Royal Bank of Scotland is being sued in the High Court for an alleged breach of a loan agreement involving one of the highest profile residential developments to fall victim to the downturn, Real Estate Capital can reveal.
John Morris, the developer behind the luxury Charters scheme near Sunningdale, south west London, is suing RBS for reneging on an agreed banking facility to finance the final construction works at the site in September 2008.
The writ claims that the development could not be completed without the facility being honoured and, as a direct result, at least two purchasers refused to complete transactions.
Two special purpose vehicles set up by Morris for the development – Charters Development Ltd (CDL) and Castleleigh Holdings Ltd – were then placed in administration by RBS in May 2009.
The administrators subsequently sold Charters to RBS subsidiary West Register. It is understood that the bank still owns Charters.
Morris, who lodged his writ with the Chancery Division of the High Court earlier this month, is seeking damages of more than £11m, representing the profit CDL would have made on Charters but for RBS’ alleged breach.
Morris told Real Estate Capital: “We had scrupulously honoured all our commitments to the bank and this was acknowledged in the minutes of their credit committee. The bank however reneged on its agreement with us and, as a result, we were unable to complete the sales which we were on track to deliver.”
An RBS spokesperson said: “A claim was served upon RBS by letter dated 3 December 2014. The bank intends to defend this claim. Given the existence of on-going litigation, it would not be appropriate to make further comment on this matter.”
Morris’ legal action brings the spotlight back on to West Register, part of RBS’s controversial Global Restructuring Group, which the bank was forced to wind down in August amid allegations that it profited from the financial distress of companies it was meant to help. The Financial Conduct Authority is currently investigating the allegations, which RBS denies.
RBS was the principal creditor at Charters and placed the scheme into the hands of administrators at PWC in May 2009 when only 15 of the 34 flats were sold. At that point, the bank was owed over £30m.
Morris claims that RBS placed Charters into administration shortly after rejecting an offer of more than £30m for the freehold from Morris backed by Investec. In May 2010, PWC assisted RBS as mortgagee in possession and sold Charters to West Register for £15.8m.
However, the legal action relates solely to the negotiations between Morris and RBS in mid-2008, when Charters was near completion and the bank’s loan facility had risen to £60.6m – of which a substantial amount had been repaid.
In the writ seen by Real Estate Capital, Morris’s claim centres around bank funding of £2.54m which RBS’s credit committee agreed on 8 September 2008 was “essential” according to the writ and would be made available to pay the main contractor, Trant, to complete construction. Morris alleges that the money was to be made available through a subsequently “blocked account” which both sides were supposed to have access to.
Morris set up the account to take deposits and the proceeds of apartment sales at Charters to be held in escrow until practical completion. Over £30m was placed into the blocked account. Morris alleges that express and implied assurances were given by RBS that the £2.54m would be made available to provide for sums to complete the project. Unknown to Morris, RBS had emptied the account before the cheques were drawn.