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Keeping It Real Estate

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

Posted on By Laura Oliver Posted in Real Estate News

Flooding: A Stay of Execution for the Statement of Principles

The Statement of Principles on the Provision of Flood Insurance, an agreement currently in place between the Association of British Insurers and the government which committed insurers to provide affordable flood cover for domestic and small business premises, was due to expire at the end of this month, June 2013.  

Over the past year, negotiations over the future of flood insurance between insurers and the government have been variously described as “constructive”, “arduous and difficult” and “urgent”.  Now they are apparently at “an advanced stage”. 

Finally in May this year we had a stay of execution (of sorts).  The ABI agreed that its members would voluntarily continue to offer flood insurance to homeowners until the end of July.  The question is whether the additional month will enable the ABI and the government to resolve what they have been unable to resolve over the preceding year.

If an agreement cannot be reached and the ABI and the government do not agree a further extension, the ramifications could be significant for all properties at risk of flooding, not just the 200,000 designated as high risk.  Without such agreement, UK flood insurance will move towards a market-based approach in which insurance premiums will be proportionate to actual risk.  Flood insurance for such properties may become difficult to obtain or it may become prohibitively expensive.  In turn, this could make selling such properties difficult as lenders will not lend against uninsurable properties.  The prospect of “unsellable homes” is not one which the government wants to entertain. 

The Statement of Principles does not cover commercial properties other than those qualifying as “small business premises”.  In the commercial sector, the cost and availability of flood insurance is already subject to a market-based approach.  Industry experts, including the BPF, have recently expressed concern that with increased incidences of flooding and without intervention  from government, commercial flood insurance could become a real area of concern for the real estate industry.

Any alternative to opening flood insurance to the free market will require legislative action and it is certainly not something that the government could do quickly or without the risk of alienating the insurance industry if an agreement is not reached.  In the meantime, 2012 was the wettest year on record in England and Wales and the Environment Agency predicts that by 2035 the number of properties at significant flood risk will rise by 350,000.  It is to be hoped, therefore, that the government and the ABI will resolve their differences and announce a solution quickly.

Posted on By Nicholas Roberts Posted in Real Estate

Move along squatters, investors in residential property also need legislative reform

After press reports of police up and down the country taking action to remove squatters from residential accommodation, perhaps the government should now turn its attention to the legislative pitfalls awaiting potential investors in this sector?

The Leasehold Reform, Housing and Urban Development Act 1993 offers rights to those who own leases of residential flats with a term of over 21 years. Such tenants can require their landlord to extend their term of occupation for a further 90 years by swapping their old lease for one at a peppercorn rent on paying a premium set by a statutory formula. The devil in the detail is that this right to “enlarge” can apply to tenants who are non-resident and own multiple flats.   This was made clear in the 2008 case of Howard de Walden Estates Ltd v Aggio. In that case it was decided that a tenant under a long lease of a whole block of flats, without long underleases, was entitled to claim the benefit of the Act in relation to each and every one of those flats.

Of course, such conversion would come at a price as a premium would have to be paid for each lease extension. However, the value of these extended leases on the open market may well justify the cost of conversion (as well as the complication of not being able to extend the lease over the common parts). The landlord might understandably see the conversion as being a misuse of legislation designed to protect the interests of people who own leases of their own homes.

This highlights another unintended consequence of the legislation having been extended to corporates in 2002 by removing the prerequisite that the tenant is in occupation of the property.  We have already blogged on the Hosebay decision, which was the latest in a line of cases which arose out of that amendment to the legislation.  There is a case for arguing that the legislation should be revisited with a view to limiting its application to individual resident tenants or, alternatively, expressly excluding from the right to enlarge all owners of leases which comprise multiple flats.

A carefully designed and complex legal structure can prevent the rights accruing but reform would simplify the entire process and avoid costly disputes and perceived injustices. Squatters may be on the run, but they are not the only ones capable of wresting control of valuable properties away from their owners.

Posted on By Edward Long Posted in Planning

Living in an office block near you …

A controversial new law allowing the conversion of office space into residential development without planning permission took a further twist on 9 May 2013 when Secretary of State for Communities and Local Government, Eric Pickles, announced that only 17 local authorities would be exempt from the new rules.  This represents only a small number of those local authorities who applied for an exemption and is a mark of the Government’s determination to “bring back life” to outdated, redundant or underused offices and produce knock-on benefits to the wider community.

The local authorities that have been given this power are located across the country, but by far the majority fall within central London. The authorities within London are: the City of London, the London Boroughs of Camden, Hackney, Islington, Kensington and Chelsea, Lambeth, Newham, Southwark, Tower Hamlets, Wandsworth and Westminster. Outside of London the authorities are: Manchester City Council, the borough councils of Ashford (Kent), Stevenage and Vale of the White Horse, along with the district councils of Sevenoaks and East Hampshire.

Although the exemptions will be welcomed by the successful local authorities, critics will remain concerned that the changes could potentially damage the availability of office space, particularly in high-value residential areas where office space would be readily sacrificed in favour of further residential development.  

In a large number of instances, conversion will not be possible without additional works to the building which are likely to require planning permission.  In those cases where there is no need for further works, there will be no ability for the local planning authority to secure financial contributions towards social infrastructure, affordable housing etc.  Therefore, concerns remain as to the benefit of such conversions and whether the new laws will increase the pressure on existing infrastructure.

Posted on By Shanna Davison Posted in Real Estate News

The fight continues to stamp out squatting

Since 1 September 2012, it has been a criminal offence to squat in residential property, punishable by a maximum prison sentence of 6 months and/or a fine of up to £5,000 (you may remember my blog posted on 25 October 2012 about the first prosecution). Many in the property industry feel that the law doesn’t go far enough and the new offence should cover squatting in commercial property.

Following the introduction of the new law, there has been a reported rise in squatters taking over commercial property, particularly empty properties earmarked for development. It can take some time to get a development scheme underway whilst the property owner works up plans, puts finance in place, obtains planning permission, secures vacant possession of other properties and so on. This creates a window of opportunity for an organised group of savvy squatters to move into the empty property, which can bring the development grinding to a halt. The property owner cannot force his way back into his building to remove the squatters as this would be a criminal offence.  The law is designed to stop unscrupulous landlords throwing innocent tenants out of their homes but, for commercial landlords faced with squatters, it can be a source of huge frustration. They have no choice but to seek the assistance of the courts to recover their buildings.

The Government’s guidance advises that “if you follow the right procedure, you can usually get [a possession order] issued by the courts within a few days”. Unfortunately, this fails to take into account availability: busy county courts may not be able to consider the matter for several weeks. Legal costs can be substantial and there is rarely any hope of enforcing a costs order against the squatters – most of time, property owners will not even know who they are.

Against this unsatisfactory backdrop, Mike Weatherley, the MP for Hove and Portslade, has called on Parliament to criminalise squatting in commercial property. In response, Damian Green, the Minister of State for Policing & Criminal Justice, indicated that the Government is actively monitoring the continuing problem of squatters in commercial properties. Earlier today, the British Property Federation reported that Justice Secretary, Chris Grayling, will be writing to MPs seeking evidence on the issue.  Although sympathetic to the plight of property owners, the Secretary of State is said to be as yet undecided whether to criminalise commercial squatting.

The industry will be pleased that the issue is back on the agenda, but may be left wondering why it was not given greater consideration by the Government when they consulted on it as recently as 2011.

Posted on By Edward Long Posted in Planning

Planning a Planning Judicial Review? Better get your skates on!

On 23 April, the Government announced proposals for the reform of the judicial review procedure, including eye-catching plans to slash the time limit for bringing judicial review claims.  This follows the publication of consultation proposals late last year designed to address the large volume of unmeritorious cases whose effect, increasingly, is to clog up the courts and, in the planning context, frustrate the delivery of development schemes. 

The time limit for issuing proceedings for judicial review will be reduced from three months to six weeks in cases relating to the grant or refusal of planning permission.

These changes will be controversial.  The consultation proposals met with significant opposition, including from those who argued that the timetable for judicial review cases is already tighter than for other types of litigation. However, many will be relieved that the Government is finally taking action.  The Government expects to bring forward these changes “as soon as possible.” In addition, there may be scope for further reform to streamline the judicial review process for “crucial infrastructure and housing projects”.  Any measures in this respect are likely to be published by summer 2013.

Posted on By Hogan Lovells UK Real Estate Posted in Real Estate News

Rights to Light- the Great Debate

On 23 April 2013 Hogan Lovells hosted a lively debate at which Law Commissioner Professor Cooke, Liz Peace, Chief Executive of the BPF, John McGhee QC, Gordon Ingram, rights to light specialist surveyor, and Gerald Kaye, Development Director of Helical Bar expressed conflicting views on proposals made by the Law Commission in its recent consultation paper.  The debate was chaired by Dellah Gilbert of Hogan Lovells.

Rights to light have become an increasingly contentious and confusing area in recent years to the frustration of developers.   The situation has not been helped by recent cases, in particular, the 2010 case of Heaney in which a developer was ordered to demolish a part of the completed development which infringed upon a neighbour’s right to light.  This case sent shock waves throughout the industry as many had assumed that damages rather than an injunction would be the appropriate remedy.  The developer had acted proactively to negotiate a resolution but ultimately had lost out to an owner who refused to negotiate, wanting to receive a greater sum in damages.

In the hope of achieving greater certainty and transparency, the Law Commission is consulting on proposed changes to the law. The Law Commission’s proposals seek to balance the need to protect the amenity value of rights to light against the needs of developers.  The four main proposals are:

  1. Abolish rights to light being acquired by prescription (i.e. long use) in the future.
  2. A new statutory test to clarify when damages should be granted instead of an injunction.
  3. A new statutory notice procedure requiring neighbours to make clear to developers whether they will be applying for an injunction to prevent an interference with their rights to light.
  4. Allow developers to apply to the Lands Tribunal to extinguish or modify rights to light that are obsolete or have no practical benefit.

The panellists were generally in favour of changing the law although there was a range of views as to what these changes should entail. The question of whether rights to light should be taken away from the courts and left to the planners proved a particularly contentious area.  There was also much debate over whether the damages awarded should be a percentage of the profit and therefore quite substantial or reflect the loss in value to the neighbour’s property and therefore relatively small.

Liz Peace emphasised the need to receive comments on the consultation paper by 16 May 2013 as, without financial evidence of the injustices felt by those affected by rights to light issues, the government is unlikely to change the current law. The BPF has prepared an Impact Proforma, which can be used to submit such evidence and which it will collate and use in its response to the consultation:  click here for a copy. Hogan Lovells will also be sending a written response and we would be happy to include your views.  Alternatively, representations can be made direct to the Law Commission.  Full details of the consultation can be found at http://lawcommission.justice.gov.uk/.

Whatever the outcome, it remains debatable whether any reforms can ever truly balance the competing interests of property owners and developers or even whether the proposed changes will ever see the light of day.

Posted on By Julia Heyn Posted in Real Estate News

Countdown to a free market for flood insurance?

The countdown is on. There are now only two and a half months before the Statement of Principles on flood insurance comes to an end.  The Statement is an agreement between the government and the Association of British Insurers in which the insurance industry agreed to provide flood cover for domestic and small business as widely as possible.  It expires at the end of June of this year.  Worryingly, the government seems to be no further forward in putting in place a new scheme to enable high flood-risk areas to obtain affordable insurance.

In the week before Easter, the Secretary of State for the Environment, Owen Paterson, appeared before the Environment, Food and Rural Affairs Select Committee on the same day as his floods minister, Richard Benyon, was answering a backbench debate on flood insurance in the House of Commons.

Notwithstanding this flurry of activity, we remain very much in the dark as to how the government sees this playing out and on what timescales. The comments at both the Select Committee and in the House of Commons are, however, enlightening in a couple of rather surprising ways.

First, Owen Paterson intimated that there was little point in coming to an agreement for the sake of it; instead, he dismissed the end of June cut-off as an artificial deadline that he will not be rushed to meet. This is at odds with the fact that his predecessor had previously acknowledged the importance of getting a new scheme in place well before this deadline. In what way is the deadline now irrelevant and artificial? Homeowners facing the prospect of being unable to obtain insurance as the rains keep coming would certainly disagree.

Secondly, Owen Paterson raised the possibility that primary legislation may be required as part of any solution. It is surprising that this has been raised for the first time by ministers only a couple of months before the expiry of the Statement, especially as it would be a tall order to enact any such legislation before the end of June.

So where does this leave us? The possibility of a free market for flood insurance come July cannot be dismissed. What does seem clear is that the government isn’t prepared to risk public money by underwriting any new scheme or risk having to announce an increase in insurance premium tax, both of which would be required for the scheme currently proposed by the ABI.

In the meantime, the latest proposal comes from Marsh, who have put forward a scheme dubbed “Flood Mu” where 50% of an insurer’s flood claims are mutualised across all insurers in proportion to their book size. The remaining 50% would remain with the holding insurer. Flood Mu has, however, been slated by the ABI.  The ABI claims that Flood Mu would not safeguard affordability (because it would not place a maximum cap on flood premiums), nor would it safeguard availability (because insurers would still hold 50% of the risk and so it is difficult to see why they would want to cover high risk homes), nor would there be any financial incentive for the government to invest in flood risk management (because all of the risk would lie with the insurance industry). For that final reason only, maybe the government will want to give Flood Mu some legs in the debate?

For now at least, we will all have to wait and see.

Posted on By Paul Tonkin Posted in Case Updates

Stand and Deliver – Actual sale of freehold required for landlord to operate break clause linked to overage payment

HFI Farnborough LLP and others v Park Garage Group plc [2012] EWHC 3577 (Ch)

HFI was the landlord of four petrol stations and Park was the tenant.  The leases contained a break clause permitting the landlord to terminate on three months’ notice. However, in each case there was a separate overage agreement which placed restrictions on the power to exercise the break clause and made provision for overage payments to Park in the event of a sale of the property by the landlord. In July 2008 the overage agreements were replaced with deeds of variation. The effect of the variations was to add a provision to the leases which meant that the break clauses could not be exercised “unless the value of the Premises on the date the Break Clause is exercised exceeds the Price”. The “Price” was the price for which the premises had been purchased by HFI. If HFI exercised the break options, it would have to pay overage to Park within 7 days of completion of the sale.

HFI purported to serve break notices to determine the leases on 16 July 2012. The notices were accompanied by a letter from a valuer stating that the value of the premises exceeded the Price.  HFI denied that it was obliged to sell the properties to operate the break clauses and it subsequently emerged that HFI was planning to grant new leases to a third party. Park objected to the break notices arguing that the intention of the parties was that break notices would only be served in the context of a sale by HFI, in which case Park would receive its overage. Park argued that the leases should be construed so as to make the exercise of the break options conditional upon a sale or, alternatively, that they should be rectified to achieve this.

The Court agreed with Park. The intention of the parties from the admissible background facts was that the break options and the overage provisions were part of the same bargain. There was no commercial reason why Park should have agreed to the addition of the break rights in the leases if it did not benefit from the overage provisions and similarly, no reason why the break would be conditional upon the value of the premises exceeding the Price. The only logical reason for this condition was to ensure that Park would benefit from the overage provisions, which must have anticipated a sale of the premises. Even if this was wrong on construction, the judge found that he would have ordered rectification of the leases on the basis that it was the common continuing intention of the parties that the exercise of the break options would be conditional upon a sale of the premises.

Posted on By Paul Tonkin Posted in Case Updates

Breaking up is hard to do – Operation of conditional break clause ineffective without actual payment of break penalty

Canonical UK Ltd v TST Millbank LLC [2012] EWHC 3710

Canonical was TST’s tenant under a lease. The lease contained a break option entitling Canonical to terminate the lease on six months’ notice provided the rent was paid up to and including the break date, there was no breach of covenant, and Canonical paid one month’s rent as a break penalty. Canonical gave six months’ notice to terminate the lease on 22 August 2012. Canonical paid the full June quarter’s rent and service charge and vacated the premises on 22 August. However, it failed to pay the break penalty. TST therefore claimed that the break had not been effective. Canonical argued that it was only required to pay rent up to 22 August and, as such, the balance of the rent it had paid could be appropriated in payment of the break penalty. In particular it relied upon wording in the lease requiring rent to be paid “proportionately for any part of a year”, arguing that this entitled it to apportion payment of rents up to the break date.

The court held that the break was not effective and the lease therefore continued. The words “proportionately for any part of a year” referred to the first and last years of the term.  They did not affect the tenant’s obligation to pay a full quarter’s rent on 24 June 2012 because at that date it could not be certain that the break conditions would be satisfied and the lease would determine on 22 August 2012. The full June quarter’s rent was therefore payable and no surplus could be appropriated to the break penalty. Even if the full quarter’s rent had not been due, the tenant had not taken any steps to appropriate the surplus to the break penalty prior to the break date so it could not rely upon payment by appropriation.

Posted on By Paul Tonkin Posted in Case Updates

Signed, sealed, delivered – service deemed to take place on date of receipt rather than date of posting, in absence of contrary intention

Freetown Limited v Assethold Limited [2012] EWCA Civ 1657

Freetown and Assethold owned neighbouring buildings in London. Freetown served notices on Assethold under the Party Wall Act 1996 in relation to proposed development works. The parties each appointed a surveyor and those surveyors in turn applied to a third party surveyor to make an award. The award was posted on either 22 or 23 July 2011 and was received by Freetown on 25 July 2011. Freetown appealed against the award on 8 August 2011. Under the Party Wall Act 1996, an appeal must be lodged within 14 days of service of the award. If the 14 days ran from the date of posting then Freetown’s appeal was out of time. If, however, it ran from the date of receipt then Freetown was still in time.

The judge at first instance applied a Court of Appeal decision in relation to the Landlord and Tenant Act 1927 and held that the 14 days ran from the date of posting. Freetown appealed.

The Court of Appeal allowed the appeal. In the absence of a contrary intention, the matter was governed by section 7 of the Interpretation Act 1978, which provided that documents served by post are deemed to have been received when they would arrive in the ordinary course of the post. The Court of Appeal held that the relevant provisions of the Party Wall Act did not indicate any contrary intention and, given that the time limit in question was just 14 days, it was very unlikely that it could have been intended that that time limit should be eroded by deeming service to take place on the date of posting rather than the date of receipt.  The Party Wall Act could be distinguished from the Landlord and Tenant Act 1927 where the Court had held that a contrary intention did apply.