The wrong legal structure can cost money
December 1st, 2011
I had a couple come to see me recently. They had bought a property in Spain a few years ago with a friend. They had also bought a property in the UK with the same friend. For various reasons which I didn’t manage to get to the bottom of (mainly because the clients weren’t sure) they registered the property in the UK in their name and the property in Spain in the name of their friend.
What should surprise me is that people often make these sorts of arrangements without thinking them through fully. They think that they are coming up with a clever solution to their situation but often don’t know the law of the country that they are dealing with. Most of the time they do not think through the full implications of their actions and, in particular, often don’t think about what if things go wrong.
Needless to say in this case things have gone wrong. The relationship had gone sour and the “friend” now no longer has any money. The friend is no longer contributing to the cost of the properties and the documentation that doesn’t reflect the true reality of the situation.
Of course it is at this point that the clients think about taking advice and came to speak to me. The clients now want to re-structure the legal situation to reflect what has actually happened so that they can get more protection and have their names registered on the title deeds in Spain.
As a lawyer this whole story is backwards. It seems clear to me that the clients and their friend took little advice when they were buying the properties on the suitability of their proposed structure. I suspect (although I may be wrong) that the clients spoke to their UK lawyer and simply told him that they were buying the property in the UK without any mention of the Spanish property or their friend. I similarly suspect that their friend did exactly the same in Spain but didn’t mention the UK property.
Now it isn’t my job to judge the clients – after all, what has been done has been done and my job is to try and fix the situation as much as possible. At the time when they bought they thought that they were doing the right thing. However, the clients could have saved themselves a lot of stress, inconvenience and money had they arranged things properly in the first place. It may have seemed like a good idea to register each property separately and in some circumstances this could still have been the best solution, but in this case things have gone wrong and the clients now need to protect themselves.
Of course, transferring the property from one name into 3 names or even registering a charge against the property costs money – even if the registered owner of the property (the friend) cooperates. In this case they have all fallen out with each other and the “friend” is being uncooperative. This obviously makes things more difficult and therefore more costly.
The clients are now kicking themselves for not having thought of this particular scenario before and for getting themselves in a situation where they are now having problems. They made the mistake of thinking that nothing would change and that everybody would remain friends and be flexible. Experienced lawyers have seen it all before. We know what can go wrong even if the client thinks it unlikely. We therefore plan for the worst case scenario right from the beginning and try and protect our client as much as possible.
So what could the clients have done differently? Well for a start they could have spoken to a lawyer who understood the issues both in Spain and the UK. They could have taken advice on the whole picture rather than just getting advice on separate sections and putting the solution together themselves. They could have thought of the ownership structure as a key part of the transactions both in the UK and Spain. They could have been very honest with themselves and planned for the worst case scenario. However, we are where we are so we now need to try and rectify it for them.
Peter can be contacted at Chebsey & Co, 51 London End, Beaconsfield, HP9 2HW or www.chebsey.com or via telephone at 01494 670440 or via fax at 01494 670276 or by email at pje@chebsey.com
