Re: Fwd: 174 Ebury Street

Dear Darren,

We spoke a few moments ago.  Mr Stefanidis' lawyers have objected to the proposed licence on the basis that the security of tenure offered to their client (7 days) is not acceptable. The licence was drafted in this way because of the prohibitions in the lease on underletting or parting with or sharing with possession of the property, to ensure that our client could obtain possession if necessary.  There was a risk to our client that the landlord could forfeit the lease.  That could only be avoided by the client looking to enfranchise the freehold, probably at significant additional cost.

Instead it is suggested that the difficulty be dealt with in another way that I think gives both sides better protection.   It is however more complex.  The suggestion is that Mr Stefanidis grants our client the option to acquire the Property in consideration of £250,000 exercisable at any time in the next 21 years.  If the option were exercised, the price would be £1,500,000, less the £250,000 premium.   That option could be entered into almost immediately.  This would achieve the parties' initial aim of advancing £250,000 to Mr Stefanidis.  (As we discussed, we do not believe that it will be possible to obtain foreclosure rights to protect the £250,000 option premium in the short term.)

Our client would then loan £1.25 million to Mr Stefanidis, secured by a charge over the Property.  I assume this would be an interest free loan, and repayable on relatively short notice.  It would be a condition of the charge that pre-existing borrowing secured on the Property is repaid.  If the option were in fact exercised the loan would be recalled, and the property price paid by our client would repay the loan at once.  Our client could wait until the value of the property is better established before settling on the amount of the advance.

It is conceivable that if Mr Stefanidis went bankrupt in the next five years a trustee in bankruptcy might attempt to disclaim the option agreement, arguing the grant of the option was a transaction at an undervalue.  That seems unlikely, but if it were to happen, our client would still be able to recover the loan of £1.25 million by virtue of the charge.  We could try to obtain some comfort from a valuer about this, and I will ask William Carrington to give an opinion if you wish.  In any event, the advance /loan of £1,500,000 should help put Mr Stefanidis back on his feet and avoid bankruptcy for the foreseeable future.

The other risk to our client is that the valuer indicates that the property is not worth £1,500,000, after the option has been granted and the additional £250,000 paid.  That no doubt has already been taken into account by our client.

If the option is exercised, then the option agreement will provide that  Mr Stefanidis is granted a licence to occupy.  To that extent the parties are back where we are today.  We can however add provisions into the option to the effect that it can only be exercised in certain circumstances, for example in its last year or on the death or bankruptcy of Mr Stefanidis, that would give him some comfort.  The enfranchisement option would still be available to our client absent a change in the law.

Mr Stefanedis could enfranchise the freehold.  However, the lease will survive this process by virtue of the option and the charge.  Our client's position would not change.  if the option were exercised, our client would thereafter have the right to enfranchise the freehold itself.

If the tax advice requires, our client can assign the benefit of either or both the option and the charge to his nominee.

I am out of the office for most of tomorrow, but will return in the evening.  I look forward to hearing your thoughts.

Regards

Tristan Ward




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