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Keeping It Real Estate

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

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)

Posted in Planning

Secretary of State left feeling sheepish over Shepherd’s Bush Market CPO

In Horada v Secretary of State for Communities and Local Government the Court of Appeal has overturned a High Court decision relating to the Compulsory Purchase Order for the redevelopment of Shepherd’s Bush Market.  The Court of Appeal has held that market traders who objected to the CPO were substantially prejudiced by the failure of the Secretary of State (“SoS”) to give adequate reasons when he confirmed the CPO. An Inspector had previously recommended that the SoS should not confirm the CPO after a public inquiry.

Background

In 2013, a CPO was made by Hammersmith and Fulham Council to facilitate the regeneration of Shepherd’s Bush Market. Following over 200 objections, a public inquiry was held where the Inspector recommended the CPO not be confirmed by the SoS. This was because the guarantees and safeguards (such as rent levels and retail unit design information) in the proposed scheme were:

not sufficiently robust to be assured that genuine opportunities exist for current traders or shopkeepers (or similarly diverse businesses) to continue trading in the market“.

However, in his decision letter, the SoS said that he was “satisfied” that appropriate safeguards were in place to protect existing traders through planning conditions and section 106 obligations. The High Court found that the SoS had not erred in law.

In the Court of Appeal, the main argument for the claimant – a trader representing the Shepherd’s Bush Market Tenants’ Association – was that the SoS’ decision letter failed to give adequate reasons for disagreeing with the Inspector.  Adequate reasons must be given under the statutory rules governing CPO inquiries. The SoS argued that the recipients of his letter were aware of the relevant issues and therefore no further explanation was required.

Decision

The Court held that the SoS had failed to give the adequate reasons required by law. The judges accepted that previous cases indicated that it was not necessary for the SoS to provide a “paragraph by paragraph” response to an Inspector’s decision and that the SoS’ decision letter was intended for recipients that were well-informed. However, they stated that a “reader of the decision letter would have had to have been not only well-informed but also psychic” to have understood the SoS’ reasoning from the “two laconic sentences” that were cited as his explanation.

Show your working

This case demonstrates the importance to developers of the SoS providing substantiated reasoning in decision letters – especially where the SoS is going against an Inspector’s recommendation. Indeed, the Court argued that the SoS’ decision letter contained only “bald assertions”.

The failure of the SoS to include such reasoning can cause significant delays to projects while uncertainty over the success of legal challenges persists.

Case: Horada v Secretary of State for Communities and Local Government & Ors [2016] EWCA Civ 169 (18 March 2016)

Posted in Real Estate News

Flood Re – a damp squib or a torrential success?

The snappily named Flood Re was officially launched this week on 4 April 2016. The reinsurance scheme has been designed by the government and insurance industry to secure affordable insurance for households in flood risk areas. The government anticipates the scheme may ultimately benefit up to half a million households in areas at high risk of flooding.

Flood Re is a reinsurance company.  Homeowners will continue to buy home insurance from insurers or insurance brokers and will not deal with Flood Re directly. Insurers who have signed up to the scheme (currently about half of home insurers) are now able to pass the flood risk element of an insurance policy on to Flood Re.

The costs of the scheme are funded by a combination of an annual tax (amounting to £180m paid by all insurers in the UK authorised to write home insurance; a cost which most insurers are expected to pass onto their customers) and a charge for each policy which is passed into the Flood Re scheme. When a policy is passed into the scheme, the insurer will be charged a fixed price, dependent on the property’s council tax band. For higher risk homes this fixed price will be artificially lower than the market price (which is based on risk) and so the insurer should be able to offer the householder a lower price for the flood-risk element of its insurance policy.

The scheme is not without controversy. Various properties are excluded, including business premises, premises which are rented out (and not occupied by the landlord) and properties built after 1 January 2009. Critics also argue that the scheme does nothing to address the causes of flooding or prevent flooding in the first place; a valid criticism and a challenge that all those involved in land use, ownership and management need to grapple with. But for the thousands of homeowners who are now suffering from severe flooding with increasingly alarming regularity, the introduction of Flood Re will surely be most welcome.

Posted in Real Estate News

Competition law challenges to restrictive covenants

A property developer has forced Tesco to agree to release it from a restrictive covenant by challenging its enforceability in court on competition law grounds.  The resulting settlement demonstrates how parties can use competition law to challenge restrictive provisions in land agreements and how a new fast-track court procedure offers a quick and cost-effective route for doing so.

Background

In 1997, Tesco bought land from a property developer in order to develop a superstore in Whaley Bridge, Derbyshire.  Tesco obtained a restrictive covenant preventing the developer from using the surrounding land for the sale of food, convenience goods or pharmacy products.  In 2015, the developer entered into a conditional agreement with a discount chain to build a new shop on the land – provided that the covenant was released.

Following the failure of commercial negotiations with Tesco for the release of the covenant, the developer brought a claim before the Competition Appeal Tribunal (the “CAT”) to challenge the clause as anti-competitive under the Competition Act 1998.  (Case 1247/5/7/16, Shahid Latif & Mohammed Abdul Waheed v Tesco Stores Limited.)

Legal context

Since 6 April 2011, restrictive covenants (and other restrictions on the use of land) have been subject to the full rigour of UK competition law – regardless of when they were entered into and what the market circumstances were at the time.  Despite this change in law, many potentially anti-competitive existing restrictive covenants remain in place and new ones continue to be agreed.

In 2010, following a three-year investigation, the Competition Commission (now the Competition and Markets Authority, the “CMA”) ordered that supermarkets remove restrictive covenants which stopped competitors entering local markets where there was little consumer choice and to cease to enter into them going forward.  Tesco was forced to remove restrictions across four sites.  A process was set-up by which existing restrictive covenants could be notified to the CMA for assessment.

But in this case, the developer chose to litigate the issue before the CAT instead.  This was in order to take advantage of changes to UK competition law last October which provide for a new fast-track procedure before the specialist CAT, meaning that simple cases can be heard quickly (within six months) and with capped costs.

The attraction of this route compared with the procedure under the 2010 Order referred to above is that it has a broader application (the 2010 Order narrowly defines the circumstances in which a covenant may be found to be anti-competitive) and that, by bringing a court claim, the developer could not only challenge the enforceability of the covenant but also seek damages, eg for the losses incurred as a result of its inability to develop the site (whereas an award of damages is not available under the 2010 Order).

It worked.  Tesco chose to settle the claim rather than defend it in the CAT, and the developer withdrew its claim last month.

More claims to come?

Since the case settled, the opportunity of the CAT to provide more clarity on the circumstances in which a restrictive covenant may be considered anti-competitive did not arise.  As such, the CMA’s guidance on the application of competition law to land agreements remains the most important reference point for assessing how the Competition Act 1998 applies in this context.

However, the case provides a salutary reminder that land agreements remain subject to competition law scrutiny.  It also demonstrates that there is now more than one relatively quick and cheap process by which parties can challenge the enforceability of restrictive covenants – and that, because of this, competition law can be used as an effective lever in the negotiation of land agreements.

Posted in Real Estate News

Hogan Lovells hosts 5th Retail Market Trends Summit

This week, stakeholders in the retail market heard experts’ views on the recent key developments in this sector.

Following a report entitled “Retail Market Trends: End of Year 2015” produced by The Local Data Company (LDC) Matthew Hopkinson, Director at LDC, presented on its key findings.

This was followed by a panel discussion of trends in the sector at large and possible forecasts of future developments. The panel was chaired by Damian Wild, Editor of Estates Gazette and included our own Anthony Newton, Michael Weedon of the British Independent Retailers Association, Andrew Angeli of CBRE Global Investors, and Ava Pascoe of The Retail Practice.

The report highlighted the growing strength of retail parks with a net increase of over 500 units across the UK in 2015. Conversely there was a net reduction in the number of high street units and a shifting of the balance between independents and multiple retailers in this location. Multiples saw a net decrease of 1043 high street units in 2015 whilst independents increased by 593.

The report also focused on the different challenges facing regions across the UK. The majority of regions saw more closures than openings in 2015 however the opening of the Grand Central Shopping Centre in Birmingham and Friars Walk in Newport saw both the West Midlands and Wales buck this particular trend.

Much of the panel’s discussion focused around the possible consequences of an exit from the EU in the forthcoming referendum. Whilst the panel were in agreement that a vote to remain would have very little direct impact on the retail sector, an exit from the EU was thought to be potentially very disruptive. Anthony Newton commented that “if the UK leaves the EU and decides to continue its relationship with the EU through a series of trade deals it may take up to five years to negotiate a stable relationship with the EU, at which time Sterling would be expected to stay volatile”.

Posted in Case Updates

Black Ant – Tacking and Further Advances

The Black Ant case relates to the meaning of “further advances” in the context of the anti-tacking provisions in the Land Registration Act 2002.  What is tacking and why is the case important?

Tacking is the means by which a lender is able to use its charge to “tack on” (meaning add) any further advances it makes to the amounts secured by the relevant charge ahead of any subsequent charge holders. The Land Registration Act 2002 imposes strict controls on tacking and any obligation to make further advances must be registered at the Land Registry.  The Act limits the priority of a registered advance to the original advance and any further advances that the lender is obliged to make.

In this case, A (the first charge holder) and B (the second charge holder) had security over property owned by Black Ant pursuant to facility agreements of which both lenders were aware. A’s charge was an “all monies” charge (meaning that the charge covered all amounts which Black Ant owed to the lender under any arrangements (including future arrangements) regardless of how they arose). A had also registered an obligation to make further advances but there was no such obligation under the loan documentation and therefore the registration was of no effect.

After B’s charge was registered at the Land Registry, Black Ant signed a number of new facility agreements with A incorporating fresh terms. The amount of the facility was increased on each occasion to reflect unpaid interest but no new money was actually advanced.

B claimed that each new facility agreement was a new or further advance and as A’s original charge did not contain an obligation to make further advances, A could not use its charge to gain priority over B’s charge for these new facilities.

The court looked at the language of the statutory provisions and their purpose.  The ordinary meaning of “further advance” was an advance of further or additional funds. The purpose of the statutory provisions is to ensure that a first charge holder does not obtain priority for an advance which a second charge holder was unaware that the first charge holder had made or was obliged to make.

The court held that in respect of the new facility agreements a deemed repayment and further advance would not have served a useful commercial purpose as the effect would have been to destroy A’s priority and this would not have been the intention.  Furthermore, A’s account showed no credit and debit entries reflecting a repayment and new advance.

Even though the new facility letter included the words “this offer is in substitution of and not in addition to all our previous facility letters to you which shall be deemed cancelled”, the court’s view was that there was no intention for a new contract but merely a variation of the existing terms.  The unpaid interest and fees in the new facilities were just amounts secured by the terms of the original charge which were contractually due and would have to be demanded to make them payable.  Rolling them up in the new facility letter was not regarded as making a further advance.  This judgment was upheld on appeal.

The lessons to be learnt from this are that if there is a subsequent charge in place and the original lender needs to amend the terms of its initial lending, it must be clear that the amendment is just that and not a replacement of the original facility.  In addition, any repayment/redrawing would suggest new funding and therefore should be resisted in these circumstances as the lender could lose its priority.

Case: (Black Ant Co Ltd (In Administration) [2014] EWHC 1161(Ch) (15 April 2014).