Geraldine Ford

Midcity Estates are in the business of providing student accommodation in Sheffield. The directors are Bill Rogers and John Whittaker.

Mr Whitaker and Mr Rogers have been in the real estate business since around 1988.  They have held numerous businesses such as estate agencies and property refurbishment and development companies.   Prior to that they were both dairy farmers.  They have worked together most of their lives and entered into partnership around 1993.

Natwest/RBS

Midcity entered into a loan facility with Natwest in March 2006 in the sum of £3,400,000. It was a condition of lending that an IRHP was taken out. A base rate swap was mis-sold to our client and entered into for a period of 10 years. The loan was increased in March 2008 and the Swap amended to reflect the increased lending of £4,500,000.

Midcity transferred their lending portfolio to Lloyds in 2009. The break costs paid to cancel the existing Swap were £670,000.

Notwithstanding the announcement of the IRHP Review in June 2012, our client’s fact find meeting did not take place until 15 January 2014. For several months afterwards our clients were told their outcome was shortly to be received, but to no avail. By a telephone call dated 24 October 2014 the case handler informed Berg solicitors the redress offer was to be sent out imminently in the sum of £912,124.79.

Despite this verbal assurance, the letter did not materialise until 5 December 2014. Within that letter, the redress sum of £912,124.79 had disappeared and been replaced with a decision of no redress. No explanation has been provided for the change in figure other than the Bank’s letter contained a “swap for a swap” which obliterated any compensation Midcity were originally going to receive. The imposition of a substitute IRHP has been done solely in order to reduce the amount of redress the Bank has to pay and to comply with the FCA guidance on early exit costs (the 7.5% rule). The Bank has applied a counter-factual scenario in this case, thereby denying Midcity the compensation it ought to receive as a result of the mis-selling.

Despite numerous complaints to the Chairman and CEO of the Bank, the FCA, and MPs, no further clarification on the point has been received other than to direct queries to Lloyds Bank, who took over the lending in 2009.

A redress determination meeting took place on 3 March 2015. A challenge was submitted on 5 March however rejected in its entirety by RBS. Due to the novated nature of the related IRHPs, in order to be able to accept the offer from Lloyds (detailed below) Midcity were told they had to accept the offer of no redress from RBS, notwithstanding they didn’t agree with the outcome.

The RBS ‘offer’ was duly accepted. Midcity were told they were only allowed 28 days (i.e. to the end of June 2015) to submit a claim for consequential losses, notwithstanding that until they received the money from Lloyds they were not in a position to instruct a forensic accountant to prepare a consequential loss statement.

When the payment from Lloyds was significantly delayed, RBS refused to grant a reasonable extension and instead stated the claim had to be submitted by 7 August 2015. We approached DSW who attended with Bill Rogers and discussed their proposed claim. It was agreed that their consequential loss claim against RBS could only proceed against the professional fees the business had incurred as a result of having to move to Lloyds in 2009. In any event though, DSW’s fees would not be pre-approved by RBS and there was insufficient time before the deadline for DSW to properly assist.

Berg therefore prepared a letter setting out the claim for consequential losses on these terms. Berg had agreed to meet with Midcity on 12 August 2015 and requested a short further extension from RBS to allow this meeting to take place before the claim was submitted. RBS refused. The letter was therefore submitted on 7 August 2015. The claim was rejected by RBS by letter dated 16 October 2015.



LLOYDS

Midcity transferred their lending to Lloyds in April 2009. At the time of transfer Lloyds inherited a perfectly good swap with a remaining term of 7 years. The Natwest Swap was novated to Lloyds on 3 April 2009 and subsequently terminated on 9 April 2009, upon which Midcity entered into a new, restructured Swap with Lloyds. By so doing, Midcity were locked into a break cost of £670,000, and a new IRHP with a term of 15 years. The new Lloyds IRHP therefore had more fixed rate risk that their previous Natwest IRHP. Furthermore, due to the break cost of £670,000 being embedded into the new IRHP, Midcity were paying an increased margin on their lending together with a large administration fee of £150,000.

Due to the crippling nature of the new Swap, it was cancelled on 11 July 2011 into a fixed rate loan. Break costs of £981,500 were paid on entering into the fixed rate loan.

The fact find did not take place until 23 April 2014. Unlike Natwest, Lloyds helpfully provided a transcript of the meeting to Midcity. It was not until 26 January 2015 however that the Bank’s response was received. The Review found that hedging was a condition for only 50% of the loan and the fixed rate ought to have been 3.56% as opposed to 5.05%.

Lloyds offered an alternative product. The Bank deemed that Midcity, with the benefit of the alternative product, would still have terminated it in July 2011 and entered into the Fixed Rate Loan. Notwithstanding this decision, they have resolutely refused to deal with the Fixed Rate Loan as part of the Review process. The proposed break cost on the alternative product at £209,198.00 is lower than the £981,500 currently embedded within the Fixed Rate Loan.

Midcity are being offered £1.2m from Lloyds. Whilst Lloyds is seeking to partially refund Midcity in respect of break costs, the amount of £981,500 remains embedded into the Fixed Rate Loan. The offer therefore looks artificially better than it is. Our calculations show that the current break cost of the Fixed Rate Loan is in the region of £1.1m. Notwithstanding Lloyds admitting their Swap was mis-sold, Midcity are still subject to horrific break costs on a Fixed Rate Loan that was entered into as a direct result of the (now admittedly mis-sold) Swap in 2009.

A redress determination meeting took place on 3 March 2015 and a challenge was submitted on 5 March. Lloyds responded on 9 April to confirm their offer remained unchanged notwithstanding that the majority of the points in our challenge letter going unanswered.

In respect of the Fixed Rate Loan, Berg has repeatedly requested that payments due under it are suspended pending the outcome of the IRHP Review, given the two are inextricably related. The Review Team has refused to respond on the point, and directed us to the Relationship Manager, who also refused to respond. Instead, one of the Bank’s panel firm of solicitors Addleshaw Goddard in London were instructed, two weeks before a quarterly payment fell due. Their response was to provide an onerous side letter with a fee estimate of £3,000 plus VAT, to be paid by Midcity.

Midcity objected to the terms and the proposed cost of the side letter, in particular given the Bank are on notice that the entire Fixed Rate Loan is disputed. Addleshaw Goddard’s response was to offer to waive the fee however none of the terms of the side letter could then be negotiated. Midcity refused. The business had no choice but to pay the enormous quarterly payment due under the Fixed Rate Loan, notwithstanding the Review process in respect of both Natwest and Lloyds remains unresolved. Until basic redress is resolved, Midcity cannot file a claim for consequential losses, which will include all aspects of the Fixed Rate Loan.

Midcity accepted the Lloyds redress decision, and received £1.2m on 8 July 2015. DSW provided assistance with the consequential loss claim which was submitted on 18 December 2015. DSW concentrated solely on the FRL. We await Lloyds response.  

In the meantime, I filed a formal complaint regarding the FRL, as the Bank refused to suspend payments pending the outcome of the CL claim. Our request was refused by both the IRHP Team and the Relationship Manager.  We escalated the complaint to FOS but are yet to receive a response.

The clients continue to make payments under the FRL, despite the Bank not having yet provided a decision in respect of the CL claim. All attempts to suspend payment pending resolution of this matter have proved fruitless.

Furthermore, the business continues to sell properties and reduce their debt with the Bank. As at 8 July 2016, we are yet to hear from the Bank on our consequential loss claim.