An interesting thing happened at the lawyers

Posted on Posted in About me, Investing, Legal

Regular rlawyers-photoeaders will remember my blogging copies of letters exchanged from a dispute over a data centre property I own. It’s been over a year since then and after some exchanges, all went quite as they went away to lick their wounds. Now after a prolonged silence, they send me a new missive, which, rather than move the discussion forward, ignores the previous year of dialogue and starts the process again as if nothing has happened.

For the previous history see here:
http://mikehardcastle.com/2015/06/26/an-interesting-but-minor-legal-dispute/

So, some further background. In 2007, a former colleague approached me wanting to buy a small industrial unit in Watford with a view to turning it into a micro data centre. He had no money, so wondered if I might buy it for him, lending him some of the money to buy the property jointly. I was interested, as, while a bog standard industrial unit had no appeal, converting it to a data centre would add considerable value and would bring a substantial return on investment. So I agreed.

The building was going to cost £300K, so he arranged a business loan for £200K, I put in £50K and lent my colleague £35K to add to his £15K of funds to match my equity. After purchasing the building he borrowed an additional £35K from a friend to convert the upstairs into offices and in addition was forced to borrow another £10K from me to repair the roof.

Because of these borrowings, he ran out of money to develop the data centre.

As part of the purchase, we had secured a 20 year lease with his hosting company for £2,400 rent per month. The loan was being repaid at ~ £1,200 per month leaving ~ £1,200 for our joint income. To allow him to develop the data centre and because he had limited funds available, I relinquished my rental income to allow him the funds to gradually build the data centre on the ground floor.

This he did slowly, although on occasion would make unrealistic requests, such as asking to borrow £150K to buy the land adjacent to install a 1MW sub station to power the unbuilt data centre.

I was concerned by his lack of financial prudence, but assured by the equity in the building, the debenture against his assets and a contract that prevented, amongst other things, either side selling the property (with out both parties agreement) for the life of the bank loan, some 20 years.

Roll forward a few years and after a failed attempt to make short term money by borrowing an additional £30K from me, secured against the building, to loan an employee’s father to invest in some property. My colleague decides to take on an experienced non exec director, who turns out not to be a director, see here:
http://mikehardcastle.com/2015/07/15/mentoring-tales-the-difference-between-a-director-and-a-consultant/

That non exec (who turned out to not be a NED but a part time paid consultant) advised him against building the data centre so work stopped. Again I was not concerned because my interests were assured by the property asset and the contractual obligations that provided penalty clauses against failure.

When I see the email appear in my inbox after over a years absence, I feel some degree of curiosity, so read the missive with interest. It is so basic in its scope, that I find myself starting to laugh. I also feel an immense sense of disappointment, primarily in the solicitors, for not helping their client move the discussion forward, but believing that resending a failed request will have any chance of success. That same solicitor, in the mean time, has had their existing law firm fail and has joined a new law firm which is over geared and struggling to keep it’s expanding work force’s billable hours up. So, you can understand they are desperate for billable hours, even if their client is ill-advised and ill-prepared.

The new missive resends a third party property valuation (dated May 2014) and explains that their client is keen to sell the building, still splitting the proceeds 50/50. They also ask if I have a copy of the contract and would I be willing to send them a copy. Oh, and I have 14 days to accept their clients offer or it is to be withdrawn. I wasn’t aware that selling a property at standard market rates could be considered an offer, but hey ho!

The sad thing is, that the lawyer (while probably competent) has nothing to work with. I’ve never before had a situation where myself and opposing council are collaborating against their client. We both agree on the financials of the purchase, but their client disagrees with us. They were also told by their client that there was a verbal contract, when in fact there was a written contract. They are now in the embarrassing position of having to ask me to send them a copy as their client denies a copy exists.

They also know, that I don’t wish to do anything until the end of the 20 year contract. Yet their client, who wishes to sell the property ahead of time, forces them to make offers to sell the property at market rate, without any compensation for breach of contract, relinquished rent or the failed appearance of the data centre.

So I’ve decided to be the bigger man, rather than continue down the path of comedic entertainment. I am going to refrain from irony and mirth and instead offer some practical options to help them achieve their clients goals.

I have always been prepared to sell the building ahead of time, providing it is financially beneficial to me. This would involve compensating me for the relinquished back rent, the lack of data centre and the losses made from an early sale of an appreciating building. To do that should be within the realms of any competent person to understand and calculate, but in that absence, I am going to suggest a business advisor be appointed to negotiate a deal.

Of course, it will probably turn out that their client cannot afford the costs involved in an early sale and may be forced to wait the agreed 20 years. But at least, he will understand why nothing can happen until the agreed date.

I shall of course wait the offered 14 days to send my reply, although I had drafted and completed it within 10 minutes of receiving the email.

As for you, the reader, what lessons you should learn from this post?  Well, try to use honesty and empathy in all your dealings. If you want to achieve something that is not in the interest of the other party, make sure you are able to offer them something they want. Compromising by understanding and meeting the other sides needs will frequently give you what you want and ultimately be worth it.

Trying to force a third party to act against their interest unless you have the something they want will always be futile and damage you, your company and your reputation.

 

One thought on “An interesting thing happened at the lawyers

  1. 3rd Feb 2017 Update:

    News. The solicitors have asked for mediation and I have accepted. While not entirely appropriate (they think there is a dispute, I know we are discussing broken contract penalty clauses). However, this is the first stage for them understanding their position and the options available to them.

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