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Keeping It Real Estate

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

Posted in Case Updates

Is a chalet a chattel? The rules laid bare

In Spielplatz Ltd v Pearson and another [2015] the Court of Appeal had to decide whether a chalet was a chattel (movable possession) or had become part of the land on which it was situated.  The Court decided it was part of the land.

In 1992, the freehold owner of a naturist resort granted an annual tenancy of a plot of land to the Pearsons. The tenancy agreement described the premises as “the plot or clearing in the grounds”.  The previous tenants had built a chalet on the land and the Pearsons separately purchased the chalet from them.

During 2011 and 2012, the Pearsons carried out extensive renovations to the chalet but after some unfriendly correspondence between them and the freeholder, the Pearsons were served with a six-month notice to quit.

The case revolved around whether the chalet formed part of the plot of land. If so, the tenancy would include both soil and chalet and not just the land itself. This would make it a tenancy of a separate dwelling and protected under the Housing Act 1988as an assured tenancy.   A landlord of an assured tenancy can only recover possession by following the procedures set out in the Act and demonstrating one of the statutory grounds for possession. Spielplatz had done neither as it asserted that the Pearsons had an unprotected tenancy of the plot which it had ended by the notice to quit. The Pearsons won the first round. The freeholder appealed.

The Court of Appeal referred to the well-established House of Lords decision in Elitestone Ltd v Morris [1997] 1 W.L.R. 687, which held that whether a structure could be removed from the land without being demolished was of significant importance. If not, then the structure could not have been intended to remain a chattel and must have been intended to form part of the land.

Expert evidence adduced at trial had indicated that the chalet could not be removed without dismantling it into its constituent parts.  This evidence, together with the fact that the purpose of the chalet was to enable its occupiers to enjoy the amenities of the land, left the Court of Appeal in no doubt that the chalet was part of the land.  Further, the fact that the tenancy agreement did not refer to the chalet did not prevent the chalet from becoming part of the land.

The Court of Appeal reiterated that it was immaterial that both parties believed that the chalet belonged to the Pearsons to sell on to any purchasers of their lease.  This misplaced belief, the court said, “amounts to nothing more than evidence of their subjective beliefs and intentions upon which Elitestone shows no reliance can be placed”.

The result was that the Pearsons had the protection of statute and the freeholder’s possession claim failed.

The question of what has become part of the property and what is merely a chattel is frequently relevant to commercial property in the field of dilapidations claims.  In the residential sphere, any landlord finding itself in a similar situation to Spielplatz may wish to comply with the requirements of the Act before seeking to recover possession as otherwise it could find itself feeling rather exposed.

Posted in Real Estate News

UK Property will not be a safe haven for “dirty money”

Prime Minister, David Cameron recently announced his determination to tackle “dirty money” in UK property.  However, can such plans deliver the substance to bring about meaningful change?

The National Crime Agency estimates that £5 billion a week is being laundered in Britain.  The government is concerned that money laundering by foreign criminals is skewing the property market where criminal cash is used to buy UK property.

London is an area of particular concern and it is estimated that 36,000 of the 100,000 properties in England and Wales owned by offshore companies are in London. By purchasing property in so-called “corporate wrappers”, owners are able to keep their details secret.  In total about £122bn of property in England and Wales is owned by offshore companies.  Whilst Mr Cameron was quick to point out that only a small percentage of such property may have been bought by criminal cash, the strength of the views expressed in his speech indicates that the Prime Minister sees this issue as a sizeable one.

Whilst a consultation will consider the best ways of making property ownership by foreign companies more transparent, Cameron has already revealed some policies he will seek to implement.

One such proposal is that the Land Registry may collate additional data relating to foreign companies owning property in England and Wales.  Cameron has asked the Land Registry to publish data this autumn showing which foreign companies own land and property in England and Wales which is expected to reveal some 100,000 titles.

The government has already legislated to ensure that from April 2016, there will be a publicly accessible central registry showing who owns and controls UK companies.  At present, a UK company’s annual return lists those people holding legal title to shares, but not beneficial owners such as those who own a company through a trust arrangement, or those who otherwise control a company.  Companies which are subject to the FCA’s Disclosure Rules and Transparency Rules (such as listed companies) are obliged to disclose information about their ownership under that regime and will therefore be outside the scope of the new central register.  Through the introduction of a central registry, Cameron hopes to “open up a new era of corporate transparency in Britain.”  The Prime Minster has recently gone further by saying that he wants to look at whether foreign companies investing in the UK can be required to “step up to the same level of transparency”.

The Prime Minister hopes that greater transparency will make it easier to trace funds used to buy property, allowing money laundering to be more easily detected. However, critics say it is difficult to see how such policies will achieve the goal, given the lengths launderers go to in order to disguise the identities behind foreign shell companies and the origins of their funds.

In practice, it remains to be seen how such proposals would be implemented at the Land Registry and whether the practicalities can match the rhetoric.  Given that it is already under pressure and dealing with significant backlogs due to reduced staff and the upturn in the market, new proposals potentially requiring the gathering and collating of additional data may prove onerous.

Posted in Case Updates

Business rates: the Supreme Court decides on rating practice for separate floors in a building

Business rates are a tax on non-domestic property, with each property unit or “hereditament” being subject to a rateable value on which the tax is calculated.

Where different parts of an office building are occupied by the same business, those parts have usually been treated as a single hereditament if they were contiguous (sharing a common border), but as separate hereditaments if not. The Supreme Court has now considered how to treat non-contiguous floors of a multi–let building occupied by a single tenant.

The decision

The ratepayer occupied the second and sixth floors in a modern eight-storey office, held under separate leases. The Court unanimously held that the floors comprised two separate hereditaments which meant that business rates would be assessed accordingly.

The Court set out three broad principles:

  • The geographical test: based on visual or cartographic unity, would the two storeys constitute a single unit on a plan? If there is no direct access between them other than via the common parts of the property, this is strong indication that they are separate hereditaments for rating purposes.
  • The functional test: is the use of one necessary to the effectual enjoyment of the other?
  • The objective necessity test: are the separate parts objectively interdependent? This is an extension of the “functional test”, clarifying that it does not depend on the use the ratepayer chooses to make of the property, but on its objectively ascertainable character.

Lord Neuberger described a hereditament as being a self-contained piece of property, all parts of which are physically accessible from all other parts without having to go onto other property.

As it was necessary to pass over common parts to move from the second to sixth floor and the separate floors could not be drawn around together on a plan, the floors were two distinct properties just as if they had been on opposite sides of the street.

Comment

Although the case concerned non-contiguous floors, the Court made it clear that contiguity is not the decisive criterion and the test for whether or not there is a single hereditament applies in all cases.

Whilst the broad principles have clarified the law, there could be further scope for argument as applying them will call for factual judgement.  Those arguments may well be forthcoming in future cases, as tenants of non-contiguous floors contend with the higher business rates liabilities that are likely to result from this decision

Case:  Woolway (VO) v Mazars LLP [2015] UKSC 53 [2015] PLSCS 240

Posted in Real Estate News

Increased burden on landlords as government tackles illegal immigration

The government has announced new measures that will affect landlords of residential property.  If introduced, landlords or their agents must check the identity and immigration status of their tenants.  More importantly, landlords in England will have to evict tenants who have no right to remain in the UK and could face imprisonment if they fail to do so.

Immigration checks have been trialled in the West Midlands since last year with the Home Office set to evaluate the scheme.  Although no report has yet been published, the government announced on 3 August that it intends to extend the scheme across the country through the forthcoming Immigration Bill.

In the UK it is estimated that 85% of immigrants rent properties in the private sector and the government is determined that landlords check whether tenants are legally entitled to be in the country or not.  The current trial includes all tenancies (including assured shorthold tenancies) granted for up to seven years  The measures may affect commercial landlords who, for example, let residential flats over retail units on short term leases.

Landlords or their agents who fail to carry out the necessary checks and processes will face fines and the threat of criminal sanctions.  These could be up to 5 years’ imprisonment for repeat offenders or landlords who fail to remove illegal immigrants from their property plus the possibility of rent confiscation under the Proceeds of Crime Act.

To remove a person from a property currently requires a court order.  The government proposes to make eviction of illegal immigrants easier for landlords, in some circumstances without a court order.  The precise detail of how this will work is unclear as the Immigration Bill has yet to be published. However, the government envisages a notice being issued by the Home Office confirming that the tenant no longer has the right to rent in the UK after which the landlord would be expected to ensure the tenant leaves the property.

Whilst the responsibility for rent checks will no doubt be absorbed by letting agents as part of the due diligence process on prospective tenants, the obligation on landlords to remove tenants and monitor immigration status will be particularly burdensome.  Increased  costs may be passed down to tenants in the form of rental increases.  Faced with the threat of fines and a custodial sentence, not to mention the additional layers of bureaucracy, landlords may well react overcautiously when it comes to letting. The Immigration Bill needs to ensure a fair balance is reached between the government’s determination to tackle illegal immigration and the burdens placed on landlords in carrying out that policy.

For more detail on the trial scheme read our December 2014 blog by clicking here.

Posted in Planning

Raising the roof reform likely to raise eyebrows

Since the Government published its Productivity Plan earlier this month, the more eye-catching proposals for planning reform have been the subject of extensive commentary.  Plans to create a “zonal system” for the development of brownfield land, for example, have been widely discussed, as has the notion of introducing housing into the regime for infrastructure planning.

Meanwhile, other measures have received less attention.  One of those is the somewhat bizarre proposal to allow the upward extension of buildings in London without planning permission.

Such a measure would apparently create permitted development rights to allow vertical extensions.  These would be limited to the upper height of “an adjoining building” and apply only where “neighbouring residents do not object.”

The purpose of the changes is to help London to “build up” and thus reduce the need to “build out”, “helping to provide homes for Londoners while protecting the countryside”.

This is a laudable aim, but the proposal raises a host of questions.

First, the common purpose of permitted development rights is to provide a procedural shortcut for development that is acceptable in principle.  But it is far from clear that this proposal will provide such a shortcut.  This is not only because of the consultation that will be necessary in order to allow “neighbouring residents” the opportunity to object, but also because it seems highly unlikely, given the climate in which most applications are received, that no such neighbours will do so.  Given that local hostility towards development proposals is so typical, a measure that confers development rights only in the absence of a single objection is likely to be academic in all but the rarest cases.

Second, it is not clear how the measure will address the range of complex environmental factors that might arise independent of neighbour considerations.  The most obvious is the protection for important views of the London skyline; there is no indication how this and other issues will be dealt with.

Finally, and whilst at the moment the measure remains in its barest outline, many in the industry – the London boroughs in particular – will be keenly awaiting further detail on some important questions: what category of neighbour will be notified, and entitled to lodge a terminal objection?  How will the height limitations work in practice – what if, for example, adjoining buildings are different heights?  Will there be a prior approval procedure to deal with matters such as external appearance (often important to conserve local character) and fenestration (to protect privacy)?  We await further detail on these and other important questions.

Posted in Real Estate News

Pushing the Boundaries

A private member’s bill proposes mandatory expert determination of boundary disputes by surveyors

A private member’s bill entitled ‘Property Boundaries (Resolution of Disputes) Bill’ would force disputes over boundaries to follow an expert determination procedure involving the appointment of up to three surveyors.

When would the new scheme apply?

Under the Bill, where a landowner wishes to establish the position of a boundary or the location and extent of a right of way, he must follow a set statutory procedure to do so.

The Bill is also to apply where:

  • a claim has been issued in court alleging either trespass by a neighbouring owner or obstruction of a right of way and in either case a defence has been filed;
  • a claim has been issued in court for a declaration concerning a boundary or right of way; or
  • an application has been made to the Land Registry for a determination of the exact location of a boundary.

The procedure

The landowner must serve notice on his neighbour or the beneficiary of the right of way with a plan showing what he thinks is the extent of the boundary/right of way.  The neighbour/beneficiary can either consent or object within 14 days.  If they object or fail to respond in this relatively tight timescale then a ‘dispute’ is deemed to have arisen.

What happens next?

The parties must then appoint an agreed surveyor.  If they cannot agree, they must each appoint a surveyor who will then appoint a third surveyor.  Either the agreed surveyor or at least two of the three surveyors will then make a determination and award.

What if the surveyors get it wrong?

Either party can appeal within 28 days of the award, but only to the Technology and Construction Court.

Problems with the Bill

Whilst the apparent intention behind the Bill – to keep more boundary disputes out of the courts – seems laudable, there are some potential problems with the proposed new scheme:

  • No other form of ADR is permitted despite the fact that earlier this year the Ministry of Justice thought “mediation seems to be quite successful where it is used and may be capable of wider use“.
  • The Ministry of Justice also considered that it was a “most radical proposal…to establish a new independent expert determination system based on the Party Wall etc. Act 1986” and “[did] not think that the case has been made for such a radical departure“.
  • The Bill takes no account of the complexity of boundary disputes.  It is not infrequent to have to carry out a detailed review of title deeds and other documents which are usually outside the remit of a surveyor.
  • As drafted, parties already subject to proceedings, no matter how far advanced, will be subject to an automatic stay.
    What happens if the applicant cannot identify the neighbouring landowner?  An application to the Land Registry to determine an exact boundary is more flexible in this respect.

The Bill is listed for a second reading on 11 September 2015 where the members of the Lords will have their first opportunity to fully debate it. However, the key stage will be the Committee stage after the second reading where amendments will be proposed.  Observers are no doubt waiting with bated breath to see whether the Bill will survive the second reading and subsequent Committee stage unscathed.

Posted in Planning

Government blows cold on wind energy

Following its manifesto commitment to “give local people the final say” on applications for onshore wind developments, the government has made controversial policy changes.  Although these directly affect only the wind industry, they are important to the wider development sector because of their implications for the way in which other types of contentious development might be dealt with in the future.

The new policy prevents the grant of planning permission unless “following consultation, it can be demonstrated that the planning impacts identified by affected local communities have been fully addressed and therefore the proposal has their backing.”

But it is far from clear what the new policy requires in practice.  In particular, what does “fully addressed” entail, and what amounts to the requisite “backing” of local communities?

Does a developer merely have to offer evidence to demonstrate that local objections, when evaluated objectively on their merits, do not justify the refusal of planning permission?  Or must it somehow be shown that local people actually support the project, or at least that objectors have been mollified by the developer’s responses?

The former would in practice add little to the current policy position, and would plainly fall some way short of the manifesto commitment.

On the other hand the alternative would be wildly inconsistent with the proposition that lies at the heart of the planning system – namely that development proposals should be dealt with on their merits by council planning officers or committees, acting objectively.  And it would almost certainly lead to entirely acceptable developments being rejected for reasons that would traditionally be unsustainable on appeal.

Whatever the intended approach (the Secretary of State’s view will become clear in due course as cases are determined on appeal), Whitehall’s message is clear.  Wind energy is a politically controversial technology and one whose proliferation the government cannot afford to be associated too closely with.  In the circumstances, many will argue that to single out a particular development category in such a way represents an unfortunate politicisation of the planning system, and also that it sets a precedent for the comparable treatment of similarly contentious development types in the future.  There is considerable force in such a proposition.

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