As any tenant or house buyer knows, you live with your property mistakes for a very long time, perhaps forever. By the end of the 1980s JD Wetherspoon (JDW) had been in business for 11 years, we owned about 20 pubs, and I mistakenly saw myself as a warrior of the property market, able to negotiate the cut and thrust with the best of them. Oh boy, did I get it wrong...
I had dealt with property negotiations myself up to that point, liaising with different agents, becoming closely involved in town planning and representing the company as a witness for new licence applications — not an easy task in those days.
As the pace of our expansion increased, we decided to employ Christian Braun, of Van de Berg, to become our retained agent, and to take over many of my responsibilities. Braun, while working for north London agents Ferrari Dewe & Co, had previously found about half a dozen successful pub sites for us in the preceding couple of years.
In the course of the next decade or so, Van de Berg found about 600 pub sites for us and was paid more than £14m in the process. However, after a tip-off in 2005, we terminated the contract with Van de Berg since its directors had been buying properties themselves and renting them out to rival company Barracuda — amazingly since we had armed Van de Berg with a plethora of confidential information as to our sales and profit figures, in order to help them assess accurately the characteristics and performance of all our sites. Little did we think that the benefits of this information would end up in the hands of our deadliest rivals.
We subsequently found, after combing property files of all our 600 pubs (a major undertaking that involved the employment of up to a dozen temporary legal staff) that Barracuda was the least of our worries — in about 50 cases Van de Berg had agreed that a number of ‘third parties’ would secretly acquire the freeholds of various pubs, usually in Grade A locations, and that Wetherspoon would simultaneously sign a lease at a rent that gave rise to a big increase in the value of the freehold to the benefit of the third parties.
A legal claim was launched against Van de Berg and its directors in respect of about a dozen properties and Mr Justice Peter Smith found in 2009, in a case lasting two months, that Van de Berg and its directors had indeed fraudulently diverted the freeholds of a number of properties to third parties and awarded JDW provisional damages of about £6m. Van de Berg and its directors were made bankrupt and very little money has been forthcoming from them.
We then launched legal actions against a number of the third parties. Paul Ferrari, of Ferrari Dewe & Co, who had been instrumental in buying a number of freeholds using nominee Jersey companies, making enormous profits in the process, eventually settled our claim for about £500,000.
Anthony Lyons, formerly of Davis Coffer Lyons, contested a JDW claim in respect of three properties and denied liability but paid JDW £1.25m in settlement almost at the door of the court. Jason Harris, formerly of First London and now of First Urban Group, well-known pubco landlords at the time, paid us £400,000 a couple of weeks ago to settle our claim.
There are a number of aspects of these cases that emphasise the need for tenants, buyers and their legal advisors to take extreme care when buying property. For example, Van de Berg and Davis Coffer Lyons agreed transactions in which Anthony Lyons offered freehold properties to his friend Simon Conway while Van de Berg simultaneously arranged for JDW to take leases at these properties despite the freeholds being available for JDW to buy.
Lyons stated in his defence that he was acting in his capacity as an employee and in accordance with his duties to Davis and Coffer (now Davis Coffer Lyons).
Buyers and their legal advisors should therefore check, when a property is offered by an agent, that the agent is acting on behalf of the owner of the property and not on behalf of a friend or colleague to whom the property has first been introduced.
Had JDW followed this simple guideline, it may well have saved us tens of millions of pounds, and eight years of litigation.