Solicitor negligence in a business contract, share sale or lease

This guide is for business owners and individuals who think a solicitor got a commercial transaction wrong: a contract, a share sale or purchase, or a business lease. It explains how the courts approach drafting and advice failures in this kind of work, where the solicitor's responsibility stops, and what can reduce or replace a claim. It does not say what any claim would recover. For an overview of claims against your own solicitor, see the series overview. If the mistake was on a property purchase, conveyancing has its own series.

What counts as a drafting or advice failure

A solicitor owes a duty to take reasonable care and skill in the work they are engaged to do. In commercial work, the complaints usually fall into a few groups:

• A clause that does not work. A restrictive covenant, warranty, indemnity or price adjustment mechanism that the client was told would protect them, but which on its true meaning does not.
• A term that was never explained. A break clause with conditions attached, an upward-only rent review, or a personal guarantee given by a director, where the client says nobody told them what it meant.
• A procedural step missed. A formality the law requires before a term is valid, which was not followed.

Whether any of these is negligence depends on two things: what the solicitor was engaged to do (the retainer, usually set out in the engagement letter), and what a reasonably competent solicitor doing that work would have done.

Business leases and security of tenure

Part II of the Landlord and Tenant Act 1954 gives many business tenants security of tenure: under section 24(1), a tenancy to which that Part applies "shall not come to an end unless terminated in accordance with the provisions" of the Act, and either party "may apply to the court for an order for the grant of a new tenancy". In practice, the tenant can usually stay on at the end of the term and seek a new lease.

The parties can agree to exclude that protection, which is called contracting out. Section 38A allows a landlord and tenant of a lease for a fixed term to agree that sections 24 to 28 will not apply. Under section 38A(3), the agreement is void unless the procedure in the Regulatory Reform (Business Tenancies) (England and Wales) Order 2003 is followed. The landlord serves a warning notice in the form in Schedule 1 to the Order, and Schedule 2 sets out the rest of the procedure:

1. The landlord serves the warning notice on the tenant.
2. If the notice is served at least 14 days before the tenant enters into the lease or becomes contractually bound, the tenant signs a simple declaration (paragraphs 2 and 3).
3. If it is served less than 14 days before (but still before the tenant is bound), the tenant must instead make a more formal statutory declaration (paragraph 4).
4. A reference to the notice and the declaration must be contained in or endorsed on the lease (paragraph 5).

Two kinds of problem arise. A tenant's solicitor may have failed to explain that the lease was contracted out and what that would mean at the end of the term. Or, on the landlord's side, a solicitor may have failed to follow the procedure, so the exclusion is void and the tenant has protection the landlord did not intend to give. Which of these is a breach of duty turns on the retainer and the facts.

Where the solicitor's responsibility stops

Even where a solicitor was negligent, they are not automatically liable for everything that followed. The courts ask what the solicitor's duty was for.

In BPE Solicitors v Hughes-Holland [2017] UKSC 21, a solicitor drafted a facility letter for a lender, Mr Gabriel, which wrongly described the loan as a contribution to the costs of developing a property. Mr Gabriel would not have lent had he known the true position. But the Supreme Court found that, had the information been correct, he "would still have lost his money", because the development would not have added value. It held that "none of the loss which Mr Gabriel suffered was within the scope of BPE's duty". The judgment drew a distinction between cases where the adviser guides the client's whole decision and cases where the adviser supplies only part of the material the client relies on.

In Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20, the Supreme Court restated the principle. The majority said "the scope of the duty of care assumed by a professional adviser is governed by the purpose of the duty", and that the old split between 'advice' and 'information' cases is "too rigid and, as such, it is liable to mislead". The starting point is the risk the professional's work was meant to guard against, then whether the loss claimed has a sufficient connection to that risk.

Applied to commercial drafting: if a solicitor was asked to make sure a warranty protected the buyer against a particular liability, and it did not, loss from that liability is within the purpose of the duty. If the business simply traded badly for unrelated reasons, that loss usually is not, even if the client would not have bought without the solicitor's input. For how courts deal with outcomes that depended on what someone else would have done, see loss of a chance.

Contributory negligence and the commercial client

Section 1(1) of the Law Reform (Contributory Negligence) Act 1945 applies where a person suffers damage "as the result partly of his own fault and partly of the fault of any other person". The claim is not defeated, but damages are reduced to the extent the court thinks just and equitable, having regard to the claimant's share in the responsibility.

Commercial clients are sometimes found to share responsibility. In Manchester Building Society, the accountants had wrongly advised that hedge accounting was available, and the society relied on that advice in entering into and keeping interest rate swaps. The trial judge dismissed the claim on scope-of-duty grounds, but held that if the accountants were liable, damages should be reduced by 50% for contributory negligence because of the society's own decision to mismatch swaps and mortgages. The Supreme Court allowed the society's appeal on liability and held that the judge was entitled to make that 50% assessment, describing the society's conduct as "an overly ambitious application of the business model by the society's management" (paragraph 39). Whether a reduction applies in any other case depends on its facts.

Rectification: putting the document right

Sometimes the better question is whether the document itself can be corrected. Rectification is a court order that rewrites a written contract so that it records what was actually agreed. It is an alternative or a companion to a negligence claim, not the same thing.

In FSHC Group Holdings Ltd v GLAS Trust Corporation Ltd [2019] EWCA Civ 1361, the Court of Appeal held that rectification for a common mistake requires the parties to have had an actual common intention at the time the contract was made, with some "outward expression of accord". The court also described rectification for a unilateral mistake, where one party was mistaken and the other concluded the contract knowing of that mistake.

Where rectification is not available, the client is left with the document as drafted, and the question turns back to the solicitor.

What a solicitor will want from you

• The engagement letter and any terms of business, showing what the solicitor was asked to do.
• Every draft of the contract, lease or share purchase agreement, and the signed version.
• Emails and notes of calls or meetings where the clause or term was discussed.
• Any report or summary of the document the solicitor sent you.
• For a lease: any warning notice, declaration or statutory declaration, and the dates each was served or signed.
• Evidence of the loss: correspondence with the other party, demands under a guarantee, or the landlord's notices.
• The date you first realised the document did not work as you expected. Time limits are covered in solicitor negligence time limits.

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This guide is general information about the law of England and Wales. It is not legal advice. Whether a drafting or advice failure is negligent, and what loss falls within the solicitor's duty, depends on the retainer, the documents and the dates in each case.