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Ask F E Smith Your Own Question

F E Smith
F E Smith, Advocate
Category: Law
Satisfied Customers: 8535
Experience:  I have been practising for 30 years.
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I am legally educated at degree level, I am seeking

Customer Question

Hello,
I am legally educated at degree level, I am seeking clarification on a verbal contract / agreement which I relied on to my detriment.
My friend owns a property in Homerton, London. Which he was developing at the time. We came to an agreement I would be paid £5,000 for labour three times a week whilst I was at university until the project was finished with an estimated duration of around 5 to 6 months with myself using my own funds as payment to be repaid when the project was finished and property sold.
Soon after the agreement was verbally amended to inject £25,000 into the funding of a third story on the building using my funds (inclusive of the £5,000 initial agreement). Some of this £5,000 had been used for living costs and spent naturally as it was deemed as deferred wage under the original agreement. Funding was required due to limited funds accessible by my friend. I would remain working inline with the investment as unskilled labour for a period of 3 days a week for approximately 7 months.
I paid for the materials and labour etc using a mixture of cash withdrawn from my designated deposit account of circa £25,000 and also direct transfers to my friends account. I have records of these transactions. A small proportion of these funds were for direct costs of staying at the property such as travel and food - expenses incurred as a result of not residing at my parents home in Chelmsford. I often stayed at the property which was not in a fully habitable condition nor preferable to my home. My stay here is documented by the property being my correspondence address/registered address of the student loans company.
The agreement was understood to be conclusive within approximately 6 months when the build was completed and property sold with my £25,000 investment becoming 'worth' £50,000 in the next property from which profit would accumulate relative to a £50,000 stake but not withdraw-able/tangible until the conclusion of the next project. Following completion of the next project my stake was estimated to be £50,000 of solid equity at my own discretion for reinvestment or withdrawal. That is to say, I would benefit from the profit of a £50,000 stake at the start of the second project but own just £25,000 until profit taking saw that balloon to my own £50,000 stake. I was not paid/reimbursed under the initial £5,000 agreement.
I relied on this agreement with expectation of the project concluding at Christmas, with the agreement made in August. A reasonable deviation of months would be expected as it is not a precise science. I left work on the project and took up a graduate job understanding the project was undergoing final touches and time would be taken processing the sale (of current property) and acquisition of the next property. The next property would be project managed by my friend with labour contracted in. I would remain a silent partner.
My labour and the funds were used on the whole of the property with particular focus on the roof extension. The added value as a result of the extension would be in excess of £200,000. My father completed approximately £2,000 of electrical works and various rewiring of to property. It has now been approximately four years since the initial agreement and investment of £25,000. The house has been situated within the fastest annual growth borough appreciating at around 7% per year. This is not including the value added to the property through development which has gone from an estimated £400,000 to £850/900,000.
The house remains unsold and has been rented out to tenants for a year with considerable rental income of which I have not been privy. According to the amended agreement at a rate of a property per year, I would have reasonably expected to be in a position of considerably more than £50,000. I have been unable to access my funds, suffered uncertainty over the future of the property and had to place plans of utilizing potential profit for my career on hold. The property remains with tenants and is set to be remortgaged.
I believe I am reasonable in seeking £50,000 including my initial investment making a total of £25,000 profit given the excessive duration, uncertainty of the security of my funds, rental contributions inline with my investment, the added value from the works and also area added value.
I remain on good terms with my friend and I'm looking for a professional opinion on my legal options and confirmation of entitlement which I hope will justify my expectations, clarify my legal position and confirm fairness to my friend.
Submitted: 2 months ago.
Category: Law
Customer: replied 2 months ago.
Correction - three years, not four.
Expert:  F E Smith replied 2 months ago.

Let me summarise the facts and tell me if I am wrong in any way.

All this was verbal.

You invested some money and labour in the property with a friend the deeds were in his sole name.

You did that on the basis that you would have a proportionate share of any increase in value.

The property has increased in value but not sold.

The property has now been rented and you had not had any rental income.

The friend is refusing to repay you the initial investment, your time/labour, any rental income or sell the property at a reduced price.

Is that the situation?

do have proof of the payments which you made and what you spent, such as bank statements, receipts, etc?

Customer: replied 2 months ago.
Hello,Yea, this was verbal.I invested money and labour into the project. I have proof of every penny spent on the project be it a transfer to his account with relevant reference, receipts and bank statements from my account showing payments to building merchants etc. I was a early 20's student at the time with the funds being sourced from an inheritance account approved for withdrawal by my parents. All payments to shops and building merchants are immediately local to the address of this property. The student loans company can also confirm my approved address (requires postal verification) as that property.The agreement was made I would receive a £50,000 stake rather than a proportionate share (I.e £25,000 profit). There had been an agreement this would be reserved for the next project as we hoped to continue developing property. It was expected the next project would be bought around 6-7 months after date of agreement. It's now been over 3 years. My friend mithered over selling the property, put it on the market and them took it off before renting it out to the tune of over £35,000 pa. I was not consulted nor privy to the rental income. He has offered £35,000 instead of the £50,000 spoken of over the years.The current situation is that he was recently sought to remortgage to £150,000 to repay me at £50,000 and start a business himself with the remainder (the £50,000 figure had been mentioned in passing again). So ending the prospect of doing another property (if the delay and renting hadn't already). Upon approval of £150,000 he saw a property in Essex and is seeking a bump to £500,000 remortgage which minus my share of £50,000 would leave him under funded for the project. I believe this is his motivation for breaking his contract.My father is a qualified electrician and did the electric works amounting to around £2000. He is both a witness to the agreement and was unpaid for this work believing it served my own (his sons) interest. For witness reliability he is a recently retired ranking police officer.The property has increased in value from being in the fastest appreciating borough in London, it has also more significantly increased in value through the loft extension my labour and money funded.So with those being the facts, I am asking my legal position (promissory estoppel?), how the case would be viewed in court and options of enforcement. My main objective is being able to show my legal position to my friend to help decide the situation.Apologies for the lack of brevity again.
Expert:  F E Smith replied 2 months ago.

This is potentially Promissory Estoppel or more likely Propriety Estoppel but the end effect is ultimately the same. You are offered a benefit and you relied on that offer to your detriment and hence, your friend is estopped from denying you the interest.

Even if we take this down to contract level, there was an agreement for you to do work and the payment would be a share of the property. Notwithstanding that he may have offered you a share of the property, you are entitled to payment for the work on a quantum meruit basis. That would all your labour at the going rate plus the cost of materials including element of profit.

The only difficulty you have here is proving that he wasn’t just going to pay you for the work proving that he said that you could have a share of the property. These matters are decided on the balance of probabilities and your argument would be, “why would I spend all this money on the property and all this time and not get paid unless there was something substantial in it for me”.

He will argue that you are only entitled to be paid for the work and the materials and you never meant to have an interest in the property and it would be for the judge to decide which version of events he believed.

Ultimately if your friend refuses to say you your share of the proceeds or for your labour or material, you have no option but to take him to court.

Can I clarify anything for you?

Please rate the service positive. It’s an important part of the process by which experts get paid.

We can still exchange emails. Best wishes.

FES.

Customer: replied 2 months ago.
Hello,Thank you for the response. I had assumed it would be promissory estoppel.In short, you're suggesting that aside from the promise of equitable interest in the property, the courts may view what is fair reward for completing the development in the eyes as if a builder were paid? Or rather, are you suggesting it would potentially be viewed as an agreement to invest money and time into the project for a fair reward of added value (repayable on sale of property).Would you view the seeking of £25,000 (profit) on top of a £25,000 investment as a likely figure which would be postively received in court? Moving over to his potential defence, should he argue I am only entitled to labour and materials, what consideration is given to the three years it has taken to repay me (including one year where the property was rented for his own gain).What would you view as an appropriate course of action? He has offered £35,000 which is short of the agreed £50,000. Am I correct in assuming accepting this would conclude the agreement and proscribe me from persuing the remaining £15,000? Should I look to a letter of claim from a solicitor as the option if discussion falls through?Would you deem a claim via Money Claim as appropriate?
Customer: replied 2 months ago.
Does it also work in my defence that it is lucid my interest remained in the property given it took three years before seeking the means to repay me? For instance, they renewed the leasehold for a susbtaintial gain and also benefited from considerable rental income from which repaying me would have been possible.
Expert:  F E Smith replied 2 months ago.

I’m saying that at the very least, you did the work in your entitled to be paid for the labour and the materials because, after all, why would you give those for free? That’s the very least you could expect if the court didn’t accept that you did it because you had been promised a chunk of the equity of the property.

Whether the court accepted that you had been offered a chunk of the investment would come down to how persuasive the arguments were for or against.

With regard to the value of the claim, I would do a mathematical calculation of the value of the work that you put in compared to the increase in value of the property, taking into account the original purchase price.

If you can prove that you have a financial interest in the property which he hadn’t paid, then the percentage of the financial interest with the same percentage interest in the rental.

Remember that if this goes to court and you lose for any reason or he makes a Part 36 offer of £35,000 and the court doesn’t offer you more than £35,000, you will have to pay the court costs and his solicitors costs from the date of the offer.

You can issue the claim online but because of the amount being disputed being over £10,000, would not be Small Claims Court and hence there is always a costs risk.

You have to consider whether you are better accepting the £35,000 rather than arguing over £50,000.

Customer: replied 2 months ago.
Thank you. Last question; am I correct in assuming taking £35,000 now voids my rights to claim back the remaining £15,000 once I've received the £35,000?
Expert:  F E Smith replied 2 months ago.

It depends on the terms of the acceptance of the £35,000. Done properly, and correctly worded, usually by solicitors, it would preclude you getting the other £15,000.

If it’s simply a loose agreement between you, there is plenty of case law which says that you can accept this £35,000 under duress/pressure and then sue for the balance.

Please rate the service positive so that I get paid. We can still exchange emails.

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