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Keeping It Real Estate

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

Posted in Case Updates

It’s no holiday for service charges

The Supreme Court has upheld the general rule that irrespective of how imprudent a term in a lease may be, the courts will be very reluctant to reject it, because the purpose of contractual interpretation by the courts is to identify what the parties agreed, and not what the parties should have agreed.

The case of Arnold –v– Britton [2015] UKSC 36  concerned a number of leases of holiday chalets with lease terms of 99 years from 1974.   The clause in question required the tenants to pay annual sums by way of an estate services charge (described as a “proportionate part” of the expenses incurred by the landlord) that increased by 10% annually, from a starting point of £90.  Given the dates most of the leases were entered into, and the fact that the UK was beset by high inflation in the 1970s and early 1980s, the likely explanation for this clause was “inflation-proofing”.  However, it seems very unlikely that the parties had really envisaged the outcome: that the annual amount would exceed £1 million towards the end of each lease, probably far exceeding the amounts the landlord would expend in providing the services.

In interpreting a lease, or any contract, the courts will create a hypothetical person – the “reasonable person” – who will have the background knowledge which would reasonably have been available to the parties when they entered into the contract, and who would be conscious of the practical consequences of entering into the contract.  This hypothetical person can investigate the common intentions of the parties by interrogating the parties.  The courts will ask: “what would this hypothetical person have understood the parties to have meant?”

However, the actual intentions of the parties cannot override what is written in the document, unless the clause is ambiguous.  If a court decides the clause is ambiguous, the court can move away from the natural meaning of the clause.  Unfortunately for the tenants, who tried to argue that the 10% reference in their leases was a cap on the annual increase, the Supreme Court decided that the clause was not ambiguous.

This case affirms the orthodox approach to contractual interpretation, which prevailed at a potentially enormous cost to the tenants.  However, it does serve as a reminder that English law prefers certainty to creative contractual interpretation, irrespective of the unpleasantness of the outcome.  Fortunately for the tenants, it should also be noted that the landlord has informally agreed to negotiate for a CPI-linked adjustment to replace the reference to 10% in the leases.

Posted in Real Estate

Demystifying the “Without prejudice” label

The ability to make an offer to settle a dispute, without that offer coming to the attention of the court or (as the case may be) an arbitrator, is a vital tool in the dispute resolution armoury.  However, both practical experience and the case law teach us that the term can be misapplied, without proper thought having been given to the consequences.

The purpose of “without prejudice” is to encourage parties to settle their disputes and avoid going to court, but without fearing that an unsuccessful offer will be used against them in court, and prejudice their position.  When a party makes a “without prejudice” offer, it is literally “without prejudice to” the fact that it is going to argue for a different result in an open forum.

For that reason, writing “without prejudice” on a letter will not make it confidential, and will not shield it from the eyes of the court or an arbitrator unless the following criteria are met:

  1. There has to be a dispute;
  2. The communication has to be “without prejudice to” something; and
  3. The communication must be part of an attempt to settle.

Something labelled “without prejudice” just because the writer wants to hide it from the eyes of the court, will not be afforded the protection enjoyed by true “without prejudice” correspondence.

Erroneously adding the label to a letter or notice can also have serious adverse consequences.  We have seen rent review notices and even break notices headed “without prejudice”.  Without prejudice to what?  At worst, that could render the notice ineffective.

And what of a “without prejudice” offer that is accepted under the heading “without prejudice”?  Is that a binding settlement, or merely part of an ongoing negotiation until the magic words have been dropped?  The answer is a simple one, and lies in the basic principles of contract.  Acceptance of an offer is a final and unqualified expression of assent to the terms of the offer, and the contract comes into existence when acceptance is communicated to the offeror.  If offer and acceptance exist, it makes no difference that one or both were labelled “without prejudice”.  At that point, the protection automatically falls away (see Newbury v Sun Microsystems Ltd [2013] EWHC 2180 (QB)).

In short, the words “without prejudice” should only ever be attached to a genuine offer to settle. Misapplied, they might not have the effect of confidentiality that you intended.  At worst, they might have unintended and serious legal ramifications.

Based on an article by Richard Bourchier (EGi) and Nicholas Cheffings (Hogan Lovells) which appeared in EGi on 25 April 2015

 

Posted in Case Updates

Light relief for developers?

In the first rights of light case to follow the Supreme Court’s decision in Coventry -v- Lawrence a county court has refused an injunction to prevent interference with rights of light.

The case of Scott -v- Aimiuwu concerned two neighbouring houses in Potters Bar. Mr and Mrs Aimiuwu built a substantial extension to the rear of their house in 2012/2013, which interfered with access to light to four windows to Mr and Mrs Scott’s house. The Aimiuwus had proceeded with the works notwithstanding the Scotts’ objections. The Scotts applied to court for an injunction requiring the extension to be cut back by around 92 square metres to prevent interference with light.

The court, applying the approach set out by the Supreme Court in Coventry v Lawrence, refused an injunction. On the face of it, this sounds like very positive news for developers. However, it is clear that the Judge was heavily influenced by the specific facts of the case and therefore it should not be regarded as creating any sort of general rule. In particular:

  1. The interference related to windows in so-called secondary accommodation (namely a garage, utility room and bathroom). As such it could be adequately compensated in damages. The Judge felt that matters may well have been different if primary accommodation such as bedrooms or living rooms had been interfered with;
  2. The Aimiuwus had mistakenly believed that they were entitled to proceed because they had planning permission. They had also received expert advice that the interference was not material; and
  3. There is no hard and fast rule that rooms must remain 50% lit to avoid an actionable interference with light. This is just a rule of thumb but could vary depending on the circumstances.

In light of the above, the Judge concluded that an injunction requiring demolition would be punitive and oppressive. However, the Aimiuwus were entitled to compensation. The Judge exercised his discretion here as well.  He awarded damages of £30,000 based upon the “book value” of the loss of light rather than awarding “buy-out” damages based upon a share of the developer’s profits. Again, whilst this may seem favourable for the developer it too should be treated with caution. The Judge was clearly concerned with arriving at a fair and compensatory figure and the book value approach may well have resulted in a larger pay-out than a buy-out approach because the increase in value of the house was not very substantial by comparison.
If one thing is clear it is that the outcome of rights of light cases remains uncertain following Coventry -v- Lawrence. The developer’s conduct is key and those who fail to engage openly and reasonably with their neighbours may not be as lucky as the Aimiuwus.

Cases: Scott v Aimiuwu [unreported]
Coventry and others v Lawrence and another (No. 2) [2014] UKSC 46

Posted in Planning

Ignore objectors at your peril, developer told by court

A recent High Court judgment reminds developers of the danger of ignoring planning objections, even those from seemingly unthreatening third parties.

Gloucestershire renewables firm Ecotricity, famous not only for the marital complications of its former-hippie founder, Dale Vince, is also a prominent developer of wind farms.  But its plans for a two-turbine scheme in Norfolk, considered at a six-day inquiry in late 2013, have been frustrated by a third party objector who didn’t even attend the hearing.

The objector was Shipdham Flying Club, based at a small, former WWII airfield.  On two occasions before the inquiry the Club wrote, first to the council, then to the Planning Inspectorate, to object to Ecotricity’s proposal.  Having warned that the turbines would cause a danger to low flying aircraft in a so-called ‘choke point’ location, the Club subsequently took no further part in proceedings.

Ecotricity, who responded to the first letter by writing to the council, ignored the second.  The aviation issue then received no further mention during the case.

When Ecotricity saw that their appeal had been dismissed because of reasons that included concerns about flight safety they went to court.  It was unfair, they said, to accept the Flying Club’s arguments, because they had not been presented at inquiry, and were not shared by the national aviation authorities, or even nearby Norwich International Airport.

The judge was unsympathetic.  It should have been obvious to Ecotricity that the inspector would have to deal with the Club’s objection, he said, and it should have called expert evidence, or produced a written report, in response.  Whether its failure to do so was an oversight, or a tactical decision that went badly wrong, the company had only itself to blame.

This judgment acts as a useful reminder to developers that it is important to respond comprehensively to planning objections, however benign they may appear.  Whilst, clearly, it would have been helpful for the inspector to raise his concerns about aviation safety at the inquiry, there was no obligation to do so.  On the other hand, because the objection was on the file, fairness required that he dealt with it.  And without any evidence to challenge the Club’s case, he was faced with little alternative but to accept it.

Case: R (Ecotricity) v SoSCLG [2015] EWHC 801 (Admin)

Posted in Planning

Conservative Government: Cabinet Appointments and Manifesto Promises

Following the Conservatives’ election success, Prime Minister David Cameron has made significant appointments to his Cabinet. Given the Tories’ slim majority, he will now look to keep his back benchers in line to enable the implementation of his manifesto promises for the further reform of the planning system.

The important appointments relating to planning and development are as follows:

  • There is a new Communities and Local Government Secretary in Greg Clark. Clark is promoted to the Cabinet from his ministerial post in charge of universities, science and cities, but previously worked within the CLG as planning minister, and is remembered for his contribution to the Localism Act and pushing though the NPPF, among other things. He replaces Eric Pickles, who becomes Minister for Faith.
  • Ministerial responsibility for planning and housing is retained by Brandon Lewis. Other CLG ministerial appointees include Mark Francois, Marcus Jones and James Wharton, the latter taking responsibility for the Chancellor’s “northern powerhouse” project designed to boost the economy of northern England.

Meanwhile, in other appointments:

  • In the Energy and Climate Change Department, Amber Rudd replaces Ed Davey as Secretary of State.
  • Liz Truss remains in the post she held during the last year of the coalition government, in charge of Environment, Food and Rural Affairs.
  • Patrick McLoughlin remains in post as Transport Secretary, a post he has held since 2012.

The Conservatives’ manifesto promises further reforms to the planning system and measures to stimulate economic growth. Key promises are set out below:

  • When it comes to planning decisions, local people will be put “in charge”, and they will be given the final say on wind farm applications.
  • 200,000 starter homes will be built exclusively for first time buyers under the age of 40 and sold at a 20% discount, and 275,000 affordable homes will be delivered by 2020.
  • A new Right to Build will be taken forward, requiring councils to allocate the land to local people to build or commission their own home, with the objective being to double the number of custom-built and self-built homes by 2020.
  • Locally-led garden cities and towns will be supported in places where communities want them, such as Ebbsfleet and Bicester.
  • When new homes are granted planning permission, local communities will know up-front that necessary infrastructure such as schools and roads will be provided.
  • Brownfield land will be used as much as possible for new development. Local authorities will be required to maintain a register of available brownfield land, and ensure that 90% of suitable brownfield sites will have planning permission for housing by 2020. A new London Land Commission will also be created to identify and release all surplus brownfield land owned by the public sector.
  • The Green Belt will be protected and stronger protections will be put in place for natural landscapes.
  • There will be significant expansion in nuclear power and gas to secure clean and affordable energy supplies.
  • The safe development of shale gas will continue to be supported, whilst ensuring that local communities share the proceeds through generous community benefit packages.
  • A Sovereign Wealth Fund for the North of England will be created so that the shale gas resources of the North are used to invest in the future of the North.

The above manifesto promises are ambitious and wide-ranging, and whilst the Tories have a majority in the House of Commons, they do not have a working majority in the House of Lords. Therefore, even if the Tories were able to push their plans through the Commons, the manifesto policies may be blocked in the Lords if the Liberal Democrats and Labour were to align themselves against them. It will be interesting to see how this pans out over the next 5 years.

 

Posted in Planning

Assets of Community Value: Testing Times?

In 2012 we blogged on the introduction of the nomination and listing of Assets of Community Value. At the time, there was some uncertainty as to whether the legislation would be used for genuine community enhancement, or as a stick to beat developers.

In a move that will be well received by community groups, the First-Tier Tribunal clarified the test to determine when a building can qualify as an ACV in the case of Evenden Estates v Brighton and Hove City Council.

At the centre of the case was the question of whether a closed pub could have a community use in the next five years, particularly where an application for planning permission for conversion into residential use was still pending determination. In defending its decision to make the listing, Brighton and Hove City Council simply had to demonstrate that: “it is realistic to think that there is a time in the next five years when there could be non-ancillary use of the building or other land that would further (whether or not in the same way as before) the social wellbeing or social interests of the local community.”

The Tribunal found that the community use test was met. Whilst the planning application remained undetermined, it was not unrealistic to imagine that, were the application to be refused, the pub would be marketed under its existing permitted use, either as a pub, or another use that furthered social interests.

The ruling may be of concern to developers who have purchased closed pubs and are awaiting planning permission, particularly those facing strong opposition from local pressure groups. Such groups may make applications to register the sites as ACVs, knowing that registration would mean a potential, disruptive, six-month moratorium if the developer were to try to market the property before redevelopment takes place.

Case: Evenden Estates v Brighton and Hove City Council and another [2015] UKFTT CR_2014_0015 (GRC).

Posted in Real Estate News

Legal A-Z: “F” is for Forfeiture

I am a landlord of commercial premises and my tenant has not paid its service charge contributions, despite repeated demands. Can I forfeit the lease?

Quite probably but there are a number of points to check first.

Does your lease expressly allow you to re-enter the premises and, if so, what triggers that right?  If the lease contains no express right, it is unlikely that you can forfeit. Typically, leases do reserve the right to forfeit for non-payment of rent or breach of covenant, but usually there is a grace period before the right arises.

Next, are the service charge contributions reserved as “rent”? If they are, and any grace period has expired, you will be entitled to forfeit the lease. If not, you must serve a “section 146 notice” on the tenant specifying the breach and requiring him to remedy it and pay compensation. If the tenant fails to do so within a reasonable time, you will be entitled to forfeit. What amounts to a “reasonable time” will depend on the facts.

The tenant will be entitled to apply to Court for relief from forfeiture. Generally the Court will order the tenant to settle any arrears as a pre-condition to granting relief. If the arrears are disputed, it may not order forfeiture – if that is the case, you should be wary about forfeiting as you may be liable to pay damages or costs.

For further information:

Section 146, Law of Property Act 1925

(An earlier version of this article was previously published in hard copy in RICS Property Journal, formerly known as the Commercial Property Journal).

Posted in Case Updates

Buyers beware: forgo the survey and pay the price

The importance of carrying out a survey before exchange of contracts was illustrated in the recent case of Hardy v Griffiths.  The sellers (Hardy) successfully brought a claim against the buyers (Griffiths) for failing to complete the purchase of a house.

The facts were as follows: In March 2011, Mr and Mrs Hardy accepted an offer of £3.6m from Mr and Mrs Griffiths and contracts were exchanged the following day, on 1 April 2011. A deposit of £150,000 was paid. The contract provided that the buyer had to top up the deposit so that it equalled 10% of the purchase price if the buyer failed to complete on the agreed completion date.

A completion date of 31 October 2011 was agreed, later extended to 30 April 2012. When this date was missed, a notice to complete was served on the buyers who were also reminded that the balance of the 10% deposit had become due.  When the buyers still failed to complete, the sellers sought to rescind (set aside) the contract and recover the balance of the deposit.

The buyers objected.  They claimed that the sellers had made false representations about the condition of the property.  They sought repayment of the deposit already paid and damages for the sellers’ “reckless misrepresentation” in not revealing damage due to rising damp and dry rot costing £600,000 to rectify.  The court applied the principle of caveat emptor or “buyer beware”.  This meant that the buyers accepted the property in the physical condition it was in at the date of the contract and there was no onus on the sellers to disclose any physical defects.  It was for the buyer to discover them.  In this case, the buyers did not commission a professional, structural survey prior to exchange and therefore failed to discover the problems with dry rot and damp.

As to misrepresentation, in the replies to pre-contract enquiries the seller had stated that they were not aware of any issues relating to rot or rising damp and the court found that this was a true answer.  In any event, there was no evidence to suggest that the buyers had even read the replies.  If not, they could not have relied on them and reliance is an essential part of any claim in misrepresentation.

The final decision was in favour of the sellers: the contract had been rescinded, the deposit of £150,000 forfeited and payment of the £210,000 deposit balance had to be made.  The buyers had argued that the balance was not payable because the contract no longer existed.  The court disagreed, finding that the right to recover the balance survived rescission.  Although the buyers argued that this would bring a “windfall” to the seller, the case is a salutary warning to buyers who do not complete a purchase on time and fail to fully investigate the physical condition of the property.

Case: Hardy v Griffiths [2014] EWHC 3947 (Ch)

Posted in Real Estate News

SDLT to LBTT – am I bothered?

Tomorrow, Stamp Duty Land Tax will be no more – but only in Scotland.  On 1 April the new Land and Buildings Transaction Tax (LBTT) comes into force, an example of one of the revenue-raising powers devolved to Holyrood following the passage of the Scotland Act 2012.  LBTT will be administered and collected in Scotland through the newly established “Revenue Scotland” rather than by HMRC.

The rates and bands for LBTT have finally been approved by the Scottish Parliament and for many commercial transactions LBTT will be higher than SDLT.  The top rate of 4.5% will apply to any consideration above £350,000 and this may result in a significant increase compared to the 4% charged on purchase prices over £500,000 elsewhere in the UK.

So, for any land transaction in Scotland with an effective date on or after 1 April 2015, it’s goodbye SDLT, hello LBTT.  So far, so good but how does this impact on portfolio deals where some properties are in Scotland and others are elsewhere in the UK?

First, transactions which relate to land in Scotland will no longer be “linked” (for SDLT purposes) either with:

  • land transactions elsewhere in the UK; or with
  • Scottish land transactions which were subject to SDLT.

This means that where a transaction involves land in both Scotland and elsewhere in the UK, only the non-Scottish interests will be included in the SDLT return and if the price isn’t specified  for each property, it has to be apportioned on a just and reasonable basis to work out the non-Scottish amount.

Second, transitional provisions will apply to contracts entered into on or before 1 May 2012 to ensure that transactions are not taxed twice (by both SDLT and LBTT) and to ensure that tax is payable under LBTT if it is no longer payable under SDLT.

Finally, watch out for land swaps involving the exchange of land in Scotland for land elsewhere in the UK.  The usual SDLT “exchange” rules (which say that the chargeable consideration is the market value of the interest acquired) won’t necessarily apply.

So where does that leave us?

It’s clear that, just as the triggers for SDLT can be complicated and unexpected, LBTT will have similar complexities and – if you are entering into a transaction which will relate to an interest in land in Scotland – you will need Scottish law advice in relation to LBTT.  As Scottish land law is already entirely different to the law elsewhere in the UK, you should already have Scottish legal input in any case.

So this year, if you have entered into or are about to enter into a transaction involving interests in land north of the border, April Fools’ Day is no laughing matter – it’s time to get bothered.

Posted in Real Estate News

MIPIM 2015: 750 ducks, 700 party guests, 100 balloons, 32 lawyers from 13 offices, 4 HL band members, 1 location…

Between 10th and 13th March 2015, 32 lawyers from 13 offices of Hogan Lovells attended MIPIM in Cannes, the world’s largest property conference and networking platform for all real estate professionals.

boat

Our annual after dinner MIPIM party – this year entitled ‘Rock of Ages’ – was held on the evening of Wednesday 11th March, on the quayside by the Motor Yacht, Fairbird. Our legendary Hogan Lovells rock band performed a two hour set covering classic anthems spanning the history of rock ‘n’ roll. This year’s party attracted 700 attendees and lasted until the early hours of the morning.

MIPIM band cropped

Our yacht was a focal point for many meetings with clients and contacts, as was our stand in the Palais des Festivals which proved an attraction in itself thanks to the reappearance of the famous Hogan Lovells’ ducks.

ducks

Also launched at MIPIM were our Global Investor Guide and London Investor Guide, new publications recently produced in partnership with Estates Gazette. Digital versions can be found here:

At the launch of the London Investor Guide a panel debate was organised by Estates Gazette in which our global head of real estate, Jackie Newstead, participated alongside architect Sir Terry Farrell and representatives from Capco, City of London Corporation and Cushman and Wakefield.

The Global Investor Guide was launched at Cushman & Wakefield’s lunch party at MIPIM. Click here to watch an interview with Jackie Newstead and our New York partner, Lee Samuelson.

MIPIM 2015 may have drawn to a close but preparations will soon be underway for MIPIM 2016!