Cottage Development

Another case that involved alone in respect of property development. Building society had advanced monies to a private property developer who intended to gut an existing cottage and redevelop it.

The form of the loan documentation used rather oddly was that of a normal residential mortgage with one or two additional terms. One term concerned “loan to value”.

After the developer had gutted the property prior to redevelopment the lender caused it to be revalued. Inevitably the then present value of the property at that time was less than both its acquisition cost and the ultimate Gross Development Value, (GDV). The lender argued that the borrower was in default of the loan to value covenant and served a Statutory Demand for repayment.

Given the inadequacy of the facility agreement the meaning of “value” was unclear. However it was successfully argued on an application to set aside the Statutory Demand that in this context value could only mean the ultimate GDV and not the value of the property at any particular time, (particularly as it was envisaged by both parties that the existing cottage was going to be completely gutted prior to redevelopment with an inevitable temporary decrease in value) accordingly there had been no breach of covenant and the Statutory Demand was set aside.




Patrick Selley. Keystone Law, 48 Chancery Lane, London, WC2A 1JF.

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