held that the best price reasonably obtainable on a sale by the mortgagee was not the open market value, but the price that could have been obtained from a person with a special interest in purchasing it, namely the owner of the ransomed land. Whether that best price had been achieved when the mortgagor decided to sell was dependent on what the owner of that land was prepared to pay at that specific time. In this case there was no evidence that the owners of the field would have paid a purchase price in excess of £60,000. At the time of sale RBS had no prospect of achieving a figure in excess of the amount secured by its charge.
While in this case the court held that RBS had not sold the property at an undervalue it is important to note that when exercising a power of sale over a ransom strip, careful consideration should be given to its value.
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June 2005 |
