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Keeping It Real Estate

News and Trends in UK Real Estate, Disputes and Planning Law

Posted in Case Updates

Better late than never? Relief from forfeiture after 14 months

The High Court has granted relief from forfeiture to a tenant 14 months after a landlord exercised his right to forfeit by peaceable re-entry. Whilst delay may ultimately be a decisive factor against granting relief, the Court has a wide discretion in reaching that decision.  In this instance, the Court considered it wrong to base its decision on delay in isolation, without having regard to all of the circumstances.

The case concerned a lease of industrial premises granted for 125 years at a premium of £90,000 and which had a value of £275,000. In April 2014, with arrears amounting to £24,000, the landlord forfeited the lease for non-payment of rent. At the time of forfeiture, the tenant company’s sole director was suffering from depression. In June 2015, the tenant applied for relief.

Generally, a tenant needs to apply for relief from forfeiture for non-payment of rent within six months. On that basis, it is surprising that relief was granted. However, where forfeiture is by peaceable re-entry, the High Court can still grant relief after the six month period, which is used as a guide rather than a strict time limit.

The Court took the following factors into account in reaching its decision:-

1. A high premium was paid for the lease.

2. The arrears amounted to less than 1% of the value of the lease, meaning the landlord would gain a disproportionate windfall.

3. The tenant’s ill-health meant that he did not appreciate the risk and associated consequences of forfeiture.

4. The tenant had not sought legal advice at the time of forfeiture.

5. The lack of prejudice to the landlord, who had not taken any steps to market or re-let the property.

6. The steps the tenant was taking to satisfy the arrears and the landlord’s costs (including a family member selling his home).

As such, the Court considered that the tenant’s application was made with “reasonable promptitude”, which was an “elastic concept which is capable of taking into account human factors”. The tenant was granted relief subject to the condition that the arrears, interest and the landlord’s costs were paid by a specified date.

This decision demonstrates the approach taken by the Court when using its broad discretion, but should not be misinterpreted as enabling tenants to disregard the amount of time taken to apply for relief. Each case will be decided on its own merits and the courts will have regard to all the circumstances when determining whether the application has been made with reasonable promptitude.

Landlords may, however, be concerned with the potentially longer period of uncertainty following forfeiture by peaceable re-entry, particularly where a lease has market value and the property is not being relet.

Pineport Ltd v Grangeglen Ltd [EWHC] 1318

Posted in Case Updates

Private tenants’ claims – Human Rights won’t wash

The Supreme Court has clarified that Article 8 of the European Convention on Human Rights (ECHR), an individual’s right to respect for private family life and their home, has no bearing on the court’s decision to grant a possession order against a private sector tenant.

Fiona McDonald occupied her home under an Assured Shorthold Tenancy (AST) granted by her parents, who owned the property subject to a mortgage. The mortgage lender appointed a receiver when the parents fell into arrears. Ms McDonald also failed to pay the rent under the terms of the AST, causing the receiver to issue possession proceedings against her.

At first instance, the court made a mandatory possession order under section 21 of the Housing Act 1988 (the 1988 Act) which was upheld by the Court of Appeal.

By the time the case reached the Supreme Court, there were two main issues for consideration:

  1. Was the court, as a public authority, required by the Human Rights Act 1998 to act in a way compatible with the ECHR, such that it had to consider the proportionality of the possession order and the interference with Ms McDonald’s rights under Article 8? Ms McDonald argued that it was and the fact that she suffered with a personality disorder was a relevant consideration that should have been taken into account.
  2. If so, could section 21 of the 1988 Act be construed in a way which was compatible with the ECHR?

On the first point, the Supreme Court ruled against Ms McDonald. Treating the courts as a public authority for this purpose would effectively mean that the ECHR was directly enforceable between private citizens in contract disputes. The 1988 Act already reflects the legislature’s efforts to balance the competing interests of private landlords in the residential sector and their tenants. The Supreme Court went on to say that if it had agreed with Ms McDonald, it would have had to make a declaration of incompatibility on the second issue.

Private sector landlords, and especially those who let their property under ASTs, will welcome the ruling.

McDonald v McDonald [2016] UKSC 28

Posted in Case Updates

Minor loss of light can prove very costly for the less than scrupulous Developer

Developers should beware of costly penalties for less than scrupulous behaviour when it comes to infringing their neighbours’ rights to light.  In the appeal of Ottercroft Ltd v Scandia Care Ltd and anr, the Court of Appeal ruled in favour of the claimant whose rights to light were infringed by the defendant developers.

The defendants had given undertakings not to develop their property so as to cause interference with the neighbouring claimant’s rights to light.  In breach of these undertakings, the defendants built a metal staircase which caused a relatively minor loss of light (valued at less than £1,000) to the claimant’s restaurant.  Notwithstanding the fact that the infringement was minor, the appeal judges concluded that the trial judge was correct to grant an injunction rather than damages in light of the defendants’ unneighbourly actions.

What was the first instance decision?

Back in January 2015, the Court held that the staircase interfered with the claimant’s rights to light.  He ordered a mandatory injunction for the defendants to alter, remove or replace the staircase so that it no longer infringed the claimant’s rights.  Although the infringement was relatively minor, his reasons for awarding an injunction rather than damages included:

  1. The defendants acted in a high-handed and unneighbourly manner.  They deliberately misled the claimant in respect of their plans for development.
  2. The defendants gave undertakings not to interfere with the claimant’s rights to light, which discouraged the claimant from seeking interim relief from the Court.
  3. Despite being fully aware that their actions would affect the claimant’s rights, the defendants proceeded to build the staircase in deliberate breach of their undertakings.

What were the defendants’ arguments in the appeal?

The defendants argued that the judge failed to carry out a fair and objective balancing exercise in deciding whether to award damages in lieu of an injunction.  In particular, he failed to take into account the fact that the minor change to the staircase from that specified in the planning permission did not make the loss of light appreciably worse.  They claimed that the judge made a series of unfounded assumptions which were oppressive to the defendants.

The Court of Appeal’s decision

The appeal judges dismissed the defendants’ appeal.  They approved the trial judge’s decision on the basis that:

  1.  The trial judge is entitled to exercise his discretion and it should not be overturned by an appellate court unless he has made the wrong decision on the principles.
  2. The four criteria in Shelfer v City of London “open the door” for the judge to exercise his discretion to award damages in lieu of an injunction.  They do not, however, compel him to do so.
  3. An injunction was granted based on the defendants’ poor behaviour and breach of undertakings.  The judge was entitled to consider the defendants’ actions in the round when exercising his discretion and he was not shown to be wrong in his characterisation of the defendants’ conduct.
  4. The injunction is not oppressive to the defendants.  Moving the staircase to avoid the infringement is feasible and the costs are likely to be less than £6,000.

The Court made clear that there had been no error in the judge’s exercise of discretion in this case.  Lord Neuberger stated in the Supreme Court case of Coventry v Lawrence that an injunction may be necessary to do justice and warn others, especially if the defendant has acted in a high-handed manner.  His reasoning fits the facts of this case exactly.  The defendants had breached their undertakings and the judge had been right to hold them to their contractual obligations.

It is clear that the courts will not look kindly upon any potentially misleading actions by developers.  When it comes to rights to light, developers should ensure that their conduct is demonstrably scrupulous in their dealings with neighbours.

Posted in Real Estate News

Would you sell your own grandfather?

The dust has largely settled since the shock rise in SDLT rates on commercial property transactions announced in the Budget on 16 March.    However, the SDLT changes still possess the power to trap the unwary – especially those who sought to avoid the increases by rushing transactions through before the Chancellor’s midnight deadline.

When HMRC published the proposals on 16 March, they confirmed – as is typical in such circumstances – that “where contracts have been exchanged but transactions have not completed before 17 March” (in other words, so long as you had exchanged contracts before midnight at the end of Budget Day), you would be protected from having to pay the increased rates – even if completion only happens some time later.  Commonly this is referred to as “grandfathering”.

The devil, of course, is in the detail.  The draft Finance Bill provides for two scenarios in which a purchaser may elect that the new calculation rules do not apply:

  • Where contracts were exchanged before 17 March and the contract was also substantially performed (by the purchaser or tenant taking possession or paying over the whole, or substantially the whole, of the consideration) before that date;
  • Where contracts were exchanged before 17 March and the contract is completed on or after that date, provided that there is no “subsection 15” event – broadly, an event which results in the effect of the contract on completion being different from that envisaged when it was first entered into.

“Subsection 15” sets out three situations which will result in the new SDLT rates applying even if contracts were exchanged before 17 March 2016.  They are where:

  1. there has been a variation of the contract, or assignment of rights under the contract, on or after 17 March 2016;
  2. completion of the transaction is by the exercise of an option, pre-emption right or similar, on or after 17 March 2016;
  3. the land subject to the contract (or part of it) has been assigned or is subject to a sub-sale to another person on or after 17 March 2016, as a result of which a person other than the original purchaser or tenant becomes entitled to call for the transfer or lease.

The second of those exceptions makes it clear that there is no comfort for anyone who merely had an option or a pre-emption right prior to 17 March 2016: if you exercise any such right after Budget Day, you fall within the new rules.  The third exception is also something to be aware of, but not something one might do inadvertently.

It is the first of the exceptions where the unwary could easily fall into having to apply the new rates compulsorily.  Whether or not a contract has been varied will be a question of fact and will need to be considered in the context of each particular transaction, but there are significant grey areas.  There are many types of variation that parties might choose to make to a contract – often seemingly insignificant – perhaps even just recording them in an exchange of correspondence.  It is clear, though, that to agree any such variation without considering the potential loss of grandfathering could be a rash move.

Posted in Case Updates

Landlords: Take Notice!

The decision of the High Court in Vanquish Properties (UK) Limited Partnership –v- Brook Street (UK) Limited provides a stark reminder of the strict requirements for serving a valid break notice and the traps into which the unwary can easily fall.

The case concerned premises on Fenchurch Street, which were originally let by the City Corporation as freeholder to Brook Street as tenant. The lease contained a landlord’s right to break on 27 September 2016 on six months’ notice. The premises were to be redeveloped and the City Corporation granted an overriding lease to the developer, such that the developer would become Brook Street’s direct landlord. The overriding lease described the lessee as “Vanquish Properties (UK) Limited Partnership”. As soon as the overriding lease was granted, the solicitors acting for Vanquish purported to serve the break notice on Brook Street. In the notice, they stated that they were instructed by and were serving notice on behalf of  “Vanquish Properties (UK) Limited Partnership, the landlord of the property.”

The problem with this (as the tenant astutely identified) was that, despite what the overriding lease purported to say, it was legally impossible for Vanquish Properties (UK) Limited Partnership to be the tenant under the overriding lease (and, by extension, Brook Street’s landlord). The reason for this is that a limited partnership is, in essence, a form of common law partnership and a partnership is simply shorthand for a collection of individual partners. A limited partnership (unlike a limited company or a limited liability partnership) is not a legal entity in its own right and cannot hold a lease. As such, despite what the overriding lease purported to say, the tenant (and by extension Brook Street’s landlord) was not Vanquish Properties (UK) Limited Partnership, rather it was Vanquish Properties GP Limited, which was the general partner of the Limited Partnership and was (as a limited company) capable of holding the lease.

Relying upon this argument, the tenant challenged the validity of the break notice. It argued that the entity on whose behalf the break notice was purported to have been served was not an entity at all. It was not its landlord and in those circumstances the break notice could not be valid. The Court agreed. The landlord could only be Vanquish Properties GP Limited and the notice did not say that it was being served on behalf that entity. Vanquish’s argument that the defect in the notice could be cured because a “reasonable recipient” would have understood what was intended was also rejected – the Court found on the contrary that a reasonable recipient would have been confused on receipt of the notice. Vanquish had accordingly lost the right to break the lease.

Limited partnership structures have become an increasingly common form of property investment vehicle over recent years and it is easy to forget that (unlike limited companies or limited liability partnerships) they are not legal personalities. Landlords and tenants need to fully understand ownership structures before notices are served as the courts are unlikely to be forgiving of mistakes.

Posted in Real Estate News

Conveniences can be inconvenient

The right for trans people to use the toilets of their choice is a politically and socially charged issue which currently features prominently in the media both in the UK and overseas. The recent decision from the Jersey Employment and Discrimination Tribunal in Ms E Blisson v. Condor Limited highlights the typical fact pattern which can often cause disputes to arise. To avoid such disputes, the key for UK property professionals is to understand their legal obligations at the outset. This, however, can be far from straightforward.

In the Condor case, a trans woman successfully claimed against a ferry operator for direct discrimination because she was forced to use the disabled toilets when aboard the ferry. Condor admitted to a “non-intentional and non-malicious act of discrimination“. The Tribunal held that Condor had been discriminatory and ordered it to amend its policies and signage to ensure such discrimination did not occur in the future.

In the UK, the legal framework that property professionals must be aware of is the Equality Act 2010. The Act places obligations on property managers as well as owners. In essence, one cannot discriminate against a person because that individual is a trans person when either providing toilet facilities, or deciding who may use such facilities and how those facilities must be used. There is an exception which permits the provision of separate facilities for persons of each sex if that provision is a proportionate means of achieving a legitimate aim.

The Act makes broad statements of principle but this doesn’t really clarify what actions property professionals should take to avoid falling foul of the law. Whilst social attitudes and the law which reflects them may change, buildings are often constrained by their original design, especially where alterations are required to core services. The result is that changes to toilet facilities’ layout or allocation are difficult to implement.

Government guidance seems to suggest that the construction of additional facilities is not necessarily required. The guidance states that “a trans person should be free to select the facilities appropriate to the gender in which they present“. Property professionals should be aware that when a trans person lives in their acquired gender role on a full time basis they should generally be afforded the right to use the facilities appropriate to that acquired gender.

The cautious approach is therefore to allow trans people the right to use the facilities of the gender that they identify with, rather than the gender they were born with. A potential alternative is the conversion of all existing single-sex facilities to unisex. However, even the latter option may necessitate substantial alterations and this may not be feasible in the circumstances.

To avoid sanction for unintentional discrimination, property professionals should keep in mind all potential visitors to their properties prior to deciding how the facilities within a particular property are to be run. This in turn should facilitate the formulation of internal policies that are compliant with the Equality Act 2010 and avoid disputes like those in Condor.

Case: Ms E Blisson v. Condor Limited [10/2015]

Posted in Case Updates

Premises includes carpets decides Court of Appeal in dilapidations claim

There haven’t been many dilapidations cases to reach the Court of Appeal in recent years, but South Essex Partnership University NHS Foundation Trust V Laindon Holdings Ltd has broken that trend.

Laindon was the landlord of purpose-built offices in Basildon, which the Trust had occupied until January 2011. In late 2014, the landlord won damages in the High Court of just over £130,000 for breach of the tenant’s repairing covenants in the lease. The tenant appealed on two points:

Carpets

The Court of Appeal found that the carpet tiles, which were fitted before the lease started, formed part of the premises rather than being landlord’s fixtures and fittings which the tenant was obliged to repair or replace on a like-for-like basis. As the lease entitled the tenant to make non-structural alterations to the premises without the landlord’s consent, they did not commit a breach when they replaced the carpet tiles with broadloom carpet.

Loss of rent

Interestingly, the High Court assessed the costs of the repair works at the date of trial, rather than the termination of the lease, as the judge accepted the landlord’s evidence that it was reasonable to delay those works for commercial reasons until a new tenant was secured. Accordingly, the judge awarded loss of rent to the landlord for the void period it would have to endure to carry out the remedial works.

In the Court of Appeal, the tenant did not challenge the landlord’s decision to delay the works or the assessment by the High Court of the losses as at the trial date.  Instead, the tenant argued that the landlord could not claim loss of rent whilst the landlord continued to wait, after the judgment of the High Court and once it had been put in funds by the tenant, to find a new tenant before carrying out the works.  The Court of Appeal agreed. The loss incurred by the landlord, as a result of a continued delay after the payment of damages by the tenant, was not recoverable.

Overall, the damages were reduced by over £61,000. Sadly, the Court of Appeal was not invited to consider the High Court’s finding that the cost of the works should be assessed at the date of the trial in 2014, rather than on lease expiry. This could have a substantial impact on an amount awarded, since contractor’s fees were significantly cheaper in the depths of the recession. It might not be long before this point comes up for consideration in another case.

Case:  South Essex Partnership University NHS Foundation Trust V Laindon Holdings Ltd

Posted in Case Updates

Mistakes happen but High Court decision eases rectification

The case of Isaaks v Charlton Homes Ltd concerned a lease which incorrectly recorded the demise as a “third floor flat”. In fact, the property was a second floor flat. Surprisingly, this was only discovered several years after grant when the tenant’s lender sought to enforce the security it had and realised that the property wasn’t where it should have been! As the lease was inaccurate, so too was the registered leasehold title stemming from it. Consequently, the lender (on behalf of the tenant) sought rectification of the lease and alteration of the land register.

The Land Registry refused to amend the register. It argued that the register was accurate – the register correctly replicated the provisions of the lease. Therefore, the Land Registry advised the lender to seek a surrender and re-grant of the lease. This was problematic. Apart from the administrative hassle it would involve, it would also adversely impact the lender’s security.

The High Court disagreed with the Land Registry’s approach. It concluded that the lease erroneously stated that the property was situated on the third floor. The obvious common intention of the parties to the lease was to demise a second floor flat and, as a result, the lease should be rectified to reflect this. Further, so far as the Land Registry was concerned, it was irrelevant where the source of the mistake originated, or whose mistake it was. The key fact was that the register contained a mistake and that, in accordance with the Land Registration Rules 2003, the Court was obliged to order the Registrar to amend the register to remedy it.

Any decision to remove unnecessary procedural hurdles in practice is to be welcomed and this is no exception.

Case: Isaaks v Charlton Triangle Homes Ltd [2015] EWHC 261.

Posted in Real Estate News

Modern Slavery: What’s the property industry got to do with it?

Modern slavery encompasses slavery, servitude, forced and compulsory labour and human trafficking.  The UK Modern Slavery Act 2015 (MSA) was enacted as part of the government’s broader strategy to tackle such crimes.

Under the MSA, an annual modern slavery and human trafficking statement is required for financial years ending on or after 31 March 2016 for all commercial organisations carrying on any part of their business in the UK with a turnover of £35 million or more.  For asset managers this means fees, but for landlords and funds this includes rents received.  The government’s statutory guidance recommends that organisations report within six months of the end of the financial year which means the first reports should be published by the end of September 2016.  For more details on the corporate disclosure requirements under the MSA and the statutory guidance, please click here for our detailed client note.

Given the turnover threshold, a large number of property organisations will need to issue a statement.  Whilst most could probably reflect on their own organisations with some confidence, the fact that the statements must extend to their supply chains may be more problematic and will require careful consideration.

A broad analysis of what constitutes an organisation’s “supply chain” is required and all contracting counterparties need to be viewed through the MSA lens. For example, landlords provide services to their tenants so will form part of their tenants’ supply chain.  Landlords may therefore face scrutiny from tenants who have to comply with the MSA and are well versed in the detail of it.  However, the tenant does not form part of the landlord’s supply chain unless it provides other services.

But consider the fund manager who enters into a property management contract on behalf of a landlord client with a third party who in turn sub-contracts the cleaning requirements to a much smaller organisation or individual where there is a real risk of forced labour.  The sub-contractor is supplying services and is therefore part of the supply chain of the fund manager and the landlord.  Because of this, their statements should set out what they are doing to identify and tackle the risk.

Landlords will need to consider those supplying services to them whether directly or indirectly through their asset managers. Although the most appropriate course of action may be to procure that the fund or asset manager is responsible for addressing modern slavery risks on behalf of the landlord, it is insufficient to do so without further thought.  In that case, the statement should explain the analysis which has led to that conclusion, confirm that the manager has binding duties and is aware of their scope and include provision for on-going monitoring.

Developers should be aware that the construction sector is at particular risk of labour exploitation.    Their statements should acknowledge this and outline the action they are taking to prevent the use of such labour.

For many businesses there remains uncertainty as to the application and scope of the new requirements and the practical measures that they should take to assess and manage modern slavery risks in their business and supply chains. This is particularly true of the property industry, which has not traditionally been seen as at high risk of slavery in any shape or form.

Posted in Case Updates

EXPERT EVIDENCE IN LEASE RENEWALS WORTH EVERY POUND

A rare High Court decision on an unopposed lease renewal under the Landlord and Tenant Act 1954 has underlined the importance of robust and thorough expert evidence – and the dangers of getting this wrong.

Flanders Community Centre Ltd v Newham London Borough Council concerned the lease renewal of a community centre. The tenant first took a lease of the centre from the Council in 2001. At that time, the centre was in a poor state of repair and the tenant agreed to carry out and fund repair works estimated to cost in excess of £14,000. In recognition of this, the rent was agreed at just £1 per annum. The lease also contained unusual terms requiring the tenant to monitor the activities and membership of the centre and entitling the Council to take action if the use and membership were not sufficiently diverse.

When the time came for renewal, the parties were unable to agree on the new rent. Under the 1954 Act, the new rent is the rent at which the premises could be let in the open market, applying certain assumptions and disregards. The Council argued that the market rent was £16,000. The tenant maintained that there should be no increase on the current rent of £1 per annum.

The trial judge found that the expert evidence put forward by both sides was inadequate and she felt unable to rely upon it – in particular, no evidence had been given as to the terms of the comparable leases relied on by the Council’s expert. In the absence of reliable evidence of market rent, the judge was entitled to have regard to the passing rent of £1, which both parties agreed was a relevant factor. The judge therefore decided the rent at £1 per annum, finding that this figure remained justified by the unusual lease terms.

The Council appealed and the High Court upheld the judge’s decision. The judge had been permitted to conclude that the expert evidence was unreliable. Whilst she would have been entitled to conduct her own analysis, she was not obliged to do so. The only concrete evidence before her was the current rent and (in the absence of reliable expert evidence) it was a matter for the judge to determine the weight to be given to this.

The case provides a stark warning of the importance of presenting clear, thorough and reliable expert evidence to the court. A party who fails to do so may find his evidence disregarded entirely and is unlikely to be given a second bite of the cherry. As the Council discovered, the consequences of this are unlikely to be palatable.

Case: Flanders Community Centre Ltd v Newham London Borough Council [2016](unreported)